Defined Benefit Plans

[Guest Julie]

We aquired another company and merged their DB plan with ours on 12/31/2001. On 10/14/02, I was notified by a terminated vested employee of the merged plan, who turned 65 in September 2002, that he wanted to start receiving his benefit as of 10/1/2002. I informed him that the earliest he could draw his benefit was 1/1/2003 because of the joint and survivor rules. I received his j&s election form on 12/9/2002; his benefit payment began on 1/1/03. Should I have paid him a retroactive benefit back to 10/1/2002?

[AndyH]

If there is a rule prohibiting payment retroactive to 10/1/2002, I am not aware of it. I would have made the payment retro to 10/1/2002.

The "annuity starting date" rules are convoluted to me in this type of circumstance. Maybe if I'm wrong and payment retro to 10/1/2002 is somehow prohibited, somebody can explain why.

[MGB]

In order to give retroactive benefits, the plan must provide for a retroactive annuity starting date. In TRA'97 (I think), Section 417 was amended to allow a retroactive annuity starting date prior to the issuance of the J&S forms. In 2001, the IRS issued proposed regulations on retroactive annuity starting dates as amendments to the 1.417(e)-1 regulation. That also requires interest on the past payments. They expect to finalize this regulation this year. I suggest reading that proposed regulation to see if your plan complies with the requirements. If not, it should be started 1/1/03, but perhaps with an actuarial increase (again, depending on the plan provisions).

[Guest Harry O]

The plan must either pay interest or give an actuarial increase. Otherwise there has been an impermissible forfeiture of the age 65 normal retirement benefit. It generally makes sense to actuarially increase the benefit rather than pay interest.

[AndyH]

Julie, sorry, but I mis-read the original question. I meant to say that I would pay it retroactive to 11/1, i.e. the first day of the month following the request. This presumes that the plan document has some language requiring an application for payments.

I still fail to see any justification for denying such requested payment on account of a merger. Yeah, technically interest would be due but as a practical matter how much are we talking about?

And I certainly agree that an actuarial increase would be warranted from the amount that would be due as of NRD.

[Guest Harry O]

Actually, I meant to say that the plan needs to either make up the missed payments (probably with interest) or provide an actuarially increased benefit.