Potential Age Disrimination

[Dougsbpc]

Is there potential age discrimination in a DB plan that reduces the NRB for years of service less than X?

For example, suppose the benefit is 50% of FAC multiplied by years of service divided by 25 years. Clearly an employee who is hired at age 55 will have a smaller NRB than an employee hired at age 35 (assuming same salary history etc.). However, if the employer does not force retirement at a specific age, the 55 year old participant could (but not likely) work another 25 years and earn a full benefit. Also, the 55 year old would accrue benefits at a rate at least as great as the 35 year old.

Suppose a plan passes 401(a)(4) but provides 50% of FAC to Group A participants and 50% of FAC reduced for years of service less than 25 for all other participants. Could a non-group A participant claim age discrimination?

Thanks much.

[SoCalActuary]

You have described a plan benefit structure that does not have a "safe-harbor" to pass non-discrimination between HCEs & others. Thus you must do a general test.

However, this does not address age discrimination. Group B participants of the same age as Group A participants do not have the same benefit. Is this discriminatory for age? It might be. Maybe race, gender, religious heritage, height, weight, recreational preferences (including sex)?

The recent Sp Ct case asks if the practice of having different benefit formulas has another basis. Can you explain why groups A & B have different rules?

[Dougsbpc]

What about the ever popular cross-tested DC plan? Most really have no basis for providing 20% of comp to one group and the minimum gateway to another. Yet many operate this way. As long as a sufficient number of young NHCE's benefit, the plan will pass the general test. Will these plans some day be targets for age discrimination?