Increased Retirement Age

[Dougsbpc]

Other than the special ability to increase the NRA under notice 2007-69, could a single participant-owner DB ever amend the plan to have a higher NRA without violating 411(d)(6)? He is already 100% vested and his accrued benefit would be properly adjusted.

It appears that simply postponing the ability to have an in-service distribution from the initial NRA to the higher NRA would violate 411(d)(6) and he couldnt do it. Is it somehow possible to preserve the ability to have an in-service distribution at the earlier NRA?

Hypothetically, what if the plan did not allow for in-service distributions at NRA? Then could it be done without it being considered a cut back?

[Andy the Actuary]

What are you seeking to accomplish?

If you can clarify, you may be able to achieve without going where you're headed.

[Dougsbpc]

This plan was amended for a higher NRA (from 59 to 60) prior to May 21, 2007.

[Andy the Actuary]

Ooops.

I have seen retirement rate assumptions for valuation purposes to continue funding. For example, for valuation purposes, changing retirement age assumption from 59 to 60, or from 65 to 70. This should not present an issue.

On the other hand, "ooops" sounds impermissible, which appears to be your conclusion.

[Mike Preston]

If the plan has "auto-411" language, that basically precludes an amendment from taking away any right that is inviolate under the regulations, then a change to NRA merely causes future accruals to have a distribution date which is later. The participant retains the right to a distribution at the original NRA with respect to the benefits accrued through effective date of amendment. Is this really a problem?

[Effen]

Unless it was a drafting error, I would assume this was done in order to lower the required contribution. As the actuary, you are not required to use NRA as your assumed RA. If you have reasons for using something different, I think that is ok.

So if he's willing to tell you that he isn't planning on retiring until 60 (possibly in writing), and he gives himself a suspension notice once he reaches age 59, I think you have accomplished the same thing without violating 411(d)(6).

You can assume a RA of 60 for funding, even though he is really eligible at 59.

[Dougsbpc]

Thanks for all the replies. This is all very helpful.

I will check the document to see if it contains the auto 411 language. If so, then it sounds as though the valuation is done based on age 60 NRA, but the participant retains the right to an in-service dist of his accrued benefit earned through the date of the amendment.

Effen

If a plan used a later assumed retirement age (for example age 59 to age 60), would the participant have to be fully accrued at age 59 or 60 under a fractional accrual method?

[Andy the Actuary]

The Plan will dictate how to calculate the benefit, which must be fully accrued at the NRA stated in the Plan document. So, to answer your question, no proration after NRA.

Where there is a generally a materially difference is benefits accrued after NRA is when the participant has not at NRA satsified the 10 years of participation requirement under 415(b).

[Effen]

I agree

[Dougsbpc]

Mike,

Thanks for pointing out the special document language.

We had a chance to review the document and think it may contain the auto 411 language.

Here is what it says:

No amendment to the plan (including any change in the actuarial basis for determining optional or early retirement benefits) shall be effective to the extent that it has the effect of decreasing a participant's accrued benefit derived from employer contributions. For purposes of this paragraph, an amendment shall be treated as reducing the accrued benefit of a participant if it has the effect of (i) eliminating or reducing any early retirement benefit or a retirement-type subsidy; or (ii) except as provided by Treasury Regulations, eliminating an optional form of benefit, with respect to benefits attributable to years of service BEFORE the amendment.

It seems this language may allow an amendment to increase the NRA as long as accrued benefits (or optional forms of benefits) are not taken away with respect to years before the amendment. So perhaps as you mentioned, the participant retains the right to an in-service distribution for benefits already accrued, through the original NRA and future accruals would be payable on the later NRA.

[Mike Preston]

Indeed.