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The Plan provides that if a participant works past age 65, no retirement benefit will be paid until actual retirement, subject to any required minimum distributions. Once the participant retires, distributions begin and the participant receives an actuarially increased benefit. The Plan is frozen. The Plan Sponsor wants to amend the Plan to force distribution at age 65. Would such an amendment be an impermissible cutback?

I have a plan that currently uses PPA rates for late retirement actuarial increases. No SOB notices, and the retirement benefit is the greater of the Ab with actuarial increases vs continued accruals. The actuarial increase factors are based on rates as of BCD, rather than each 12/31 (it's debatable whether this is OK, but that's not where my questions lies). Assume interest rates at BCD = 4%, 5% and 6% for the 3 segments. Assume age 65 at NRD, and a.e. updates will occur at integral ages in the future (66, 67, etc.). Also assume that the AB as of NRD, with actuarial increases, will ultimately be the final winning benefit. My question is how to determine the segment periods. Depending on how you typically set up your late retirement comparison, you would get different results. The 2 common ways to handle this type of calculation would be: 1. Do the comparison each 12/31 between the prior benefit with actuarial increase from prior date to current 12/31, and the AB determined as of current 12/31. This comparison is repeated until BCD (format of the examples in the 1988 Proposed Regulation). 2. Determine the ABs (based on service, earnings, etc.) as of NRD and each 12/31, and then actuarially increase each of these values from the AB determination date all the way to BCD. Then the greatest of all the Abs with applicable actuarial increases is determined as the final benefit at BCD. This format is what is illustrated in Gray book examples 200-34 and 2007-17. Either way, you typically (should) get the same answer. Even when rates vary, you get the same answer as long as you vary the rates for the appropriate periods in Method 2. However, with the PPA segment rates, there can be a difference (due to interpretation) 1. In Method 1: For the actuarial increase from 65 to 66, benefit payments for the NRD benefit are discounted from age 65 to 70 at 4%, 70 to 85 at 5%, and greater than age 85 at 6%. However, when the next actuarial increase is applied from 66 to 67, the segment periods are being reset to 5, next 15, 20+. So now the benefit payments based on the NRD AB from age 70 to 71 are discounted at 5% instead of the original 4%. This anomaly repeats itself each time there is an update/comparison made, so that effectively the 1st segment rate ends up applying to the AB determined at NRD for more than just the 1st 5 years after NRD. 2. In Method 2: Since the actuarial increase is applied from AB Determination Date to BCD, the segment periods never change over time. So the discount rate for benefits payable from age 70 to age 71, no matter what Does anybody have an opinion or reference with regards to this issue? Personally I feel that the result in #2 is correct (Method #1 can still be used as long as the segment periods are determined as of NRD). Logically it doesn’t make sense to vary the segment periods. This could result in a termination prior to age 65 (who defers benefit beyond NRD) getting a different benefit than someone who works past NRD, but doesn’t accrue a significant benefit after NRD, just because a comparison needs to be done to ensure that continued accruals don’t exceed the NR benefit. If you feel the segment rates shouldn’t get reset for the Abs based on prior date (NRD in example above), should they still get reset for Abs determined at later dates? That is, for the AB determined at age 66, should the segment periods start at age 66, or should they start at age NRD?

Working on a single employer DB plan. For a participant receiving an RMD (monthly annuity) while continuing to work, I have a question with regards to offsetting benefit distributions against continued accruals. Citing 1988 Proposed Regulation 1.411(b)-2 as the latest (and only) governing code/regulations I could dig up. Section (b)(4)(ii) allows for offsetting continued benefit accruals by prior benefit disbursements, meeting certain criteria. One of these criteria is that the benefit payments could have been suspendible (w/o regard to 401(a)(9)) with regards to 203(a)(3)(B) of ERISA (Suspension of Benefits rules). Does this mean that I can't offset future accruals by any distributions made for a month in which the participant worked less than 40 hours (because those payments can't be suspended - did not have 203(a)(3)(B) service for that distribution period)? If you are allowed to offset all actual distributions, then what is this section of the regulation referring to. Also, I assume that if the plan doesn't typically suspend payments (or at least doesn't suspend them as stringently as they could), that this isn't an issue. What matters is whether the regulations would allow them to suspend, not whether they actually suspended? The obvious scenario being when someone is impacted by 401(a)(9), but this plan does have SOB rules in place, but they only do it when the participant works at a rate that is greater than the 203(a)(3)(B) service definition. It may not seem to be a common issue anymore, since in-service RMDs are only required for 5% owners since the SBJPA changes, and those participants are likely to be working more than 40 hours a month. However, I'm working on a remediation project which includes many pre-SBJPA RMDs, as well participants that commenced in-service prior to SBJPA, and the in-service payments were elected to continue. With In-Service retirements after PPA, this issue may have gained additional scrutiny, but I haven't been able to locate any more recent legal guidance. One last question: Another set of plans I'll be addressing allows for benefits to grow even after they've transferred out of the prior plan. This occurs even if the transfer is outside the Controlled-Group. When someone transfers from CG(1) to CG(2), they are treated like a termination in CG(1) plan (this is not in question by the employer's legal counsel - and I agree with this). So for RMD purposes, they must commence benefits under CG(1) plan even though they are still actively working for the employer. The CG(1) benefit can, and often does, increase after "termination". So, in a nut shell, it behaves like an in-service RMD under CG(1)'s plan. Referring to the question above regarding offsets for benefit payments, it appears that all benefit distributions are not suspendible under CG(1) plan, and thus, there will need to be an increase in the CG(1) plan benefit that is being paid? Sorry for the long set of questions, but I haven't been able to locate a single citation (legally binding, or otherwise) that addresses this specific issue. All the examples in regulations/industry publications seem to either gloss over the "suspendible" issue with the distributions, or I'm off-base with my interpretation.