change to nondiscrim (and why I disagree)

[Tom Poje]

with svc pack 8 at 6.0 a change was made to the nondiscrim calculation involving permitted disparity.

first, I will say two things. I have been wrong before, and I will be wrong again, I am merely stating why I disagree.

2nd, I didn't see any indication of this change in the svc pack 8 notes, but I could easily have missed it. It caught me by surprise, but I didn't read every single thing in the notes.

anyway, with svc pack 8, if you impute disparity, the factors are now adjusted for months as well. Reg 1.401(l)-3(e)(3) clearly states that this is required when using an age other than SSRA, so there seems to be a basis for this argument.

however, 1.401(a)(4)-12 definitions says (1) If the plan provides the same uniform normal retirement age for all employees, the employee's testing age is the employee's normal retirement age under the plan.

now, for example using the Corbel document (though I am sure other document are similar) I have

Normal retirement age = 65, normal retirement date = 1st of month coincident or next following.

so now the system no longer tests on normal retirement age, but rather normal retirement date. and that is the crux of the matter.

but, for the sake of argument, lets suppose that I am to use normal retirement date as my testing age rather than my normal retirement age.In that case, I have someone whose mormal retirement is 65, another whose normal retirement will be 65 and 1 month. I no linger have a uniform reirement age.

therefore, I must use 1.401(a)(4)-12 testing age (3) if the plan does not provide a uniform retirement NRA, the employees testing age is 65.

I am back to testing age 65 rather than 65 and 1 month as a testing age.

and 1.401(a)(4)-7©(4)(iii)(B) says the .75 percent adjustment, pursuant to 1.401(l)-3(e) using as the age at which benefits commence the lesser of age 65 or the employees testing age.

Note this is the lesser of 65 or the testing age, so using 65 and 1 month makes little sense to me.

actually, in this case, if one does not have a uniform retirement age, then one could test using SSRA, as permitted under the SPBJA changes (though one has to be careful there because of other testing concerns)

if you agree with the above argument, then you will have to code your plans 'date of event' rather than 'first of the month following'. while this might not quite coincide with your document, it is what I have to do for now. In a DC plan this date is almost insignificant anyway.

[Guest Rosemary Raymer]

Tom - Hasn't Quantech always done this? I have always told my clients who set up cross-tested plans to choose and age with no service requirement for normal retirement, then "date of attainment of age and service" because if they use, for example, 65 and 5 years of participation, the APRs vary too much from person to person. I like to be able to use a spreadsheet to check my numbers, and different APRs are cumbersome. Maybe that's why it isn't in the SP8 notes? Or am I misunderstanding your issue?

[Tom Poje]

Rosemary:

it used to be when you imputed disparity, ees with SSRA age 67(and comp < TWB) would have .65 added to their E-Bar.

now the system adds .654. I know, maybe the extra .004 is considered insignificant, but sometimes even that much can cause a plan to pass/fail.

I am not denying that the regs say to use .654 if an ees NRA is 65 and 1 month. the regs are clear on that.

however, consider one ee born on 1/1/00 and another born on 1/2/00

them the retirement 'age' for one is 1/1/65 and the other is 2/1/65. now I have a non uniform retirment age. and once I have a non uniform age, I have to use a common testing age of 65. (not 65 and 1 month)

(I actually disagree further from the standpoint most documents define a NRA (65) and a NRD (1st of the month following). I don't want to use NRD, I want to use NRA. Again, I could be wrong in my reading of the regs and you are to use NRD, but then I am stuck with the non uniform age rule and I am back to having to use 65 as described above.

I have no problem using 65 / 5, mainly because once an employee gets past age 60 or so, the E-Bar is low enough that it isn't going to help much one way or the other.

[Sue H]

Hi Tom,

You are correct, the cite you list was overlooked when some adjustments were made to "tweak" the calcs. A correction is being tested now. If you have a particular plan you'd like us to look at, feel free to send it along.

Thanks for letting us know.

Sue

[Tom Poje]

Thanks Sue, I actually figured Relius would be working on an adjustment.

I wanted to make sure others were aware of the issue as it can effect things.