Post 70.5, Pre NRA Cash Balance Actuarial Increases

[stbennet]

Plan specifies that non 5% owners get actuarial increases the April 1st after age 70.5. Can anyone point to or provide guidance whether or not this applies if the participant has reached NRA (5 years participation is required.)

Thanks.

[Effen]

What does the plan say and what has the Plan Administrator done?

In order to freeze the accrual, you must give the participants a 204(h) notice. No notice, no freeze. Many people assume that if the plan provides the greater of the actuarial increase or the age/service accrual, then all is well. However, recent IRS statements imply that if the plan doesn't specifically state that the late retirement benefit is the greater of the two, then the participants should recieve both (just like post 70.5).

Some attorneys take the position that if the plan is silent then the payments must be retroactively paid since the PA had no authority to suspend them in the first place.

Several opions, but as a general rule, if you didn't give the participant a notice, you will need to either make up the payments, or provide some sort of adjusted benefit recognizing the missed payments.

Lots of old threads if you do a search.

Also, look in 1.411(b)-(2)(b)

[SoCalActuary]

I don't get the point.

A continuing cash balance plan provides interest credits and service credits for participants. What is the difference between that benefit feature and the one that provides an actuarial increase for late retirement?

[Effen]

I didn't think they were asking about a cash balance plan? But even so, the actuarial rollup is not the same thing. AB65(N65/N66) is not the same as just giving another accrual and interest credit.

However, post PPA since cash balance accounts are no longer connected to 417(e), I think your theory might be ok.

[SoCalActuary]

I didn't think they were asking about a cash balance plan? But even so, the actuarial rollup is not the same thing. AB65(N65/N66) is not the same as just giving another accrual and interest credit.

However, post PPA since cash balance accounts are no longer connected to 417(e), I think your theory might be ok.

I think the heading of the original post used the cash balance reference. That was my clue.

[AndyH]

I don't get the point.

A continuing cash balance plan provides interest credits and service credits for participants. What is the difference between that benefit feature and the one that provides an actuarial increase for late retirement?

Well, there is still an annuity associated with the balance, right? So wouldn't that annuity need to get increased in the traditional way, and compared to the annuity associated with next year's balance? Maybe the pay credit is frozen and the interest credit is very small. Or consider a vested term.

I don't know the answer - just finding this to be an interesting question.

[SoCalActuary]

I don't get the point.

A continuing cash balance plan provides interest credits and service credits for participants. What is the difference between that benefit feature and the one that provides an actuarial increase for late retirement?

Well, there is still an annuity associated with the balance, right? So wouldn't that annuity need to get increased in the traditional way, and compared to the annuity associated with next year's balance? Maybe the pay credit is frozen and the interest credit is very small. Or consider a vested term.

I don't know the answer - just finding this to be an interesting question.

With a badly drafted document and confused administrative rules, you could be right. But the joy of a properly designed CB plan is that the account grows every year regardless of NRA until the annuity starting date is actually reached.