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Suspension of Benefits for Continued Employment Started When?

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General question - when did it become standard practice to issue suspension of benefits notices for plans that don't provide actuarial increases and that have suspension of benefits notice language?

This might be more of a question for the old timers. I recall automatic actuarial increases for this becoming standard (worked at a large firm at the time) in the early 2000s - perhaps 2004.

I don't remember it from before that. Was the IRS pushing any plans, let's say, in the 1990s, to provide actuarial increases for failure to provide Suspension of Benefits Notices at normal retirement if the plan document stated the boilerplate (return to work) language only, and where the benefit was clearly defined as service and pay at late retirement date (presume over NRA, but under 70 1/2).  

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I can only speak for myself, but the issue became more important after an IRS response to a graybook question.  I don't recall the year, but think it was early 2010s?  IRS has subsequently echoed same position, which is, if you don't issue an SOBN, you need to provide BOTH the age/service, plus the actuarial increase.  

In your example, your procedures are not in compliance with the document.  Your are not following plan provisions by not supplying a SOBN to people working beyond NRD.  You must provide the rollup to avoid a 411(d)(6) cut back on the existing AB, and the IRS would argue that you need to provide the additional accrual because you never suspended the benefit.  

Current IRS position is that your plan must specifically include "greater of the two" language in order to offset the accrual by the rollup.  Without that explicit language, you need to give both.

I think some of this was codified in the first sets of 417(e) regulations.  

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Yes, I agree on the issuance of the notice, the document is as I mentioned above (i'm not the plan administrator in this case and don't have long-term past involvement). The language is antiquated (which from what I've seen isn't out of the ordinary, though some of the documents for my clients plainly state how the SOB process applies to continuing individuals who never sever employment). The curious part is that the participant lists (the requests to show S.O.B) include individuals who go as far back as NRD in the 1980s and retirement in the 1990s. I'm thinking that those participants are out of bounds, as I don't recall in the late 1990s and early 2000s that such language (the boilerplate return-to-work language) was considered to be applied to participants continuing to work. 

This document does not have the common A/B comparison of A = NRD plus late retirement granted (SOB or not) , B = service and pay through termination at a later retirement date, it's just old SOB language and the B portion. 

But again, going back to retirees from 30 years ago as part of the request is a little odd. 

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The footnote to the ERISA regulation noted here is the language that follows it:

29 CFR § 2530.203-3 - Suspension of pension benefits upon employment.

(Approved by the Office of Management and Budget under control number 1210-0048)
[46 FR 8903, Jan. 27, 1981, as amended at 46 FR 59245, Dec. 4, 1981; 46 FR 60572, Dec. 11, 1981; 49 FR 18295, Apr. 30, 1984]

As you can see, this goes back to the 80's. I seem to recall that pension plans could cease accruals after NRA and that either TEFRA, DEFRA or REA outlawed that and in conjunction required SOBs or actuarial increases. I started my career in 1984 (dang! where does the time go?) and remember there were a lot of pension legislation changes as the protections of a then-young ERISA were built upon in addition to using pension legislation as a tool to shape federal tax policy. The more things change, the more they stay the same!

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I think the lack of clarity here surrounds this under that regulation:

>..solely because an employee pension benefit plan provides that the payment of benefits is suspended during certain periods of reemployment which occur subsequent to the commencement of payment of such benefits.<

Most of the boilerplate in documents says the same thing and describes procedures to comply with that (that employees shall notify their employers and employers shall notify employees in receipt of benefits that their benefits will be or have been suspended - in writing). 

Again, I'm not a TPA or counsel, nor a plan administrator, so I'm viewing this more from the lens of when did it become accepted on a widespread basis that the boilerplate mentioning reemployment also covers individuals who never severed. This definitely wasn't standard practice when I first started (1999). 

It's accepted now that no notice, no ability to suspend benefits without actuarial increase, regardless of reemployment or not, but it does strike me as odd that the regulation wouldn't flatly state that leaving something usable and clear in a plan document assigning responsibilities, etc. 

Since I'm clean up crew in this case, it's more of a curiosity, though - I'm calculating values for issues that occurred over a period of time when I wasn't the actuary. 


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  • 2 weeks later...

I've been doing this since 1982 and I don't recall a generally accepted change in how ongoing participants versus rehires are treated for SOB purposes.    Back them I believe that most DB documents were individually designed so the provisions would vary from plan to plan.   I don't recall a pattern of change, except for the age discrimination rules.

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Thanks, Andy. I guess I'm confusing my experience with when my employer at the time cracked down vs. what the overall guidance was (that's entirely possible - not saying that sarcastic in any way). 

Where I was working, we did a sweep somewhere around 2004? Not sure exactly when, probably coinciding with some kind of updated DOL or IRS guidance. 

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  • 3 weeks later...

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