Integration and Late Retirement

[Andy the Actuary]

A DB plan provides a normal retirement benefit at age 65 of 70% of average compensation up to maximum covered compensation and 22.75% of average compensation in excess of maximum covered compensation for participants with 35 years of service. Thus, it provides integration in accordance with the simplified Table IV under IRC 1.401(l)-3(e). I.e., the maximum permitted dispairity is .65%.

Now, suppose the benefit commences at age 70. Then, the plan says to actuarially increase the age 65 benefit. Suppose the actuarial increase factor is 1.7. Then, we have 1.7 x .65 = 1.105. But, the maximum permitted dispairity at age 70 under Table IV is 1.048. In short, even though the Plan says actuarially increase it appears that Table IV would limit.

Any comments?

[SoCalActuary]

Easy. the way you describe it, employees get a higher benefit of 70% up to the maximum covered compensation.

Then they get a lower22+% above covered compensation.

Now if your question was about a plan with 70% of total compensation plus 22+% of excess compensation, I would have to think about it. But not until that last 5500 is done......