Post Ret Accrual after LS

[Guest penman]

I have a takeover plan with a couple of active employees that are past NRA and, as allowed by the prototype doc, took a lump sum distribution at some point after attaining NRA. The plan's late ret. benefit definition is the standard "additional accruals are the greater of continued accruals or the AE of the prior year AB". The continued accruals are based on the average comp and service as of the date of determination.

In the case of these participants that have already received a lump sum in some prior year, the prior actuary was putting an actuarial adjustment on the accrued benefit that was paid out in a lump sum and comparing that to the currently accrued benefit. In this case that will always completely offset any additional accruals. That does not seem right, there should be no actuarial adjustment on the benefit that was paid out. An actuarial adjustment reflects the fact that payments have not been received. I would say that the calculation should be: the current AB minus [the AB at date of LS payment] and then compare that to the AE of the prior year end AB, and take the greater of the two.

I want to know if I am overlooking anything or if there is another way to consider this. Thanks.

[Guest Ron Sevcik]

IMHO, I agree with the prior actuary. If you had 2 employees who were the same age, same service and same pay and when they reached NRA several years ago, one took a lump sum and one did not, your method would treat them differently and give the employee who took the lump sum additional benefits. The prior actuary's method would treat both employees the same.

[david rigby]

Most likely, Ron is correct. But what does the plan say about the adjustment for payments received? If it is like most documents, it will refer to payments, not to the accrued benefit.

[Guest penman]

My original post was not well written and therefore pretty confusing.

The employee that did not take a lump sum will be getting additional benefits. Each year, every participant working past NRD would be given the greater of continued accruals (Plan Formula Accrued Benefit) or an actuarial increase to the prior year Accrued Benefit.

I do not see the two employees mentioned by Ron as treated differently, it is the same calc except, when looking at someone that has already received a lump sum, how does one offset the current Plan Formula Accrued Benefit with the accrued benefit that was paid out in the form of a LS? My question is specifically about that offset to account for the fact that a lump sum has been paid in a prior year, should the offset attributable to the LS payout have an actuarial adjustment or not? (This happens before you get to the step of comparing the Plan Formula Accrued Benefit with the actuarially increased prior year accrued benefit.)

Each year the prior actuary simply compared the Plan Formula Accrued Benefit with the actuarial equivalent of the benefit paid out. He did not bring it forward each year. If you are stepping it forward year to year, I look at it as, in the first year after the lump sum payment, the AE of the prior AB would be $0 (since the prior AB was paid out). Then compare that with the continued accrual under the plan formula and take the greater of the two. Then, each year, keep rolling forward from there taking the greater of continued accrual or the AE of the prior yr. AB.

Agree or disagree?