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reductions for early commencement


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Bill is age 58 w/ 30 years of service

The Plan's Normal Retirement Date is defined as the earlier of age 62 w/ 30 YOS or 65 w/ 5YOS

Bill's X would like to commence her benefits under the QDRO now, at Bill's age 58.

In determining her benefit, would the reduction be from his age 62 or 65?

The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action or inaction. You should obtain appropriate tax, legal, or other professional advice.

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Are we certain the AP has the right to elect commencement now?

BTW, what does the plan say?

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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Yes, the AP can elect to commence her benefits now since the participant is eligible for Early Retirement (55/10).

What does the Plan say about what?

The QDRO states that she can have an actuarially reduced benefit commencing on the earliest retirement date even though the participant isn't retired. My question is, when I apply the actuarial reductions, should they be applied from 62 or 65? Because the Plan states that Normal Retirement is at 62/30, and he has the 30, I think I should reduce from 62, but I was interested in other opinions.

Typically the 62/30 is an Early Retirement benefit and therefore ignored unless the participant actually retires, but in this case, it is the Normal Retirement Date, so I think she get it, even if he doesn't take it.

The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action or inaction. You should obtain appropriate tax, legal, or other professional advice.

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Guest mjb

The plan should indicate how the AP is treated for benefits, e.g., is a beneficiary regarded as a participant for benefit commencement or how is the surving spouse treated for benefit commencement.

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I realize that there are lots of issues related to the QDRO including the death benefit and whose lifetime is the benefit payable. However, I am only trying to resolve a specific question related to the retirement benefitt payable to the X.

Lets assume that the X is not entitled to any subsidy, unless the participant receives it. Lets assume the participant and spouse are both age 60. Lets also say that X wants her benefit today, and the plan & QDRO both said she could have it. Lets assume the plan uses staight actuarial equivelants for early retirement reductions.

If NRD under the plan was simply 65/5, I would calculate the participants benefit payable at age 65 and actuarially reduce it to age 60. If the NRD was 62/5 I would calc the benefit payable at 62 and reduce it to age 60. If the NRD was 65/5 w/ an un-reduced early available at 62/30, I would calculate the participants benefit payable at age 65 and actuarially reduce it to age 60. If the spouse subsequently retired, and took the unreduced at 62/30, I would recalculate X's benefit to reflect the subsidy.

Now, if the Plan's Normal Retirement Date is the lesser of 62/30 or 65/5 and if the participant has the 30 years, I think I would apply the reductions from age 62 since that is NRD. The unreduced benefit at 62/30 is not a subsidied early retirmenet benefit, but it is the Normal Retirement Benefit and therefore the X is entitled to it even if the participant doesn't take it.

Does any agree/disagree?

The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action or inaction. You should obtain appropriate tax, legal, or other professional advice.

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Guest Ron Sevcik

I agree with you. Since Normal retirement date under the plan is 62 and 30 or 65 and 5, his normal retirement age is 62. Even if Bill was 58 with 27 years of service, I would still use 62 as his normal retirement age since he will have 30 years by age 62.

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Thanks for the reply, although I'm not so sure I agree with your example. If Bill quit before completing the 30, his NRD would be 65. It might be a case where she is reduced from 65 until he completes 30. Then her benefit is recalculated to reflect the lower retirement age.

The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action or inaction. You should obtain appropriate tax, legal, or other professional advice.

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Since Normal retirement date under the plan is 62 and 30 or 65 and 5, his normal retirement age is 62. Even if Bill was 58 with 27 years of service, I would still use 62 as his normal retirement age since he will have 30 years by age 62.

Not sure I agree w this. If NRD is defined as the attainment of age 62 and completion of 30 years, Bill has not yet met that set of criteria.

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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Maybe that gets back to what mjb was asking (although I didn't understand it the time). If Bill had died instead of getting divorced, at what age would his spouses benefit be calculated from?

Would the plan calc her benefit from 62 if he died at 58/27, how 'bout 60/30? Do you think that is relevant?

The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action or inaction. You should obtain appropriate tax, legal, or other professional advice.

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Guest zora

Maybe you should look at it from a different point of view - the QDRO's not the plan's.

What does the QDRO say? Does the QDRO require a reduction for early commencement? If not, and if it is a valid QDRO (e.g., does not require the plan to pay increased benefits), then don't reduce. If it is not valid, e.g., requires increased benefits, then kick it back.

If the QDRO does require a reduction for early commencement, but doesn't say how to calculate the reduction, then I would say you need to have the QDRO specify how the reduction will be calculated. Otherwise, the QDRO is not valid because it does not clearly specify the benefit the AP will get. If you don't get clarification, you could be opening yourself up to a dispute.

In this case, I would explain to both parties what the two options are and explain the impact of each, e.g., if they do it one way the AP will get more and if they do it the other way the P will get more. Then let them (or the family law judge) decide how to divide it and give you a QDRO that clearly specifies how to calculate the reduction.

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