Protected Benefit Issue Regarding NRA Change from 59 to 62

[emmetttrudy]

The NRA in the DB plan was amended from 59 to 62, effective 1/1/2009. A participant terminated 3/1/2009. She had previously been given a distribution estimate using Age 59 for the NRA. After she terminated she was given a distribution packet reflecting the NRA to be Age 62, and of course, this amount was significantly less than the estimate using NRA 59. Isn't there a protection of benefit issue here? Would the participant not be due the higher amount that she had accrued through 12/31/2008 based on the NRA of 59?

[J Simmons]

The NRA in the DB plan was amended from 59 to 62, effective 1/1/2009. A participant terminated 3/1/2009. She had previously been given a distribution estimate using Age 59 for the NRA. After she terminated she was given a distribution packet reflecting the NRA to be Age 62, and of course, this amount was significantly less than the estimate using NRA 59. Isn't there a protection of benefit issue here? Would the participant not be due the higher amount that she had accrued through 12/31/2008 based on the NRA of 59?

Check out IRS Notice 2007-69. There was an exception to the anti-cutback rule allowed for raising the NRA to 62 for pension (DB or money purchase) benefits.

[emmetttrudy]

thank you. i have seen that but doesnt the quoted part below say a terminated participant would still be eligible for payment "in at least the same amount as under the prior plan terms with respect to benefits accrued"? This leads me to believe that when calculating the lump sum, the participant would still be entitled to the larger amount using NRA 59

"In order to comply with § 411(a) and 411(d)(6), a plan subject to § 411 for which the normal retirement age has been raised to comply with the 2007 regulations must ensure that a participant who became or would have become eligible for payment of benefits at the normal retirement age under the prior plan terms, and who has severed from employment with the employer or employers maintaining the plan, continues to be eligible for payment at the same age and in at least the same amount as under the prior plan terms with respect to benefits accrued prior to the applicable amendment date (within the meaning of § 1.411(d)-3(g)(4))."

[emmetttrudy]

The regulations seem to amend the anti-cutback regulations under section 411(d)(6), so a plan amendment that increases the NRA will not violate the anti-cutback rules merely because the amendment eliminates a right to an earlier in-service distribution. But when it comes to payment of the lump sum it appears the participant's distribution amount must be at least as large as it was using the NRA prior to the amendment. Maybe I am misreading the Notice?

[J Simmons]

The regulations seem to amend the anti-cutback regulations under section 411(d)(6), so a plan amendment that increases the NRA will not violate the anti-cutback rules merely because the amendment eliminates a right to an earlier in-service distribution. But when it comes to payment of the lump sum it appears the participant's distribution amount must be at least as large as it was using the NRA prior to the amendment. Maybe I am misreading the Notice?

Certainly they'd have to recalculate the benefit for the already terminated employees.

[emmetttrudy]

Are you saying recalculate it using NRA of 62?