Post-EGTRRA "Good Faith" Amendment

[JAY21]

I noticed that our plan document provider's Post-EGTRRA "Good Faith" amendment (needed to be adopted by 12/31/09) seems to have the following options:

1. Just change the in-service distribution age to 62 or later but not the actual NRA for other purposes.

2. Change both the NRA definition and the in-service distribution age to 62 or later.

I'd like to make as few of changes as possible while still complying with final phased-NRA regs.

For the few plans with NRAs of say 55, that may lack supporting industry data for 55, would keeping the NRA at 55 but changing ONLY the in-service distribution age to 62 or later meet the IRS concerns (ie., they would only get a distribution at age 55 if they physically retired) ? Or are there other reasons I need to be concerned about changing the NRA to 62 for to be in compliance ? (you can assume I don't want the change for funding purposes)

Opinions ? Thoughts ? Thanks in advance.

[Blinky the 3-eyed Fish]

The push for NRA 62+ is in-service distribution related. If that's what is restriced to age 62, then by all means a lower NRA can apply to other provisions.

Remember though that the actuarial valuation considers your best assumption. Either amendment choice is irrelevant to your assumed NRA for funding.

[JAY21]

Thanks Blink.

[david rigby]

1. Just change the in-service distribution age to 62 or later but not the actual NRA for other purposes.

2. Change both the NRA definition and the in-service distribution age to 62 or later.

Any change to lower in-service distributions to age 62 [per IRC 401(a)(36)] is voluntary.

[AndyH]

I'm late to this party, but I am puzzled by this thread.

Are Blinky and David saying, for example, that a plan that has a NRA lower than 62 (without the industry justification) but has no in-service distribution provision need not take any action?

Or am I reading too much into the replies?

[Blinky the 3-eyed Fish]

I am not saying that. While the in-service distributions are driving the rule change, I would still amend the plan to a 62 retirement age.

[AndyH]

Ok, that I agree with. Thanks for the clarification.

[JAY21]

So if there is still value in using age 62 for reasons OTHER than in-service distributions why is it ok then to fund for a 100% probability of an early retirement age of say 55. What's the practical difference between this and say a plan with an NRA of 55 but does not allow for in-service distribution. For Example:

Option A: Plan has an NRA of 62 and in-service distribution option at age 62 and an ERA option (no in-service) with fully subsized benefit at ERA of 55 (no in-service distribution option at 55) and assumes a 100% probability of ERA being taken and thus funds for an ERA of 55 (fully subsidized benefit).

Option B: Plan has an NRA of 55 but no in-service distribution option whatsoever.

Sounds like the comments suggest Option A is the better way to go ?? I'm not sure I'm seeing a lot of difference here, what am I missing ?

[AndyH]

Option A would be the only way to go unless you can justify the pre-62 NRA. But you would not want to general test such a plan because the MVAR would be through the roof. And, you still must justify the retirement assumption.

[JAY21]

AndyH, I guess I'm still missing what the practical difference is between option A and option B. Both fund for the same benefit at age 55 (one via a subsidized ERA) and neither has an in-service distribution before age 62.

I agree that option A looks more "cosmetically correct" in showing an NRA of 62 but the bottom line for both scenarios for funding (assuming 100% probability of retiring at 55) and in-service appear virtually the same. Is there any other reason for reasonable retirement ages OTHER than funding and in-service distributions ?? Am I missing some other compelling issue that deals with using a reasonable retirement age ??

[JAY21]

Anyone have any thoughts on why Option A above is superior to Option B ?

[AndyH]

Anyone have any thoughts on why Option A above is superior to Option B ?

Why do you think the first one is an option (unless you have the industry statistical backup)? You are aware of the 5/22/07 regulation and subsequent notices, right?