DB plans integrated with Social Security

[Guest meggie]

Isn't true that for a DB formula (ex. 2%x FAE(5)xyrs (max 30)-1.667%x PIA x yrs (max30)) that the plan may define PIA in one of 2 ways for a person who leaves before NRA under the plan (say NRA=age 65)?

1. Assume zero future earnings for PIA purposes, or

2. Assume level future earnings for PIA purposes

Is the story different if the formula is projected to NRA and then prorated based on service at termination? So in that instance, the plan would need to assume level future earnings to NRA for the PIA?.

In either instance, the SS law in effect at termination would determine the PIA. My question really relates to whether or not it is required that level pay be recognized to get at the PIA offset when the DB benefit is projected to NRA under the fractional rule. Would level pay for determining FAE in the gross formula be required in this example?

I thought this was an issue several years ago- maybe not now?

Thanks

[AndyH]

Meggie, social security offsets have not been safe harbor plans for many years now. Since any such plan is not a safe harbor, you can do virtually any reasonable variation. But, it has to be general tested.

[Guest Harry O]

Most PIA offset plans that I am familar with impute $0 earnings if you are retirement eligible and current earnings if you are a vested terminated employee. Obviously, it is better to have $0 earnings!

I think that this arrangement may not satisfy the PIA offset safe harbor in the section 401(l) regs (although I can't swear to it since I never had a client rely on this safe harbor).