Top heavy minimum benefits

[FAPInJax]

The top heavy regulations are a 'little' vague with respect to what happens to a participant who keeps working after retirement.

A participant has a $24,000 average compensation at 65. The plan has always been top heavy and therefore he is entitled to 2% for 10 years (assuming a life annuity). Therefore, the minimum benefit is $400 per month.

Now, let's say, he continues to work until 70. The final year he gets a huge bonus which pushes his average at 70 to $30,000.

What benefit is he entitled to at 70 and why???

The Q&As state that the top heavy benefit is ALWAYS at normal retirement age and that it should be adjusted to later retirement age.

Does this mean:

a)The greater of $400 per month adjusted to age 70 OR $500 (20% of $30,000)

This follows the postponed benefit rules but not necessarity the 416 rules????

b)$500 per month (which is assumed to be payable at normal retirement date) and this is then further adjusted to age 70

This appears to be overly generous but follows what 416 appears to say and I thought there was an old question from a conference regarding this but have not found it - Mike will probably find it in a 1989 memo somewhere <GGGGGG>.

Specifically looking at M3 for the rationale behind option (b)

Thanks for any and all comments in advance.

[Gary]

It would seem to me that he should get the greater of his actual age 70 top heavy benefit or his age 65 actuarially increased benefit in accordance with the regs related to IRC 411(b)(1)(H), if they didn't provide a suspension of benefits notice.

[Blinky the 3-eyed Fish]

While I agree that the regs aren't written in the clearest manner (they never are), I have never seen the interpretation that would call for the age 70 TH benefit of $500 to then be actuarially increased from 65 to 70.

I believe the normal late retirement rules would apply in this case. I assume the plan calls for the acturial increase for late retirement and not a suspension of benefits or forced distribution. Therefore, it's not the greater of the $400 actuarially increased to 70 or $500. Keep in mind the the actuarial increase takes place each year past NRA. So it's like this:

66 - greater of 65 benefit actuarial increased to 66 or benefit under plan at 66

67 - greater of prior number actuarial increased to 67 or benefit under plan at 67

68 - greater of prior number actuarial increased to 68 or benefit under plan at 68

69 - greater of prior number actuarial increased to 69 or benefit under plan at 69

70 - greater of prior number actuarial increased to 70 or benefit under plan at 70