Gary

I specialize in reviewing pension distributions. If you are interested in a thorough review to ensure you receive all you're entitled to, you can contact me at mevoco@mindspring,.com. My website is pensionright.com. That site was not operating and may be down for a few days more. If that is the case you can also find out about my services at www.mindspring.com/~mevoco Gary

My understanding is that a Plan has a great deal of flexibility w/r/t the definition of compensation for determining accd benefits. i.e. for example, it can include 401(k) deferrals or exclude them. However, for discrimination testing there are strict guidelines w/r/t the definition of compensation. i.e. 414(s) definition. Is my understanding on target?

Len What you describe seems uncommon, but also legal. gary

I possess the 71 TPF&C mortality table. I have seen where the assumptions in a Plan require a ratio of rates from the 71TPF&C male and female tables. Since I only have the one table (presumably a male table) does anyone know of the difference between the male rates and the female rates? Or have the two distinct tables?

Thank you MGB, I appreciate your detailed answer. So the final regs became eff 5/27/81. Then say a person reached age 65 in 1977, would a suspension notice be required in 1981 when the regs were finalized? So then I presume that these final regs could be found in my Pension and Employee Benefits Book that contains regs and code. Or have these original regs been entirely superseded and would therefore look nothing like it did in its original form? Thanks again.

Does anyone know when the requirement to prvide suspension of benefits notices for employees working past age 65 became effective and where I can find legislative history on that topic? Also, what transition issues were implemented for employees already over age 65 at the time of this change?

I'm not sure if I understand your question, but w/r/t whipsaw, this occurs if the interest crediting rate exceeds the lump sum interest assumption. So if that is the case then you would project the balance to norm ret age, compute the NRD accd ben and then determine the prsent value using plan lump sum assumptions, which must include the 417(e) minimu requirements.

OK Harry O I think we are on the same page now. I too feel that there is 411(d)(6) protection for this change. The most common, I would think would be based on basing the lump sum of accd ben at time of change to 100% rates and any future accrual to 120% of rates. A person terminates with a total accd ben and I would think that the entire ben must be applied to some assump. So I would think of AB as being preserved on a certain basis as opposed to just rpeserving the dollar amount you mention. what are your thoughts? do you have any thoughts w/r/t the other part of my question related to eff date v adop date? gary

I think we have gotten off the subject. Please refer to my original question. It references GATT, but it does not have anything to do directly w/ Gatt. It has to do w/ applying an amendment based on one effective date and a much later adoption date, and w/ 411(d)(6) protection when going from 100% to 120% PBGC rates. I believe this change was afforded 411(d)(6) protection up to a certain point in time, such as thru 1989, but i dont know that it had this protection as late as 1996. any thoughts?

I thought that one year transition is related to amending plans to GATT and relates to 411(d)(6) w/r/t changing to GATT. In any event I am also addressing the issue of eff date and adoption date as well as 411(d)(6) for this type of change.

A Plan amends lump sum provision from 100% PBGC rates to 120% PBGC rates (dist over 25k). Eff date of 7/22/96, adopted 9/12/97. Say participant receives lump sum 9/1/96. S/ lump sum use 120% rates or 100% rates? Say part. receives lump sum 10/1/97. S/ entire lump sum be based on 120% rates or s/ accd ben as of 7/22/96 be based on 100% rates and accrual after 7/22/96 be based on 120% of rates. That is, is there 411(d)(6) protection in this case? Thanks, Gary

Laura, do you know what section of 401(a) is violated? Of course, plans can have varying reductions w/r/t the maximum excess portion of an excess plan. That is based on the SSRA. For eg. the max. excess is .75 for a person w/ a SSRA of 65 and it is .65 for a person with a SSRA of 67. So I was wondering if they could do this for the entire benefit, but I don't know where this authority exists. I will look at SBJPA. Although I would have thought this was a relevant issue prior to SBJPA.

I think you have it laura. Yes the age 65 benefit was reduced by 5% because it was one year prior to SSRA. Can a benefit at NRA be reduced? And this was done for those retiring prior to NRA, not for those who work to NRA. ANy thoughts on this?

If that age 65 amount is the frozen benefit used for the opening bal to a cash bal plan, then it probably is the pvab of the age 65 ben, computed at time open bal is determined. SO if age at time open bal is calculated is say 55, then PVAB = age 65 ben * (N(12)65 / D55), under open bal assumptions.

lump sum of deferred annuity is N65 / D55 11/12, using 5.5% and app mort table

A Plan provides that NRA is 65. For those working to age 65, they are paid their full accrued benefit. For those retiring prior to age 65, their benefit is reduced 5% per year from SSRA. So for eg. a person has a SSRA of 66, terminates at 61 w/ a vested benefit right. The Plan paid the lump sum based on his age 65 normal ret. benefit. And this benefit was reduced by 5% even though it was as of NR date. Can age 65 NRA base (not excess portions) benefits be reduced at NRA? Especially where it is done for certain participants and not others. Any thoughts on this?

I agree with what you're saying Pax. I just wasn't sure of when these requirements took effect, given that this individual reached 65 in 1981. I was wondering if the suspension requirement and the accruals after NRA all became effective on 1/1/88 (or thereabout). And if that would mean that these rules would begin say at 1/1/88 and not age 65 in this person's case. Just curious about the logistics in this situation.

A person is born in 1916 and retired in 1999. It appears that this person was not required to receive a pension at 70 1/2, since she was over 70 when this became law. I believe this became effective 1/1/88 or 1/1/89, as part of either TRA '86, OBRA '87 or ADEA. However, wouldn't the plan be required to provide this person with a suspension of benefits notice? I am not sure when this became effective, but even if it became effective say 1/1/88, and she was well over 65 at this time, it would appear that they s/ provide the notice then. The plan does notprovide for an actuarial increase to the pension for working past age 65 (NRD). Any comments?

For an immediate annuity the formula is: N(12)x/Dx, where x is current age. Of course you would need to know the specific mortality and interest assumption to compute this. Which is expressed in first principles as: 1+ vpx + v^2(2px) + v^3(3px) + ... And for a deferred annuity to age 65 the formula is: N65/Dx, where x is the current age. In first principles it is: say x = 50, v^15(15p50) + v^16(16p50) + ... Of course one needs to know actuarial mathematics to follow this.

A person worked until age 65 1/12. Is the Plan required to provide suspension of benefits notice in this situation (so close to age 65)? The plan did not provide for an actuarial increase of benefit and the person's accd ben did not increase after age 65.

One final comment. So then if say the avg pay = 40,000, and the SS ben = 12,000 (at age 65) and the person has five years of service his accd ben for 133 1/3% accrual rule purposes is under our current plan design: .015 *5 *40,000 - 2/3 * 12,000 = 3,000 - 8,000 = 0, thus still no accd ben And for 411 testing his accd ben projected after say 15 years (but computed today) would be: .015 * 40,000 (remains constant)*15 - 2/3* 12,000 (remains constant)= 9,000 - 8,000 = 1,000. Clearly, this goes from a 0% accrual rate to an accrual rate greater than zero (whenever it actually occurs) and violates the 4/3 rule. This demonstrates how it fails 411's 4/3 rule, given that the accrual pattern is to be carried out for testing as opposed to just basing the test on the plan formula. Is it confirmed that this test must be done, by carrying out the accrual pattern?

Was the company from Chicago? Back to our original point. So you stand by the position that you don't just go by the gross accrual rate, but you compute the actual pattern of accruals for a participant, based on the required assumptions of level pay, etc. One point about 71-446. Section 11 (Early ret under offset plans) states that for a benefit payable no earlier than 65, the plan is properly integrated if (in one case) "The old age insurance benefit which the EE would be entitled to at age 65 is based upon the assumption that he will not receive after severance any income which would be treated as wages for purposes of the SS Act." This implies to me that if the SS ben is based only on comp while covered by the PLan, then no pro ration is necessary and it just has to be less than the max allowable offset (83 1/3%). SO that was where i thought that perhaps the SS ben was done legitimately and that then the Plan by design strictly based on the gross formula, passed 411. However, all of this is moot, if you have to check the ACTUAl accrual pattern as I understand you believe and what I think as well, but for various reasons play devil's advocate.

Alonzo and Pax. Thank you for your excellent responses. I will read the reg you cited very closely. I agree with your methodology of frozen comp and SS benefit. However, my concern was that you compute the benefits for each year whne doing the 3% rule and the fractional rule, but the 133 1/3% was just design based, thus if the formula was 1.5% on the gross end and the SS benefit complied with 71-446, then the rate was 1.5% and maybe passed the 133 1/3% rule. Of course, when testing the benefit accrual year by year, it obviously fails, since the accd ben. is zero for several years. So, now my question is: Where in the regs of the 133 1/3% rule, does it say that you have to test the actual benefit each year, as opposed to just observing the rate based on the plan formula? In that litigation case you were referring, who discovered this error and filed suit? That is, was it an individual or a lawyer, etc.?

I don't know, but I personally can't see concerning myself over that until it happens.

The Plan sponsor states that the Plan meets the 4/3 rule by design. Based on the gross portion of the accrued benefit, which is simply 1.5% per year, I agree it would pass. However, the SS offset causes benefits to be zero for short service employees. The gross portion of the accrual is a unit credit accrual, and the offset is 66 2/3 % of the SS benefit, with no unit credit accrual or service prorate. So it would seem to violate backloading issues and fail 401(l) as well. The SS benefit is supposed to be based on pay with the employer only, and one might say that this sufficiently applies the accrued SS benefit and does not have to be prorated. However, we still have zero accruals for several years for new employees and the result still causes backloading. The question is, how does it specifically violate 411 (not just by saying a backloading violation), and fail for eg. the 4/3 rule? And what is a suggested or possible remedy to this formula?