Normal Retirement Age

[SteveH]

Argument at the office...

If you have a brand new company with an older owner, let's assume 63 years old and looking at starting a DB plan. I thought you were confined to using a pretty standard definition of Normal Retirement Age. Something along the lines of 65 years old and 5 years of participation.

A gentleman at my office that has been in the "pension business" for longer than I have been alive says that you can define the retirement age as anything, even 73 if you wanted. (Although he did say if there were employees we should have an early retirement provision that would allow the rank and file employees to retire at their "normal" time.)

Well my software doesn't seem to allow me to input any retirement age over 65 and 5 years of participation. Besides I just don't see the point.

The gentleman at my office has a history of being difficult and having selective memory of things you used to be able to do but you can't anymore. I swear some of the stuff he says is probably pre ERISA.

The argument boils down to what his projected benefit at retirement is. I say on the proposal that it is going to look like 5 years of benefit accrual. He says that I should hard code his retirement date out 10 years so that he can accrue his full benefit. Obviously disclosing to him that he has to work 10 years to get this.

In the end if he works till he is 73 we get to the same spot. The benefit is what it is. So if you can give me some ammunition I would appreciate it. So far I can't find anything that specifically says you CAN'T DO IT.

I realize this isn't that big of a deal, but you know what it is like when the guy with WAY more experience is just being difficult for the sake of being difficult. It's driving me up a wall. I guess it boils down to, can you make the owner of the company work 10 years (at least past 65 and 5yop) until he can retire?

[rcline46]

Are you talking about ME?! Maybe not, don't remember getting that question recently.

Well let's see here....... hmmmmmmmmmm ...... OK, what you have is the difference between NRA and NRD and assumptions.

As I recall, being an ancient myself, is that NRA can't be beyond 65 with 5P (looking for SSRA +5 but not here yet). However NRD is another matter entirely. I have not seen software that will allow you to get an NRD beyond Anniversary after NRA or January 1 after NRA, but see, they are different.

So you can set NRD at 65 +10P, and NRA at 65 + 5P.

Then of course as an actuary you can ASSUME the HCE will retire whenever you want!

(Still thinking you are talking about me, you young whipper snapper!)

[Effen]

Based on the following I agree with Rcline, noting that if the NRD is more than 6 months from NRA it does not meet the safe harbor and would need to be tested. I also agree that you can assume what ever is reasonable. I have several plans where NRA is 65, but I'm assuming an higher age for the HCE. If it feels unreasonable, ask for a letter from the HCE stating his intention to work to the assumed age. If he doesn't give it, then it probably wasn't reasonable to begin with.

411(a)(8) NORMAL RETIREMENT AGE. --For purposes of this section, the term "normal retirement age" means the earlier of --

411(a)(8)(A) the time a plan participant attains normal retirement age under the plan, or

411(a)(8)(B) the later of --

411(a)(8)(B)(i) the time a plan participant attains age 65, or

411(a)(8)(B)(ii) the 5th anniversary of the time a plan participant commenced participation in the plan.

1.401(a)(4)-12 -

(4) Conversion of normal retirement age to normal retirement date. A group of employees does not fail to have a uniform normal retirement age merely because a defined benefit plan provides for the commencement of normal retirement benefits on different retirement dates for different employees if each employee's normal retirement date is determined on a reasonable basis with reference to an otherwise uniform normal retirement age and the difference between the normal retirement date and the uniform normal retirement age cannot exceed six months for any employee. Thus, for example, benefits under a plan do not fail to commence at a uniform normal retirement age of age 62 for purposes of §1.401(a)(4)-3(b)(2)(i), merely because the plan's normal retirement date is defined as the last day of the plan year nearest attainment of age 62.

[AndyH]

It is a 411 issue. The NRA you cite must be the date that full unreduced benefits are payable, that distributions are available if separation from service has ocurred, and that benefits are fully vested. I don't know the specific cite off hand but I'm nearly 100% certain it either the code or regs in 411.

[david rigby]

I believe that the definition of NRA in IRC 411 is for purposes of 411, and does not restrict your definition of NRD in the plan. However, discrimination testing and safe harbor issues may be another matter.