Fixing Too Low of an NRA, at this late date

[Oh so SIMPLE]

I need some help with in-service distributions and NRA.

Prior to 2003, the employer sponsored both a money purchase pension plan and a profit sharing plan. As part of the GUST II restatement, the money purchase pension plan was merged into the profit sharing plan. Both plans specified age 55 as the NRA before the merger and that in-service distributions may be made to an employee who has reached NRA. Since the merger, the profit sharing plan has continued age 55 NRA and in-service distributions once NRA reached.

As part of the Pension Protection Act of 2006, section 905 added IRC section 401(a)(36). Now, age 55 as an NRA that allows in-service distributions of money purchase pension benefits is not acceptable unless age 55 is reasonably representative of the typical retirement age for the industry in which the covered workforce is employed. This is determined based on all the relevant facts and circumstances. Treasury Regulation section 1.401(a)-1(b)(2)(i) and (iii). "Deference" is given to a good faith determination of the typical retirement age, if that determination is made by the plan. 72 F.R. @ 28605 (3rd column). The latest IRS informal pronouncements (2009) are that the employer needs to base that determination on solid empirical data to be entitled to the deference.

No determination was made for the plan in question, and it is feared that industry typical retirement age would be much higher than age 55.

No amendment was made to the resulting profit sharing plan during the time for an exception to the anti-cutback rule (Notice 2007-69).

A few months ago, one of the active HCEs with benefits under the plan and who is older than 55 years withdrew his funds and rolled them into an IRA, where they remain in tact (no withdrawals from the IRA have been made). This is consistent with the plan terms, as written.

Now, the TPA has raised a flag of concern that the plan has a document failure in having failed to raise the NRA to age 62 years and having made a distribution (albeit consistent with the plan documents) of money purchase pension benefits before active HCE was age 62.

We realize that the document failure will require VCP correction, as the EGTRRA remedial amendment cycle has come to an end.

Part A of Notice 2007-69 provided that if the employer had made a good faith determination for a NRA of 55-61 and applied for a determination letter before the EGTRRA remedial amendment cycle, if the IRS then determined that the NRA below age 62 did not comply with the employer's industry, the employer would be required within 90 days of being so notified by the IRS to adopt an amendment increasing the NRA, but that amendment would apply prospectively.

Do you know if the corrective amendment for VCP purposes will be required to apply retroactively to the last day of the first plan year beginning 6/30/2008, and thus effectively require the return of the money in the IRA to the plan?

[Guest ICannotDiscloseMyIdentity]

You could submit, perhaps in proposed form, a retroactive amendment to correct the plan language to have an older NRA and an older in-service age (for the pension assets only). You could argue that it is the late adoption of an "optional law change" amendment as defined in Rev Proc 2008-50.

But, to do that, you may also have to correct the in-service distribution that occurred, or perhaps propose that to the IRS. State that if the retroactive amendment is approved, then the distributions should have been restricted (at least the money purchase portion should not have gone out). That problem can then be addressed by having the participant return the pension amounts.

"Deference" - yeah, the IRS lied to us here, or you could say they decided to use a definition that does not mean "deference" for their use of the word "deference" if you don't like to say they lied.

Oh, and did these rules go through the correct methodology to actually finalize these regulations? These actually started as the proposed phased retirement regulations, which they basically deleted almost entirely, maybe they left the title, and replaced with what we have now (thus, skirting the usual comment period).

[K2retire]

What about the anti-cut back rules? In-service distributions at a particular age age usually a protected benefit.

[John Feldt ERPA CPC QPA]

Does the VCP application cover that? Perhaps that issue, as a problem, needs to be pointed out in the VCP application?

What else could be suggested?