Fully Subsidized Benefit at Age 50

[YankeeFan]

Prior to plan termination, can a defined benefit plan with a NRA of 62 add a fully subsidized early retirement benefit at age 50 as opposed to the more common age 55? I would like to make sure the IRS would not question this approach.

[Effen]

I would make sure that it is not discriminatory, otherwise I don't really see a problem.

However, why would you want to do that? If the plan has excess assets, just follow the current plan language and allocate them in a non-discriminatory manner (assuming the plan calls for this). You will need to check the final distribution against the 415 limit at each participants age anyway. So, if you are amending the early retirement age as a way to push more of the excess to an HCE, its most likely going to be a discriminatory amendment and therefore not allowed.

[Andy the Actuary]

With attorney agreement, have put such provision into several professional plans. The attorneys have not yet applied for d-letters but no problems anticipated.

[My 2 cents]

The big problem with using a low age as normal retirement age (yes, I saw that you were talking about early retirement) is that sometimes it was used as a way to permit in-service withdrawals at too young an age. As long as the 415 limt is properly reduced and permitted disparity is not an issue, nobody has a problem with subsidized early retirement benefits at age 50 (so long as a bona fide separation from employment with the sponsor's controlled group occurs). If permitted disparity is involved, you must reduce at least the excess portion in accordance with the applicable regulations. Early retirement at age 50 could not involve in-service distribution issues, since the plan could not permit early retirement benefits before age 62 without separation from service. Hope this helps.