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.

Question on late retirement increases. Assume everything above board re: more recent DOL guidance (late retirement increase required for TVs, and for actives where plan either: 1) doesn't have suspension of benefits language 2) has the language but notice not provided In this case, the plan has SOB language (touching only on the rehire circumstance and suspending benefits then but treating the benefits for actuarial adjustment purposes as if they've stayed in payment) and client has been providing notices to participants past NRD, but only restarted doing so in recent years. The case circulated through a few different actuaries, administrators after splitting from another plan eons ago. Other plan stayed with same counsel the entire time and language is clear (This is for background, not implying that another plan's language has bearing on this plan) - benefits suspended at normal retirement date if participant continues to work and benefits at a later date will be those earned at actual retirement, including service and pay). However, the subject plan has been "boilerplated" and sloppily so by previous actuary/administrator (I can't imagine legal counsel put the doc together). SPD and document only discuss rehire for SOB, and plan document says late retirement (again, boilerplate language) will be NRD benefit plus greater of new benefits earned or "Late Adjustment" required under the plan. capitalized, no verbiage elsewhere and assuming that's also boilerplate as it wasn't in the original doc before split. No definition of Late Adjustment method that's capitalized - assuming either the description was taken out elsewhere since no definition or detail refers to this anywhere else. SPD in this case is short, also boilerplate in nature (looks like bits and pieces thrown together). SOB language is old school "if you return to work, your benefit will be suspended", and no mention of what participant will get except for early and normal retirement. Please pick apart my conclusion (waiting for green light to get opinion from legal counsel). More important in this plan than some others (in terms of the decision) due to the proportion of over 65 participants. * SOB language only talks about rehires, but in general, that still counts in determining if plan allows SOB at normal retirement and no actuarial increase * since the mother plan more clearly describes no late increase until 401a9 required, I'd like to see far more in terms of intentional adding of a late retirement adjustment (including an actual adjustment description or method that appears to be missing) * with a combination of the two, applying actuarial increase through the date that SOB notices were restarted, and then for older participants who work well past 70, starting again at what would have been RBD (4/1 after CY that 70 1/2 is attained).

I agree with your comments - where things fall apart is the lack of actuarial increase in the plan. If the participant starts at a later age, the actuarial value provided to the annuitant is less (ignoring the mismatches you're describing, I've seen them, too) until the participant is at RBD - then the mandatory increases are provided until his actual late retirement date. I described this to fund counsel as a photographic negative of a QDRO that provides the early retirement subsidy to an alternate payee without requirement that the participant retire (in that case, the participant's benefit is reduced if the participant doesn't retire early). That is uncommon, but I've done it probably half a dozen times due to QDROs that provide a nominal benefit amount, or that allow the alternate payee to receive a subsidy (without commenting about who is paying for it if the participant doesn't retire early to receive it).

No actuarial increase in this case (it is multiemployer, the participant is given a suspension of benefits notice and in this case has chosen to continue to work in the same industry, which prevents him from receiving benefits in the plan). If he was working in this particular plan (instead of just in the industry), he would continue to earn benefits, but not be provided an actuarial increase. Because of the industry tie-in, until he chose to retire at 74, he would've just been earning benefits in another fund instead. That muddies the water here, as it would be actuarial equivalent if he were provided late retirement increases after normal retirement. I received an opinion from counsel that the actions of the participant not affect whether or not the benefit is actuarial equivalent after the alternate payee starts if the alternate payee didn't receive a subisidy from the plan. I'm satisfied with that. Counsel has asserted that the statement of actuarial equivalence (in the DOL's rules to be a QDRO) before and after QDRO (this next part I've paraphrased) is not the same thing as I'm thinking as an actuary. As in, it's based on a hypothetical normal retirement benefit, and not an unincreased late retirement benefit as chosen by the participant.

This is a defined benefit plan, of course.

Relatively simple situation. I have a separate interest qdro with the following facts: * the qdro was issued at the participant's normal retirement date (assume exactly, it was close, not sure if a month off). * the alternate payee chose to commence benefits at the participant's normal retirement date (life annuity - no subsidy received in the traditional sense as far as early retirement is usually considered) * the participant chose to continue working despite suspension of benefits. No actuarial increase is provided (benefit is frozen) * said participant is now past RMD. The participant is looking to start benefits at age 74, and will receive the appropriate 401(a)(9) increase for starting past rmd * During the time since NRD, the alternate payee has received benefits continuously, but the deferral period will reflect actuarially equivalent benefits for the participant only for the period after what would've been RBD if said participant had not been active Question: since the plan is paying benefits to the alternate payee that it would not have paid without the issuance of the QDRO, has the participant forced himself inadvertently into paying for the alternate payee's benefit during the period between NRD and what would've been RBD via reduction of his benefit once he starts. That is, instead of receiving his share of the benefit increased for the period past typical RBD, is he required to receive that less an actuarial equivalent amount for benefits paid to the alternate payee? This is a variation on a participant footing the bill for a qdro that allows the alt payee to get subsidized early retirement when a participant doesn't start, but instead of paying for a subsidy, the subsidy is seemingly a benefit reduction (negative subsidy) that he caused himself by continuing to work after NRD. The number of years we're talking about is about 6 1/2 to 7, so the adjustment would be significant.

In my haste, I missed some examples in the 415 regulations that describe the early retirement adjustment for fractional ages. I would assume that I'm overthinking the question above and fractional determination is appropriate if the plan does it (as in, the late retirement increase increments each month, so the calculation of the limit increase should be done to match). In the case of my plan, the lump sum factor is based on rounded age, so I would assume that the conversion of the life annuity amount (which increases on a monthly basis) should be done using regulatory factors (since they are less generous than the plan) on a rounded age basis. Or, in short: * monthly age for the late adjustment to the dollar limit on a straight life annuity basis * convert the dollar limit to a lump sum form of payment at the plan or regulatory factor basis (whichever yields a lower result) using nearest age as the plan does I don't work on small plans. I'd imagine that the dearth of responses here may have something to do with most of these calculations being done with software packages?

In case I didn't mention it, the participant's life annuity benefit is below the dollar limit itself comfortably. It's the generosity of the plan's subsidized lump sum that is causing the problem, combined with an age 62 normal retirement. In re-reading the reg section cited above, I see that it's clear that if the participant's annuity benefit had been at the limit at age 62, there would have been a violation of suspension of benefit rules if the participant hadn't been notified of benefit availability, solely due to the limit remaining static between 62 and 65. In this case, the underlying life annuity benefit has been increasing steadily, but has never reached the 415 dollar limit as a single life annuity (and doesn't now).

By that, do you mean because the participant's lump sum value can drop during the year if the limit (life annuity dollar limit at ages past 65) is based only on the integer age attained? The plan in this case uses rounded age (integer age nearest) for determination of the lump sum value.

I've got a plan with a participant over the dollar limit late in life - this participant wants a lump sum benefit. i don't generally deal with anything other than compensation limit issues, but advanced age (late retirement increase) and generous plan features (subsidized lump sum) are the culprit here - the basic plan is not intended to be generous enough to create limit issues. My question is, if the participant in question is something like 69 and 6 months, is there any guidance on what is acceptable for non-integer ages in terms of calculating the increased (post-65) dollar limit. E.g., if the age 69 calculated limit is $3.2MM and the age 70 calculated limit is $3.4MM (for a lump sum payment form): 1) Is interpolation appropriate/allowed/required? 2) if so, is anything reasonable OK (pro rata in this case vs. a direct calculation at actual age yields a tiny difference. let's say for the sake of discussion that one would be 3.3MM and the other might be $3,301,000) Sensitivity is heightened since the payment form is a lump sum and the participant's separation of employment is far from amicable. (the plan document only has boilerplate language, so method isn't specified, and there is no precedent set administratively because this is the first participant in a very large plan who has ever tripped the dollar limit). No pre-termination issues with lump sum size, the plan is far too large for that.

Hi - I have a cash balance plan that has terminated, and most of the distribution has been completed (95% or so of the plan participants either took their balance or elected to start an annuity). There are, however, some participants remaining who have either not responded or who have actively elected to defer commencement. They are not missing participants. The facts are as follows: * the benefits are cash balance based, with some grandfathered annuity benefits payable if more valuable than the accumulated balance. Unfortunately, the prior actuary and their legal counsel amended the plan so that participants may elect to receive their benefits earned before a certain date in a different form than benefits earned after that date, so participants could potentially elect two different annuity forms, or elect to take part of the balance as a lump sum and part as an annuity, etc. - that is rare in practice, though. * the remaining balances are about $2 million for the group of non-responders and participants deferring. Grandfathered benefits make the actual total lump sum value slightly higher than that, but not much. * the interest crediting rate is treasury-based with a floor (the floor applies and has for five years prior to termination, presumably it would apply indefinitely since the regulations don't state that the rate ever goes back to the index base - at least not that I've read) * the annuity broker has not been able to find someone who is willing to quote for the remaining deferred participants * Legal counsel has determined that every aspect of the plan is protected and must be provided for in the annuity contract My questions are this: 1) Has anyone had any luck transferring benefits similar to the above (or any cash balance benefits where all plan options stay intact) to an insurer. If so, can you let me know who the insurer was so that we can direct the broker to them? 2) Can anyone confirm that the 5-year average interest rate applies in perpetuity now? This seems like a given, but just checking. 3) I have heard others claim that legal counsel has allowed them to water down plan options for participants who refuse to respond when it makes the benefits unattractive to an insurer. The client probably doesn't want to do anything like that given the opinion they've already received, but I'm curious if anyone has experienced that in practice.