Suspension of Benefits

[Guest sdolce]

A participant retired at age 62 (his Early Retirement Age) and elected to have his benefit paid as a 100% J&S monthly annuity. After two years off payroll he was re-hired and his benefits were suspended with the proper notice given.The notice also contained a statement from the plan sponor to the effect that any payments missed during the suspension period would be made up when the particpant finally went off payroll. The plan sponsor says that this information was give to him by the plan's prior actuary.The plan makes no mention of any "make-up" contributions other than the standard 3-month catch-up required by the regs. The participant is still employed and is now past what otherwise would have been his Normal Retirement Age.The plan permits in-service distributions to participants adfter NRA.Questions are as follows:

1. Does the fact that the participant had retired and had started benefit payments preclude his re-entry into plan upon his re-employment? In other words,is the suspension of benefits supposed to keep him in the category of "retired,in receipt of benefits" as far as the plan is concerned?

2. If not,is he entitled to additional accrued benefits and post-NRA adjustments as per the plan?

3.Since the plan sponsor has already "committed" himself to the make-up of the suspended benefits is there anything to prevent the plan from being amended to allow for it?

4.Any opinion as to whether the post-NRA in-service distribution provision can be used to justify re-commencement of benefits,with or without adjustment per item 2. above?

5. If he is entitled to additional accruals must a new J&S notice be given at such time as benefits re-commence?

[MGB]

1. Suspension of benefits is a forfeiture of the benefits he would have received...it is not a suspension of future accruals. He must be allowed to reparticipate and get additional benefit accrual.

2. Yes.

3. Yes you can allow for it. You may already be in the situation that it is part of the plan due to its being communicated. I'll leave that to the attorneys though. I am not sure what your "made up" language means technically. The typical provision is that they receive an adjustment to future benefits that is the actuarial equivalent of the missed payments. When this provision is in place, there is no reason to give the person "the proper notice" because they are not suspending benefits...they are only postponing them. Suspending benefits means that a forfeiture occurs (is not made up later).

4. It depends on what the provision is. Is this an automatic in-service distribution, or an election by the participant? Even if he recommences, there will be additional accrual with payments each year adjusted accordingly.

5. Various opinions out there on this. The IRS leans towards a yes.

[Guest sdolce]

Thank you very much!!

[david rigby]

I agree, except that I think Item 4 cannot be mandatory.

[Guest Keith N]

I would like to ask a follow-up question.

I have a situation where a participant reach age 65, received a lump sum distribution, but never separated from service. Lets say this happened in 1996. (The plan allowed for in-service distributions at NRD, so I don't think that is an issue.)

It's now 5 years later and the participant wants to actually retire and requested a payment for his service since since 1996. The Plan states that "the monthly retirement benefit shall be offset by the actuarial value of the total benefit distributions made by the close of the plan year"

Since the actuarial equivelant of the lump sum paid in 1996 is greater than the accrued benefit in 2001, ignoring the payment, it seems to me that he is not entitled to any additional benefits. Q/A-2 of Notice 97-75 seems to also bless this method.

This is not going over well with the participant. Does anyone have any problem with this?

[david rigby]

Careful review of plan provisions needed of course, but I agree with you: no additional benefit.