Two Normal Retirement Ages for Same Participant?

[Übernerd]

Company A sponsors Plan A; Company B sponsors Plan B. After Company B buys Company A, Plan A is frozen and merged into Plan B. Company A employees begin accruing new benefits under Plan B. Normal retirement age (NRA) under Plan A was 62; Plan B's NRA is 65.

Plan B has been amended to provide that former Plan A participants fully vest in their frozen Plan A benefit at 62. Must Plan B also be amended to provide that former Company A employees retain the NRA of 62 with respect to Plan B accruals? If so, is that just for vesting purposes, or for all purposes where the Code triggers something at NRA (suspension of benefits, 411(b)(1)(H), top-heavy minimum contribution, etc.)?

This seems extreme, given that these are new accruals. On the other hand, not "lowering" NRA for the Plan A transferees would mean that each transferred Plan A participant would have two NRAs--62 for their frozen Plan A benefit, 65 for their new accruals. I can see an argument under § 411(a)(10) that the merger is an amendment lengthening the vesting schedule for Plan A participants with respect to post-merger accruals, as well as problems for the actuaries, but can't close the loop on whether two NRAs is flat out impermissible.

Thanks for any comments.

[Andy the Actuary]

It would seem Plan A NRD pertains only to the frozen benefits under Plan A and not to new accruals under Plan B. It does not seem reasonable that Plan B would be forced to adopt age 62 and increase costs.

Clearly, the way to make some sense is to amend Plan B to provide for early retirement at 62 so you can attempt to eliminate bifurcation of the benefit election. I use attempt to mean you can present an employee with an election at age 62 that combines benefits but you can't force him to elect early retirement for his Plan B benefit.

The real question assuming both plans were final pay plans is do the benefits coordinate? That is, does Plan B count all service and then offset by the frozen plan A benefit, or is the benefit simply the Plan A frozen benefit plus the Plan B benefit in respect of future service?

In any event, this is one nasty mess that is destined for administration and communication problems. I pray in your behalf that either both or neither of the plans permit voluntary lump sum distributions. I can envision the mess restrictions on one of the benefits could cause.

Anyway, to answer your original question. I've worked on plans where different employee groups had different NRAs so would see no reason why one employee couldn't have two NRAs for different benefits.

[david rigby]

If it helps to have more than one vote, I agree with Andy.

There may be other issues to consider with the merger, such as top-heavy or 415 or 410(b) or 401(a)(26) or 401(a)(4). Some may be trivial, but that does not mean they should be ignored. As always, it's best to ask such questions of the plan's actuary.

[Übernerd]

It would seem Plan A NRD pertains only to the frozen benefits under Plan A and not to new accruals under Plan B. It does not seem reasonable that Plan B would be forced to adopt age 62 and increase costs.

Clearly, the way to make some sense is to amend Plan B to provide for early retirement at 62 so you can attempt to eliminate bifurcation of the benefit election. I use attempt to mean you can present an employee with an election at age 62 that combines benefits but you can't force him to elect early retirement for his Plan B benefit.

The real question assuming both plans were final pay plans is do the benefits coordinate? That is, does Plan B count all service and then offset by the frozen plan A benefit, or is the benefit simply the Plan A frozen benefit plus the Plan B benefit in respect of future service?

In any event, this is one nasty mess that is destined for administration and communication problems. I pray in your behalf that either both or neither of the plans permit voluntary lump sum distributions. I can envision the mess restrictions on one of the benefits could cause.

Anyway, to answer your original question. I've worked on plans where different employee groups had different NRAs so would see no reason why one employee couldn't have two NRAs for different benefits.

Thanks, Andy. Actually, Plan B already has an early retirement beneift, one component of which is an unreduced benefit at age 62. (Not quite an NRA of 62, but it has identical results in some situations.) Company B is braced for the administrative difficulties, but wants chapter and verse on the legal and Code issues.

In answer to your question, the Plan A benefit is truly frozen (i.e., there's no combination or wearaway with the Plan B benefit, just new accruals--though, of course, Company A service counts for vesting and eligibility purposes under Plan B). Just for grins I add that yes, both Plan A and Plan B have grandfathered elective lump sum for various groups of participants. Sigh.