Is early retirement a protected benefit?

[Santo Gold]

Both a PS and an MP Plan had an early retirement feature of age 55 and 5 YOP. The plans were merged a few years ago and I believe the merged plan showed an Early retirement age of 59-1/2. Is that permissible? Is the 55 and 5 a protected benefit or can we eliminate that?

I don't think it should have been eliminated, at least not for the current participants in the plan as of the date of the merger.

[david rigby]

IRS Reg. §1.411(d)–3(g)(6)(i))

http://ecfr.gpoaccess.gov/cgi/t/text/text-...26/26tab_02.tpl

[Santo Gold]

IRS Reg. §1.411(d)–3(g)(6)(i))

http://ecfr.gpoaccess.gov/cgi/t/text/text-...26/26tab_02.tpl

Thanks David. That's a pretty good link and confirms that the early retirement cannot be eliminated.

Do you think they could eliminate it for new participants and preserve it for the existing participants?

[david rigby]

Do you think they could eliminate it for new participants and preserve it for the existing participants?

For anyone who is not yet a participant, there are no protected benefits.

[MoShawn]

I have a similar question. A takeover plan has early retirement at age 60 with 7 years of service. The plan has 3-year cliff vesting, and permits immediate distribution on termination of employment.

Considering the early retirement provision cannot "benefit" anyone as it is currently written, is it still a protected benefit? No one can possibly be in a worse position if it were removed.

[david rigby]

Remove for future accruals or future participants.

[Kevin C]

In SMMoran's situation, what protected benefit would be eliminated by removing the early retirement provision? I'm assuming this is a DC plan.

Early retirement vs regular termination doesn't affect the participant's account balance, unless it affects the participant's right to receive the contribution for the year. For example, if the plan specifies early retirement as an exception to a 1,000 hour and employment on the last day of the year requirement to receive the contribution for that year. If it does, the amendment might be a problem unless the amendment is effective on the first day of the plan year and is adopted before the effective date.

Vesting is not affected by the amendment because everyone would be 100% vested under the 3 year cliff vesting well before reaching age 60 and 7 years of service.

Distribution timing is not affected because the plan provides for immediate distribution on termination of employment for all types of terminations, not just early retirement.

If you consider distribution at early retirement as a separate optional form of payment, it can still be eliminated from a DC plan as long as an otherwise identical lump sum distribution is provided [1.411(d)-4, Q&A2(e)], which is the case here.

What else is left to be protected under 411(d)(6)?

If the amendment could actually affect someone, then I would agree it must be prospective only.

[Guest Sieve]

I agree with Kevin's good analysis, and the Yogi Berra-esque conclusion that a DC plan's ERA need not be protected if there is nothing to protect. In plan conversion situations, the potential ERA benefits (based on plan provisions)that I most often find that require protection (for past accruals) are (i) in-service distributions at ERA (for PS or other employer contributions), (ii) allocations for employment termination at/after ERA in the year of the conversion, and (iii) full vesting (if y/s for ERA is less than 6).