DB plan to CB Plan after termination and then rehired

[Guest cappja]

What are the laws on an employee termiinating in 1994, who was 100% vested with 25 years of service, age 46, who could receive an early retirement at age 55 with full benefits or age 65 with lower benefits due to the SS offset and is rehired on 2/9/98. In 4/98 he receives a letter stating all employees received this letter in 12/97 stating they were going to a cash balance plan. No provisions were made in the cash balalnce plan for a higher amt for him, although the new plan calls for employees with years of service & age combined = 55 years or more (hubby =71), special conversion rates will apply as well as a lower interest rate which would give you a higher opening balance. (Wow, a long sentence) Doesn't the "old

DB Plan" protect his vested interests? Shouldn't upon being rehired, the Co.

offer something new, or keep him in the old plan as they did other employees? Shouldn't the SS Offset

that the Company calculated and subtracted from the annuity balance be a true figure based upon employees records from 1970 to 1995 vs. an estimate based on some formula.

Final question is if his opening balance is based upon the SS offset (which was subtracted) vs. his age 55 retirement benefit in the old plan, now in the new plan they subtract (year 1998, and increase each year) the SS integration level. Example: Annuity of $100k, is now 94k due to ss. offset, now opening balance of 94K subtract 34K now = the amount of the balance of60 K you receive interest credits and benefit credits legal?

What happened to his vested rights when he left the co. in 1994. He went back to work to increase his pension based on the old plan. I feel like he is being taxed twice. Once on the original plan, and now each year. He never received benefit/interest credits on the full amt, although the Co. subtracted his SS offset from the orignal annuity at age 65. By the way,

he did not have a break in service in either plan. Help?????

[mbozek]

Uner ERISA and the IRC an employer can not reduce a pension beneit after the benefit accrues. Therefore your benefit can never be lower than what is was before the CB plan was established. However, the amount of your accrued benefit and how it is calculated is a very complicated process which is determined by actuaries applying the terms of the plan. There is no way for anyone on this borad to tell you what your rights are and the amount of your benefit. You need to consult with an attorney and probably an actuary to determine the amount of your benefit. I believe that under recent legislation the employer is required to provide you with a statement comparing benefits when a CB plan is adopted but I dont know if it would apply retroactively.

[Guest cappja]

Mbozek, thank you for replying to my post. Maybe you or anyone else can walk me further thru this. If when you left (1994) in a DB plan with no lump sum offered by the plan and received your final benefit (21,000/year at age 65, which included them SUBTRACTING YOUR SS OFFSET of $5,000, (which was not subtracted from your final benefits from early retirement age 55-65, how does that effect an opening cash balance? In 1994 we received a pension statement calculating age 65, LESS SS offset=$21,000. Lump Sum Benefit = 21,000) (3.8747). Multiplied it comes out to $81,368.70. Which I assume is his lump sum benefit. In 1998 he returns to co. They use $21,000 but with a different factor of 3.9458 which = an Open. Bal of $82,861.80. Once they GET The Opening Balance, they first MUST SUBTRACT the SS INTEGRATION LEVEL of $34,000 then he can receive his interest credits on the balance at a lower rate. Then a higher interest rate on 1/2 of anything over the SS level up to a max amount established by SS each year. WHAT BOTHERS ME AND WHAT I CANNOT UNDERSTAND IS, they

took his FAE in "94" subtracted his SS offset to get a figure for his lump sum.

Then they HAVE THE RIGHT to say we now must subtract the 1998 SS integration level to pay you your interest and benefit credits!!!. I feel like he was taxed twice. Please, someone, help me understand this.

Thank you in advance.

[mbozek]

Ther is one important thing that you must understand. While there is federal regulation of pension plans, the regulation exists for the purposes of enforcing the promises made by the employer to pay benefits. However, there is no federal regulation on the how the amount of the benefit is calculated. In other words the employer has discretion to determine the formula under which benefits will be paid. What you have described is a pension benefit with some form of offset and offsets are permissible if they are stated in the benefit formula. I once represented an employee whose pension benefit was reduced by 40% because of a substantial severance benefit he received from his employer which was required under the law of the country in which he worked at termination. My client lost his case becuse court decisions permit offsets of any kind of compensaton against accrued pension benefits. The only way to determine if the benefit is correct is to review the terms of the plan and have the benefit calculated by an independent actuary. The only prohibition is that the accrued benefit cannot be reduced but again you must have the benefit calculated by an actuary.

[david rigby]

You may be able to search for an actuary (preferably one who specializes in pension/retirement issues) in your area. Here is the website for the Society of Actuaries, click on the Directory of Actuarial Memberships.

[Guest cappja]

Thank you for responding. I am not disputing that the original plan did have, and is clearly stated that the SS offset will be subtracted from the FAE to arrive at the 65 age annuity. What I am having a hard time with is the fact, my husband terminated employment with an accrued benefit based upon the SS offset already being subtracted. That is how they arrived at the Pension annuity. Upon return to employment, if you can't lose your vested accrual benefits, how can they take the old annuity that had already subtracted the SS offset, turn around and say, here is your opening balance (I don't dispute that) but your benefit credits will also vary, depending on whether the income for the credit applies is above or below the SS integration level. The SS taxable wage base is the amount of income on which you pay SS Taxes It is adjusted each year. If he paid SS taxes and the employer paid SS taxes on the original $80,000. why is $34,000 subtracted from the orig. opening balance of $80,000 then benefit credits applied. He was taxed once already in the old plan and is now taxed again. I'm thick, I guess, because I don't understand it. It's like being taxed twice. Isn't it??????

[david rigby]

This might be a better source of help for you.

http://www.actuary.org/palprogram.htm