Early Retirement Window and Non-Discrimination

[LIBOR]

I have a DB plan with a safe-harbor formula ; the client is proposing an early retirement window that grants 3 years of additional benefit service and adds 3 years to a qualifying participant's age.

To me this design pushes the plan outside of safe-harbor status and neccessitates the general test.

Does anyone have any additional thoughts/insights ??

[SoCalActuary]

Are the affected participants able to pass the 70% 410b test?

If so, disaggregate the group and show non-discrimination for this segment only, using only the added benefits resulting from the Early Retirement Window.

[LIBOR]

So Cal - Are you saying to run the additional benefits through the General Test or are you saying the added benefits qualify under the Safe Harbor rules of (a)(4)-3(b) ??

Or are you saying something different than above ??

[SoCalActuary]

Look at the early retirement window as a second benefit formula under 1.401(a)(4)-3(b)(6)(ix).

[LIBOR]

so the second benefit would simply be defined in terms of the 3 additional years of benefit service and since each participant had an early retirement reduction before the window and now will still have one but just a smaller reduction due to the window providing 3 additional years tacked on to current age.

so if the current plan formula is (2%) X (average monthly earnings) X (benefit service) and the window provides 3 additional years, we'll introduce a 2nd formula that is (6%) X (average monthly earnings) and that is safe-harbor.

is this the idea So Cal ????

[SoCalActuary]

This is not necessarily a safe-harbor, but you do get the idea.

If you look at the eligible employees for the added 6% benefit, what percentage are HCE's?

If you pass the coverage rules for this group, then a one year benefit of 6% of pay is a unit benefit safe-harbor design. If you currently have fractional accrual, you need to measure the additional accrual resulting from the early retirement window. That benefit needs to be tested.

[ubermax]

It's unit benefit and does pass 410(b) - it just seems too easy ! - but in this particular window offering it makes sense to have coverage be a more difficult hurdle.

thanks again SoCal Actuary !!!!!!!!!