Unreduced Early Retirement Benefit

[Dougsbpc]

Suppose you have a small DB plan with an NRA of 62 and an Early Retirement Age of 60.

The plan also provides that a participant's early retirement benefit shall be unreduced for early commencement.

If a participant retires early at age 60 and elects a lump sum distribution, his lump sum benefit would be the present value of his accrued benefit payable at age 62 correct?

Or would it be the present value of his age 60 accrued benefit?

[Guest Sieve]

I'm not an actuary--for me, 2 + 2 is always 4!!--but I believe the early retirement benefit would be the PVAB at age 60 of the normal retirement benefit. But I'm sure the actuaries among us will chime in quickly if I'm wrong.

[Andy the Actuary]

(1) The PV has to be at least as great as the PV of the NRB deferred to age 62

(2) What does the plan say about how the lump sum is calculated at age 60? I.e., does it say the PV of the ERB? If so, then greater of PV of ERB and (1)

This issue is precisely why the Relative Value Regs were born. Some Plans provided only (1), which is okay. But, the value of (2) is much greater. So, the RV regs purport to make this disclosure, and they do provided you're a pension professional and not someone who works a bottle cap machine in Cabool, MO [thought Mike Preston would like Cabool]

P.S. Is Sieve's photo of the late, great Terry Sawchuck?

[Guest Sieve]

So, I guess the real answer is "What does the Plan say?" I should have known--that's my usual response when someone asks "Can we do X?"

Andy: Yes, it's Terry Sawchuk. I'm impressed.

[Dougsbpc]

Thanks for the replies Andy and Sieve

Andy, I think we are stuck with #1 as our document does not specifically address how the PV of the ERB is calculated.

What are the relative value regs? Any chance they can help if our document is silent on PV of ERB?

[mwyatt]

It sounds like your document is somewhat silent on the issue; I'd lean in that case to the lump sum reflecting the early retirement subsidy. Most docs that I remember seeing where there was subsidized early retirement and lump sum payments were explicit in the actuarial equivalence language to not reflect ER subsidy in the lump sum if that was the intention. What's that old saying about "tie goes to the runner?"

[AndyH]

As acknowledged, "What does the document say?'"

If it says the lump sum is the "present value of the accrued benefit" and the "accrued benefit " references the deferred nra benefit then I vote for the deferred benefit, which is the minimum under 417(e) as the lovely a.t.a. indicated.

If the lump sum section references the early retirement benefit then that requires closer scrutiny, IMHO.

[david rigby]

I doubt the document is silent on this. It may be indirect, but it is likely the current document will provide guidance.

However, that does not mean the answer will be black-and-white; any "grayness" should be evaluated in tandem with any prior administrative experience and/or other material (such as SPD).

[Andy the Actuary]

What are the relative value regs? Any chance they can help if our document is silent on PV of ERB?

http://a257.g.akamaitech.net/7/257/2422/01...pdf/06-2844.pdf