Normal Retirement

[pmacduff]

The owner in a cross-tested plan will attain the plan's NRA (65) next year. He has no intention of retiring at this time. What impact does this have on the non-discrimination tests & his EBAR? Will he still be able to contribute the max if the tests allow? This seems like it should be pretty easy, but I'm sensing there may be issues because he is 65. Any input appreciated!

[Archimage]

No, it won't impact your test. The actuarial factor is based on years to testing age (65). From this point forward he will use zero as his years to testing age.

[Tom Poje]

I think the only thing that changes is that the APR used for that individual will be different than everyone else, but other than that not much changes.

[AndyH]

Well, that sounds like two slightly different answers, which raises a question that I'm interested in:

If someone with a NRA of 65 attains age 66, do you use the Age 65 Annuity Rate or the Age 66 annuity rate?

I think you can use either provided that you are not intentionally manipulating the results by using age 66.

What do others think?

[Tom Poje]

I'm never 100% sure of anything.

1.401(a)(4)-12 definitions (testing age)

says:

1. if plan provides same uniform NRA for all ees, the ees testing age is the ees NRA under the plan.

4. if an ee is beyond the testing age otherwise determined under 1, the ees testing age is the ees current age.

so, I have always used #4.

ERISA outline Book

says

'normally regs require using current age if participant is beyond NRA. '

however, the book goes on to quote 1.401(a)(4)-8(b)(1)(ii) and says there appears to be support for using the factor at NRA.

9.30, 2003 edition.

How is that for adding confusion.

[AndyH]

No, actually that is right on, Tom. Thanks.

I've always used attained age also, but I've always felt that if necessary, NRA could be used for the exact reason specified in the cite that you provided. Use of an age later than NRA will inflate the EBAR and that can cause allocations to be altered, solely on account of aging beyond NRA. And that raises obvious discrimination issues.

And if you think about other plans, safe harbor target plans must use the same APR if someone ages beyond NRA. And in an age weighed PS plan you would not want to use a lower factor for 66 than 65 or the allocation will decrease, again raising a discrimination issue.

So I was curious what others do.

So, to pmacduff's question, the answer is that going from age 64 to 65 will affect the EBAR by one year of interest but going beyond that will inflate the EBAR if you use testing age as attained age, but IMHO you can avoid that by using the NRA factor permanently if you are not abusing that rule.

[Guest quinn the car fixer]

I believe Relius was going to add a radio button to use APR @ 65 if users wanted to use after NRA(they believe it was optional--that was on an age weighted plan like Andy's example)

[pmacduff]

So - when I process the plan for 2005, will I need to enter some sort of override for this participant/owner in his census info? If I'm remembering correctly, in Relius, the following year (2006) when he is 66, the software will increment his NRA to 66 if the plan NRA is 65 so again - I'd want to override each year? As always, thank you for all valuable input and information!

[Tom Poje]

if it is not an age weighted plan, but simply a cross tested plan I dont think you need an override since the contribution (I am assuming) is simply by class or group. the guy is age 66, he receives the contribution, I would use testing age 66.

If plan is age weighted, I think you have to see what the document says. I know I have one that uses the same factor at age 65, but that has the language to do that.

[AndyH]

I don't disagree. (I'm stealing that line until the owner reappears)

[Lynn Campbell]

Back to this issue - I am running an age based plan. NRA is 65. Owner is 70 now. Can I use the Annuity Purchase Rate (APR) at age 65 in computing the EBAR for the owner? That seems to be what my plan says. This produces a lower EBAR than using the APR for age 70... Since my goal is to have everyone's EBAR the same, this is a critical important issue - right? Thanks for all input.

[AndyH]

yes, unless your plan has language to the contrary.

[Tom Poje]

why is your goal to have everybody with the same E-BAR? There is no requirement for this. In fact, when you test, you could actually impute disparity ( a bizarre concept in an age weighted plan, but years ago Iread an article about actually setting up such a plan) you could use different testing assumption (e.g. different interest rate or mortality table)

your first step is to follow the plan document.

next step is to pass nondiscrim testing. you always pass if EBARs the same, there is a chance you fail if they are different.since it is the owner you are talking about, he is am hce and you indicated he had a lower EBAR. thus you will still pass.

[Lynn Campbell]

Tom - I realize that the EBARS might not be all the same - due to use of a different testing age, top heavy requirements, or 415 limits, but assuming that none of these apply - isn't the theory of age based plans that the EBAR is "generally" the same for all participants?

[Tom Poje]

the theory why e bars are the same can be explained mathematically.

gotta love it! hopefully I have made it easy enough to follow in the enclosed