Post NRA Accruals

[Guest jfreeborn]

Im sorry if this has already been posted somewhere--I have searched and cant find an answer.

Question:

Can a plan stop the accrual of benefits for a participant who remains employed by the sponsoring company past the plan's normal retirement age? I know the plan is not required to pay benefits, but can it cease accruals. If the plan sends a suspension of benefits notice, does that allow then to cease benefit accruals?

Thanks as always

[My 2 cents]

I think cessation of accruals on account of attainment of normal retirement age would be a flat-out violation of the age discrimination laws.

All plans (certainly all qualified plans) must continue to provide accruals or contributions on the same basis as is done prior to normal retirement age. Limitations not based on age (i.e., 30 year limit on service for accruals) are permissible.

The suspension of benefit notices are required if the plan's provisions do not invariably preserve the value of the benefits, such as through actuarial increases when benefits are deferred.

[Mike Preston]

There are effectively two reasons for the suspension of benefits notice. The first is to stop paying benefits that would otherwise be payable. The second is that, in some circumstances, the effect of the suspension of benefits notice is to avoid actuarial increases on the suspended benefits. Note, however, that actuarial increases are required post age 70 and 1/2 (one's RBD).

It is possible that there is a confusion somewhere. I certainly agree that the plan can't unilaterally suspend benefit accruals upon attainment of NRA. However, if a participant is fully accrued at NRA then there are some who might argue that, per the formula, additional years after attainment of NRA won't result in an increased benefit.

If, on the other hand, a benefit formula takes into account compensation and one's compensation increases after NRA, it is necessary to use that increased compensation in the determination of benefit at a later date.

[John Feldt ERPA CPC QPA]

And as always, the plan document should spell out what must happen. If the plan document provides actuarial increases, then that must occur. If the plan document has the employer providing suspension of benefits notice, then that must occur instead.