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Actuarial increases to unreduced early retirement benefits?


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Plan provides that normal retirement age is 65.  However, early retirees and vested terminated participants can elect to receive unreduced benefits as early as age 60.  Is there any requirement that benefits be actuarially increased if a terminated vested participant does not apply for benefits until, for example, age 65?

The only authority I can find on this is Code section 411(b)(1)(G) and Treas. Reg. section 1.411(b)-1(d)(3), which say that an accrued benefit cannot be decreased on account of increasing age or service.  From an intuitive standpoint, it would seem obvious that if you can get a particular monthly benefit at age 60, providing only that same monthly benefit at age 65 constitutes a reduction in the benefit (because the same amount will be received for fewer years).  However, Code section 411(a)(7) defines the accrued benefit as "in the case of a defined benefit plan, the employee’s accrued benefit determined under the plan and, except as provided in subsection (c)(3), expressed in the form of an annual benefit commencing at normal retirement age."  (Subsection (c)(3) deals with the portion of the accrued benefit attributable to employee contributions, and is not relevant here.)  So since the plan is not decreasing the amount payable at normal retirement age (age 65), is it free simply to tell the participant who applies late, "Sorry, we know you could have started receiving full benefits at age 60 if you had applied on time, but because you didn't, you won't receive either a make-up for the missed payments or an actuarial increase"?

 

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2 hours ago, Carol V. Calhoun said:

... is it free simply to tell the participant who applies late, "Sorry, we know you could have started receiving full benefits at age 60 if you had applied on time, but because you didn't, you won't receive either a make-up for the missed payments or an actuarial increase"?

 

Yes.

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I agree with Mike.  

Many plans that offer highly subsidized early retirement benefits only offer them to those participants who go directly from active to retired status.  IOW, in order to receive the subsidy, you must be eligible to retire at the time you separate from service.  If you terminate prior to being eligible to receive a retirement benefit, often a different set of early retirement reductions would apply.  You might want to re-check the document to make sure the unreduced early applies to all terminated participants.  Either way, you do not need to provide an early retirement subsidy to a participant who didn't make a timely request.  

I guess that assumes they received an SPD and the benefit was clearly defined in the SPD,  IOW, if they were never notified the benefit exists, the DOL may take an interest.

 

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5 hours ago, Effen said:

I guess that assumes they received an SPD and the benefit was clearly defined in the SPD,  IOW, if they were never notified the benefit exists, the DOL may take an interest.

Agree, need to make sure this provision has been adequately communicated.

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Thanks, @Mike Preston.  That seemed to be the result based on what I could find, but proving a negative is always tough.

@Effen, that is what I was finding so odd.  This plan clearly allows the subsidized benefit even to terminated vesteds, but only if they apply for it on time.  So it puts a premium on someone who has perhaps been gone for years remembering that the subsidized benefit exists and applying for it during a fairly narrow window.

Anyway, thanks, all!

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