Post NRA testing age

[AndyH]

If somebody works past NRA in a cross tested plan, what testing age are people using for the annuity rate conversion, NRA or attained age?

[mming]

We use the participant's current age since annuitizing a benefit in a cross tested plan is procedurally similar to the calculations performed in a DB plan and would produce a more "factual" representation of the participant's benefit.

[jaemmons]

A participants testing age is generally their NRA, as defined in the plan document. If they have already attained their NRA, determine a participants EBAR based upon their NRA and NOT their current age. Reg Section 1.401(a)(4)-8(B). The current age rule under Reg Section 1.401(a)(4)-12 is disregarded when you are cross-testing equivalent benefits in a DC plan.

[Tom Poje]

I am not so sure on that one.

1.401(a)(4)-12 (definitions)

Testing age

(1) if plan has uniform retirement age for all employees, then testing age is normal retirement age.

thus I could have 65/5 and that is uniform. so an ee hired age 62 has NRA = 67 and one hired 68 has NRA 73.

now

(4) if an employee is beyond the testing age otherwise determined for the employee under paragraphs (1) through (3) of this definition, the employee's testing age is the employee's current age.

so someone who works past NRA would appear to fall under #4.

In fact, if that wasn't true there would be no reason for #4. How is it possible to get beyond NRA for testing purposes? well, my brain might be on the fritz, I can't think of an example at the moment.

Reg Section 1.401(a)(4)-8(B). says a plan doesn't fail this paragraph merely because allocations are made at the same rate for employees who are older than their tesing (determined w/o regard to the current-age rule in paragraph 4 of the definitions of testing age.

consider an age weighted plan that uses the same 'factor' for an ee at age 65 and older. Thus a 65 year old will receive the same allocation as a 68 year old with the same comp. But if you were to look at E-Bars using 'current age, the 68 year old would have a lower E-Bar which appears to be discriminatory. This paragraph says no, it doesn't fail to satisfy this. at least that is how I read it.

I am currently working on an age weighted plan that fits this description. what a coincidence.

[AndyH]

Yes, Tom, you've hit it on the head exactly. Thanks to you and the others for the comments; all were helpful.

I've got an existing takeover PS plan where the owner is 69 and wants to look at redesign. NRA is 65 and he's been the plan for many years so 65+5 P doesn't apply.

So, NRA is 65, attained age is 69. My interpretation is that under the regs you could treat the person as either 69 or 65. If you treat him as 65, you're ok, because of the sentence Tom quoted.

If you treat him as 69, he gets a lower contribution than a 65 year old-potential age discrimination issue (for non-owners).

But, if you then test the age 65 allocation using age 69 assumptions, you will fail, so testing age needs to be treated as allocation age.

So, I was curious what others, and other systems, do. Our packaged system uses the post 65 factors; we override them to use age 65 factors. I'm trying to see if that is still correct and appropriate.

I was curious what others, and their systems, do.

Plus, this presents similar issues for a new comparability plan.

Any other views or comments on this would be welcome. Thanks again.

[Tom Poje]

ERISA Outline Book (9.84) (2001 edition)

'if employee is beyond testing age, employee's testing age is his current year (unless requirements of 1.401(a)(4)-3 (f)(3)(i) relating to accruals after normal retirement are not satisfied)

of course that assumes the plan has a uniform retirement age.

Suppose a plan doesn't have a uniform retirement age. then you would have to use age 65 or SSRA.

.....

software we use also tests on current age, but the latest version uses normal retirement DATE if you impute disparity, rather than normal retirement AGE. Thus, for example, the rank and file increase by .654 rather than .65.e.g. normal retirement age = 65, normal retirement date = 1st of month following.

Reg cite 1.410(l)-3(e)(3) is cited, but I have looked at this and this appears to determining what disparity applies to formulas

(and I guess, in particular, safe harbor formulas) not testing.

A few years ago I posed the very question to Larry Deutsch (of course, he could have always changed his answer by now)

"If this is a DC plan, then under the definition of testing age, the testing age is the normal retirement age under the plan, and the normal retirement date has no impact."

[AndyH]

Tom, so in the case of an age weighed PS plan, it sounds like your system would calculate a lower contribution for someone age 66 than age 65, which is what ours does (ASC), to our displeasure.

And, it sounds to me like your system does not handle permitted disparity correctly for someone past 65. It seems to me that if someone past 65 gets a lower contribution, then the increased pd factor should be used, but if the person gets the same contribution as a 65 year old, then the age 65 pd factor would be appropriate.

[Tom Poje]

Andy-

we are using Relius

Only run a couple of age weighted plans, and I just finsihed one in which I actually have someone past age 65. The system used the same factor as if they were age 65, which is fine because that is the way the document is written. Based on that, I would assume if the document called for a different method, I would have to adjust the number of 'points' the system calculated.

as for the E-Bar calculation, it used the current age on the participant. Because the current age produces a smaller APR, the E-Bar was slightly larger than everyone else, which, as we mentioned would normally be considered discriminatory. and whatever that reg cite says I am ok, cuz I can do this.(if I used the APR for age 65 then the E-Bar would have been the same,)

as for imputing disparity on ees past 65, Iwould have to check and see what the system is doing. I can only recall one or two cross tested plans I handle with an employee past age 65, and by that time I don't need to impute disparity.