Actuarial Increase after Plan Termination

[Guest DBStudentAct]

A non-PBGC, single participant plan terminated in 2008. Assets have not yet been distributed. The sole participant attained NRA on 1/1/2010.

For calculating his lump sum payable as on 12/1/2010 should a late retirement actuarial increase be credited to his accrued benefit?

His assets are much lower than his lump sum but for accuracy in calculating termination benefit I want to clear my doubt whether this participant is eligible for this increase since the plan has terminated 2 years back.

[SoCalActuary]

I assume the late retirement adjustment is built into the plan document. Further, I assume you are describing a participant who did not reach the 415 salary limit in the past.

In that case, you do follow the plan document and illustrate the benefit including the late retirement adjustment.

[Guest DBStudentAct]

Straight from the plan doc:

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BENEFIT UPON LATE RETIREMENTIf a Participant continues employment with an Employer beyond Normal Retirement Age, subject to the provisions of Article 6 and subject to the minimum benefit in Section 4.7 if the Plan is Top Heavy, the Participant may retire and be entitled to receive an amount payable as a Normal Form of Retirement Benefit or in any of the Optional Forms of Distribution permitted in accordance with Sections 5.1 and 5.2 as follows:

(a) Determination of Benefit: A Participant’s Accrued Benefit upon late retirement will be an amount equal to his or her Accrued Benefit as of the Participant’s Normal Retirement Date. Such benefit shall be commenced as of the Participant’s Normal Retirement Date in accordance with Section 5.2 as though the Participant had retired. In the event that the benefit formula for determining Accrued Benefits is amended after the commencement of benefits such that the Participant’s benefits would be increased, such increase shall only apply and be payable to such Participant from the date of such amendment, calculated based on the Participant’s Average Compensation (if applicable) and Years of Benefit Service to the date of such amendment, adjusted by the Actuarial Equivalent of the previously distributed benefits.

(b) Effect Of Attainment of Age 70½: Notwithstanding the above, except with respect to a 5-percent owner of the Employer as defined in Code §416(i)(1)(B)(ii), a Participant's Accrued Benefit shall be actuarially increased to take into account the period after Age 70½ in which the Participant does not receive any benefits under the Plan. The Participant shall be entitled to a minimum of the Actuarial Equivalent of the Participant’s Accrued Benefit as determined as of the April 1 following the calendar year in which the Participant attains Age 70½ (January 1, 1997 in the case of a Participant who attained Age 70½ prior to 1996), and ending on the date on which benefits commence after retirement in an amount sufficient to satisfy Code §401(a)(9).

The amount of actuarial increase payable as of the end of the period for actuarial increases must be no less than the Actuarial Equivalent of the Participant's retirement benefits that would have been payable as of the date the actuarial increase must commence plus the Actuarial Equivalent of additional benefits accrued after that date, reduced by the Actuarial Equivalent of any distributions made after that date. The actuarial increase is generally the same as, and not in addition to, the actuarial increase required for that same period under Code §411 to reflect the delay in payments after normal retirement, except that the actuarial increase required under Code §401(a)(9)© must be provided even during the period during which an employee is in Code §203(a)(3)(B) service.

For purposes of Code §411(b)(1)(H), the actuarial increase will be treated as an adjustment attributable to the delay in distribution of benefits after the attainment of Normal Retirement Age. Accordingly, to the extent permitted under Code §411(b)(1)(H), the actuarial increase required under Code §401(a)(9)©(iii) may reduce the benefit accrual otherwise required under Code §411(b)(1)(H)(i), except that the rules on the suspension of benefits are not applicable.

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My reading of this section was that there is no late retirement increase provision in the plan. Could someone please confirm?

Thanks in advance for all replies.

[SoCalActuary]

Does the plan provide for a retroactive annuity starting date? If so, you provide the benefit at NRD, retroactive to that date, and continue thereafter. The Participant does not lose benefits, except interest on the late payments.

Also, does the plan provide and does the administrator deliver a notice of suspension of benefits? If so, then there is no requirement to give an increase.