411(d)(6) early ret subsidy

[Gary]

a plan makes an amendment to the early ret factors. the age 55 factor is changed at 1/1/95 from 0.5 to 0.3.

a person retires on 1/1/02.

the plan makes no specific provision for protecting the old subsidy.

at retirement the plan compares the 1/1/95 accd ben with a erf of 0.5 v. the 1/1/02 accd ben w/ a erf of 0.3. it turns out that the 1/1/02 accd ben w/ an erf of 0.3 is the larger one. and thus the plan says that the old benefit was preserved.

the question is that w/ no specific provision as to how to handle the protected benefit is it reasonable to use their technique or s/ the benefit be the 1/1/95 accd ben reduced at 0.5 plus the accrual after 1/1/95 (1/1/02 accd ben less 1/1/95 accd ben, thus giving the same total accd ben at 1/1/02) using the 0.3 factor. clearly this would produce the largest benefit, but the plan was silent as to how to handle this. any comments?

gary

[Mike Preston]

Absent specific language to the contrary, my gut feel is that the result should be consistent with a wearaway approach. But I wouldn't be surprised if a participant had a different view. See if you can round up each and every piece of benefit communication that dealt with the change. There may be a surprise in there that would give you some guidance as to what was expected.

[MGB]

I agree with Mike. The general default rule is a wearaway (as your calculations are doing); it takes additional affirmative language to create a fresh start adding two pieces together.

Although there is no specific language concerning this amendment, the plan probably has a general statement somewhere in the plan following the language of 411(d)(6)(A), which is the basis for the default wearaway.