Jump to content

Increases after 70.5 for employee in payment?


Recommended Posts

A participant was working while they attained age 70.5 back in 1998.  They continued to work through 2008.  Each year, through 2004, the benefit was increased to reflect additional accruals.  After 2004, there were no increases. 

We're trying to figure out if the benefit should have been increased after 2004 through termination.  I seem to recall a test or rules of some sort for people working past 70.5 and receiving their benefit, something like comparing the present value of the benefit as if it was always being made to the accumulated value of benefits already paid, and if the difference was greater than you increase, otherwise you don't.  But, I can't seem to find this anywhere.

Does anyone recall this?
Thanks,

Link to comment
Share on other sites

Several issues here, but I will assume the participant received a valid Suspension of Benefits Notice when they attained NRA.  The SOBN eliminates the need to provide an actuarial increase from NRD, but the participant is still entitled to plan formula increases for continuing to work.  If they didn't receive the SOBN at NRD, you may have other issues.

However, post MRD, the plan must provide BOTH the actuarial value of the delayed payments, plus any additional service/compensation related increases.

Plan document should detail the specifics of each scenario and there are a few possible ways to handle it.  

Are you saying this 95 year old participant is still actively employed?  

Check out  1.401(a)(9)-6..  Q/A 7, and others.

The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action or inaction. You should obtain appropriate tax, legal, or other professional advice.

Link to comment
Share on other sites

3 hours ago, Effen said:

Several issues here, but I will assume the participant received a valid Suspension of Benefits Notice when they attained NRA.  they did  The SOBN eliminates the need to provide an actuarial increase from NRD, but the participant is still entitled to plan formula increases for continuing to work.  If they didn't receive the SOBN at NRD, you may have other issues.

However, post MRD, the plan must provide BOTH the actuarial value of the delayed payments, plus any additional service/compensation related increases.

Plan document should detail the specifics of each scenario and there are a few possible ways to handle it.  

Are you saying this 95 year old participant is still actively employed?  The participant started receiving the benefits in 1998 and terminated in 2008

3 hours ago, Effen said:

Check out  1.401(a)(9)-6..  Q/A 7, and others.  Thanks!

 

Link to comment
Share on other sites

The participant commenced while an employee in 1998, terminated in 2008.  Increases each year were included through 2004 to account for additional benefit accruals, but I don't see why benefit increases were stopped after 2004 when additional benefits were earned.

Link to comment
Share on other sites

1. In my practice (following plan document of course) when plan is ongoing and someone started in-service distribution, we would recalculate benefits each 1/1 to see if the value of accrual is over the value of benefits received. If yes, benefits will increase for the difference. If no, benefits will stay the same.

2. It is also possible for a participant to reach the 415 salary limit.

Link to comment
Share on other sites

Do you continue to apply the offiset post MRD as well?  I was thinking the offset was only applicable pre MRD, but I can't find anything explicit either way. 

I thought the theory of the offset is that you are providing the greater of actuarial increase (by actually paying the benefit) or the additional service benefit.  Post MRD, you must give both the value of the missed payments (or in your example, the actual payment) and the additional accrual, so it seems to me, the offset would not be permitted post MRD.  

The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action or inaction. You should obtain appropriate tax, legal, or other professional advice.

Link to comment
Share on other sites

Offset is applicable post MRD as long as plan has the language for the "greater of" calculations. Here is excerpt from 1.401(a)(9)-6 Q/A-9:

"The actuarial increase required under section 401(a)(9)(C)(iii) for the period described in A-7 of this section is generally the same as, and not in addition to, the actuarial increase required for the same period under section 411 to reflect any delay in the payment of retirement benefits after normal retirement age."

Here is also excerpt from the 2007-17 Gray Book: The phrase “any additional benefits accrued after that date” are those required under the rules of IRC §411(b)(1)(H), which provide that an accrual for additional service during a year may be offset by an actuarial increase for delayed retirement."

Link to comment
Share on other sites

Very helpful.  Thank you.

 

The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action or inaction. You should obtain appropriate tax, legal, or other professional advice.

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
×
×
  • Create New...