DW

In this case, I suggested it. In all cases where the document isn't clear, I recommend it in writing unless I can get a hold of someone at the IRS who will give a definitive answer. A lot of my clients have an aversion to their counsel due to wandering (when asking a question, counsel answers 14 others and charges for all 15), but this one is big enough that it should have a review. I'm surprised there's no clear guidance for this one, though. I don't work on limit plans and get tied up when age-related circumstances arise like this once in a great while. Maybe I'm in the weeds and perhaps people hitting the pay limit in later age would be substantial owners in limit plans.

Thanks, both of you. I'll check the plan amendment, and yes, the NRA benefit is being increased both after NRD to RMD age and then for what would've otherwise been RMD age. So, quite a stiff actuarial increase. Generally a 50% benefit at full service, but actuarial increases can blow past that without any trouble for a late retiree. maybe not a usual situation other than - in my experience - hospitals, where some low-income participants will practically work until they drop. In this case, the employer is unique and many people work late. Counsel who wrote the document is now out of the picture, unfortunately. Otherwise, I would typically just ask counsel to confirm anything that's not clear.

Chat gpt's answers to questions like this are humorous. Sky is blue followed by "contact a professional and read the IRS website". Somehow I hoped that AI would improve finding the harder to find bits of guidance so that questions like this are pondered and answered in five minutes. I guess it's not there yet.

Assume DB plan frozen in 2015, no future credited service or pay - hard freeze. Older participants working significantly past normal retirement have a solid chance of running into compensation limit even if they're well below the dollar limit (pleasant workplace and working very late age full time not uncommon). When I read 415 regulations, I see that the compensation limit is described as being based on compensation earned during "years of service". When you follow the link defining years of service, describes service credited for benefits. Service to the company doesn't stop, but the freeze stops earning years of benefit service. Participants continue to get pay increases as time passes. Assume all participants are full time - no phony active participants "working late in life" but not actually showing up. When doing the final retirement calculation, which years of compensation are allowed: 1) only those earned prior to the hard freeze? 2) years that would've otherwise met the definition for service except for the freeze amendment through cessation of employment (as in, all years of employment, not just years before freeze)?

The plan provides actuarial increase after NRA for all active and TVs, regardless of the reason for late commencement. Thanks for the confirmation - I generally work on larger plans and in-service benefits are only in a few, and even at that, none have lump sums (presumably this would be more common in smaller plans where the original paternalistic intent isn't there).

I should've been more clear. You can call or email the IRS and get an answer. It will be verbally given, and you won't have anything in writing that you can provide as proof, but if it's clearly not allowable, someone will tell you that and why. If having an answer in writing is essential because someone at the potential sponsor is really interested and they want to keep pushing, then it's not free.

Simple question - if a plan is amended to allow in-service distribution (after NRA only, no early in-service commencement) and offers a lump sum, are there any restrictions (beyond high-25 and AFTAP related issues - neither apply here) that would prevent a full time participants reaching NRA (age 65 here) from taking a lump sum? The amendment to the plan doesn't suggest there are any (as in, the amendment could've easily referenced the LS option as being excluded if it wasn't allowable) and the plan is long frozen, but it does seem a bit odd. I can't think of anything other than seeming odd, though - there's no need to suspend benefits since in service distribution is allowed and the only real exposure to the participant (if they take the lump sum and don't roll it over) is understanding the tax implications of taking a lump sum (already covered in literature).

This is a question that the IRS would answer with little effort required on the part of the party asking ( and for free ).

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.

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.

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.

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).

Thanks for discussion, by the way, folks. I figured it would come down to at the very least passing this off to someone else. If poor doc work caused an increase to apply when it didn't before (and a sizable one) in a prior version - I will leave it to legal counsel and the client to decide what they want to do. I can't in good conscience just tell them to play it conservative as that's not what they want to do, and it's not just reading a doc at this point (there are a couple of other little nits that would be good to clarify at the same time).

All TVs get increase without question. SOB doesn't apply to them. Prior versions of the document before split from another plan were clear about suspension of benefits and didn't provide an actuarial increase for actives (as long as SOBs issued). That is, rather than boilerplate "rehire" language that's typical in older plans, the language was robust and stated clearly that benefits for all participants past normal retirement would be suspended (both rehires and continuing actives). Whoever took over the plan restated the document with more boilerplate language and most of the original language was gone. The doc in place has extraneous information that doesn't apply (life insurance, etc, with boilerplate of "will be paid as required under the plan"). There's no life insurance in the plan, but those types of things are provided throughout the document (and not actually defined or described anywhere). The last two amendments (effective prior to restatement date) didn't make it into the restated document, either (so I'm assuming some element of this may be bad doc work). What did end up in the doc was a short passage that says "the benefit accrued each year after normal retirement will be the greater of ... (additional accruals) ... or the prior benefit with Actuarial Adjustment as required by the Plan". What's missing is anything matching the term Actuarial Adjustment or further definition (the actuarial equivalent definitions specifically address payment forms and lump sums, as usual) The revised document and SPD precede our tenure. I think the poor revision history here makes this territory for a legal opinion- fortunately, no situations have occurred prior except for TVs and since a late adjustment is required no matter what for them, there was no real issue.

Actuarial increase before the SOBs were issued - from NRD. No late retirees other than former TVs since then but several from active service in the near future, so no direct comparison because SOBs were never issued before, and since they don't apply to TVs, no effect there.