Increase Normal Retirement Age

[Guest DTrom]

Can a Plan that currently provides for a normal retirement age of 60 increase the normal retirement age to 65?

If yes, can the amendment be effective mid year?

I'm guessing that anyone who has already attained age 60 must still be considered at Normal Retirement Age, but at what point does the anti-cutback rules apply?

For example, if the amendment is effective July 1 and a participants turns 60 on July 2nd?

Also, if the Plan uses an allocation based on age at normal retirement, and the amendment is made after the start of the plan year, is there an anti-cutback issue if the plan requires last day employment?

Thanks!

[david rigby]

From the phrasing of the Q, it appears this is a DB plan. Correct?

In general, anti-cutback rules apply to participants and to the benefit accrued as of the plan amendment's effective date. The NRD can be changed for anyone who enters the plan after the amendment is adopted. It cannot be changed w/r/t any benefits already accrued.

[Guest DTrom]

Thanks Pax. Actually it is a DC plan with a new comp allocation.

Would the same logic apply?

[Everett Moreland]

If increasing the NRA would delay vesting, this would be subject to the rules on changes in the vesting schedule.

[wmyer]

Are you trying to increase NRA to age 65 so that you can test based on equivalent benefits at age 65? I'm not sure, but you might be able to test based on age 65 even if your NRA under the plan is lower.

[david rigby]

If increasing the NRA would delay vesting, this would be subject to the rules on changes in the vesting schedule.

In addition, if the plan permits inservice distribution at NRA, changing from 60 to 65 would be an impermissible cutback of a retirement option, at least with respect to the accrued benefit.

[mbozek]

what is the cut back of an accrued benefit in a DC plan? Since the accrued benefit is the account balance the change of retirement age is meaningless as long as the participant can receive his account balance upon termination. to avoid vesting issues vest all current participants 100% at age 60.

[david rigby]

...as long as the participant can receive his account balance upon termination...

Correct, but it assumes a fact not in evidence. And the possible distribution at NRA while still employed (if permitted by the plan) can also be a problem.

[Guest DTrom]

Thanks for the all the input.

The circumstances are that we have been asked to consider taking over this plan, a 401(k) with new comp allocation.

The employer has expressed an interest in raising the plan's current nra to 65 from 60.

In reality it appears that they have never made a profit sharing contribution, and according to the employer, most likely will not (they were not even aware of the provision in their document).

Since we have never come across a sitution where the nra is raised I wanted to try to anticipate the current issues as well as issues that might come up down the road.

For example, I was not aware that you might be able to use age 65 for testing purposes despite the fact the nra is something less than 65, and we will look into that.

Which might address one of our concerns which was, if everyone prior to the amendment has a nra at 60, and those eligible after the amendment have nra at 65, what age do you use to calculate ebars?

[mbozek]

If not permitted, plan can be amended to provide for distribution upon termination w/out violating any Q plan requirements (although I dont know why a DC plan would not currently permit distribution at termination). You dont need to know all the facts in order to propose a solution. I am not aware of any problems in permitting a distribution at NRA w/out separation under IRS rules.