Accrued Benefit

[ac]

We have a plan that ceased benefit accruals effective March 1, 2003. The plan defines accrual service as service since date of hire. The plan requires a year of service (1000 hrs in first 12 months) for eligibility. An employee was hired June 1, 2002. He worked 1000 hours in 2002 and was eligible to participate in the plan on July 1, 2003. The employee has a year of accrual service as of March 1, 2003 when benefit accruals were frozen but was not a participant.

Is this employee entitled to an accrued benefit?

[david rigby]

Assuming the freeze was executed properly, this employee did not become a participant in the plan. Therefore, no benefit.

[Blinky the 3-eyed Fish]

I disagree that the employee did not become a participant in the plan. A freeze to the benefit formula doesn't freeze eligibility. They are 2 distinct provisions.

I do though agree with the conclusion that the employee is entitled to no AB because the plan was frozen prior to his entry. Think of it this way. You have a formula that's X% of salary times YOS. By freezing the plan you are effectively replacing the X% with 0%, thus, no AB.

[SoCalActuary]

The critical question on the freeze amendment is whether eligibility was also frozen.

If so, no problem and no new participants.

When I freeze plans, my amendments now exclude new entrants as well as benefit accruals.

[ac]

Participation was not frozen, therefore the employee became a participant in the plan on July 1, 2003. I guess the question is when does an employee accrue a benefit in the plan. Benefit accrual service is defined as all service not service as a participant.

[SoCalActuary]

I agree the benefit formula provides no benefit amount, so you are probably ok, but I would still offer the amendment freezing eligibility.

[Blinky the 3-eyed Fish]

I think freezing participation when freezing benefit accruals was vital before EGTRRA, but now a frozen DB plan is not required to provide a TH minimum, so what's the difference?

Ac, you must be a participant in the plan to accrue a benefit.

[AndyH]

This is probably the first time, but I must differ with Blinky a bit on this (must be my arrogance). Somebody who becomes a participant in a frozen plan is a participant, so they get counted for things like SAR, SPD distribution, as well as participant count for things like audit requirements, 412(l), etc.

I have a frozen plan now that was frozen except for eligibilitity (done a few months later) and about a dozen $0 benefit people snuck in . Now the count is dwindling down from 150 to maybe 110 now, and that includes some $0 people who will count until they terminate employment.

And it is subject to 412(l) and has to have an audit.

[Blinky the 3-eyed Fish]

For the record, my what's the difference remark wasn't that literal. Giving them an SPD is no real extra work, so no difference in my mind. You do bring up a good point though if the counts are between 100 - 150. Then you have a real difference in 412(l) or the determination if the plan is subject to audit.

Your arrogance is insulting and belittling and I demand justice in the name of my family!!! :angry: