Chaning Normal Retirement Age? (Time-Sensitive)

[Übernerd]

I have a time-sensitive question in connection with the purchase of a business and the associated transfer of assets and liabilities between two DB plans. Participants under Seller's Plan will become Participants under Buyer's Plan as of the Closing Date. NRD under Seller's Plan is 62; under Buyer's Plan, NRD is 65.

Benefits under Seller's Plan will be frozen under Buyer's Plan, and a modified wear-away will be established for active employees, under which the transferred employee's accrued benefit will be the greater of:

Option A - his or her benefit as if he or she had continued under Seller's Plan for up to two years after the Closing Date, or

Option B - his or her frozen Seller's Plan benefit plus the benefit he or she accrues under Buyer's Plan.

My question is with respect to Option B. When calculating the amount attributable to credited service under Buyer's Plan, is it necessary to import the NRD (62) under Seller's Plan? That seems strange (and very complicated to administer), but I'm concerned that using Buyer's Plan's NRD (65) might violate Section 411's vesting rules, under which I think such a change would be treated as if it were an amendment to Seller's Plan. If I'm looking at the question right, it appears to boil down to whether you can amend a DB plan to raise the normal retirement date with respect to credited service after a specified date. Either or both impressions could be wrong, though. BTW, changing the formula is not an option, as it has already been communicated to the transferring employees.

Any comments appreciated.

[ERISAnut]

This is a good one.

1) I agree that the Normal Retirement Age is a protected benefit for the employees of the sellers plan.

2) The current accrued benefit payable at age 62 is also a protected benefit of the employees in the sellers plan.

3) How the additional benefits accrue beyond what has already accrued it what seems to be happening. Using a calculation of age 65 and performing an actuarial equivalent calculation to determine if additional accruals are due to a participant whose NRA is 62 would not seem to violate the above rules.

However complicated, I wouldn't suspect this is a problem.

[Übernerd]

This is a good one.

1) I agree that the Normal Retirement Age is a protected benefit for the employees of the sellers plan.

2) The current accrued benefit payable at age 62 is also a protected benefit of the employees in the sellers plan.

3) How the additional benefits accrue beyond what has already accrued it what seems to be happening. Using a calculation of age 65 and performing an actuarial equivalent calculation to determine if additional accruals are due to a participant whose NRA is 62 would not seem to violate the above rules.

However complicated, I wouldn't suspect this is a problem.

Thanks for that. I've been thinking about this, too, and I wonder if it's as easy as amending Buyer's Plan's vesting provisions to fully vest transferred participants at 62, in both their frozen benefit and any accruals under Buyer's Plan.

[ERISAnut]

It appears they would be vested any any accruals at 62 by virtue of the NRA of 62 being protected with respect to the participant; not the accrued benefit.

But the idea of freezing the accruals until such point that such employee would have received an higher accrued benefit had he been subject to the benefit formula under the buyers plan would seem to be a separate issue. You would still have full vesting at 62, but that would not increase until either of the following:

1) the acturial equivalent of what would've been (the buyer's plan) exceeds what currently is (the seller's plan)

2) Post NRA accruals required by Statute exceeds the accrued benefit in the sellers plan

I could be missing something, but I see them as possibly separate issues.

[Guest Harry O]

I don't see why this is so complicated.

It seems like the employees' new benefit is an A+B benefit where A = frozen seller's plan benefit and B = buyer's plan benefit. You have different NRAs for both A and B but so what? There is no need to use the seller's age 62 NRA for purposes of determining the B benefit. There is no 411 vesting issue here . . . an employer can always amend a plan to increase the NRA for benefits accrued after a certain date.

You also have a minimum "window" benefit for two years which is the seller's plan formula (it is not clear whether this "window" benefit disappears after two years . . .). You have more interesting issues with this part of the plan.

I really can't follow anything that ERISAnut is saying . . .

[mwyatt]

I'll go with Harry here. I'd focus on properly adjusting the old AB @ 62 to the new NRA of 65 rather than thinking about the vesting (which in practical terms may end up to be more of a sideshow given a max of 7 years under Code now for full vesting). One other thought would be on what actuarial basis to convert to 65; the old plan or the new plan assumptions?

[Effen]

I also agree with Harry & mwyatt. Calc the AB at 62, roll it up to 65 and use that as the basis of your comparisons. However, keep in mind that any of the Sellers EEs who want the ben to commence at 62 need to be given that right. They may be eligible for this even if they are still working for the buyer, depending on the language in the Sellers plan. The buyer can not change any of the sellers 411 protected benefit or options on benefits that have been accrued. That would include retirement age, optional forms of payment, early retirement subsidies, etc...

[david rigby]

Ditto.

[ERISAnut]

I took the position that NRA itself is a protection under the plan as opposed to being protected with respect to the accrued benefit at a certain point in time. Since this is incorrect, nothing else stated would make sense.

I stand corrected.

[Übernerd]

Thanks for the helpful discussion. I've been out of town for a few days and unable to post, but I've been following. I think we got this sorted out.