actuarial equivalence under 401(a)(9)(C)(iii) per SBJPA 96

[Guest meggie]

How are benefits computed for non 5% owners once a participant retires well after attaining age 70.5? (The plan has been amended to defer payments for non 5% owners to retirement which could occur after attaining age 70.5)

I have notice 97-75 which defines the actuarial increase start date (namely the 4/1 following the calendar year after attainment of age 70.5, or 1/1/97 if later.) I need assistance in interpreting Q&A 2 and 3 of this notice. My initial reading tells me that once the person is beyond age 70.5 (ex. retires at 75), that the benefit he will receive beginning at 75 will be no less than the actuarial equivalent of the benefit he would have received on the 4/1 following the calendar he attaind age 70.5, plus any actuarial adjustments thereafter until the age he retires (age 75 in my example). In other words, it doesn't matter if the person received a suspension of benefit notice at age 65 (NRA), the fact of the matter is that at age 75, his benefit needs to be computed as if no suspension notice had been provided. Has anyone had to deal with this yet?

Thanks!

[MGB]

That is my understanding, too. This overrides suspension of benefits.

In an old EA Meeting Q&A from the Gray Book, the IRS indicated that this should be the same type of actuarial adjustment as for post-retirement actuarial adjustments. Taking that a step further, that would mean (assuming you follow the proposed regulation from 1989) this is a year-by-year calculation. First you determine the greater of the actuarial adjustment or new accrual in the first year, then the second, etc., instead of just one actuarial adjustment from 70-1/2 to 75 and comparing it to the full accrued benefit.

[Guest meggie]

Thank you for your response. Does the actuarial equivalence you describe start with age 70.5, the 4/1 following the calendar year attained age 70.5, or age 65 (NRA)? Notice 97-75 confuses me in that in Q&A #3, it states that the actuarial increase must be provided while in section 203(a)(3) service. A literal read of that could mean going back to age 65 , or does it really mean section 203(a)(3) service beginning with age 70.5?

Again thanks for your input.

[MGB]

I think they mean 203(a)(3) service after 4/1 following 70-1/2.

From Q&A 34, 2000:

"The age 70½ actuarial adjustment requirement was intended to prevent an employer from continuing to suspend benefits once the plan was no longer required to commence payments at that age. Congress merely intended that participants would not be disadvantaged by the change. In a plan that does not suspend benefits, the increase may be voluntarily triggered at an earlier date such as the plan’s Anniversary Date without restarting at the specified April 1 start date.

The required actuarial adjustment is intended to follow the method used for purposes of section 411(B)(1)(H). It is not necessary to provide more than the greater of the actuarially increased benefit or the benefit with additional accruals."

What they mean is that a plan could not suspend benefits after 70-1/2 under previous rules. Therefore, given that there was no suspension allowable, you now must give an actuarial increase (or benefit accrual if greater), rather than reverting to old-old rules of allowing suspension.