Increased Accruals After Normal Retirement Age?

[ERISA-Bubs]

We would like to amend our defined benefit pension plan to encourage older employees to stay. One idea is to increase the annual accruals upon the attainment of a specified age/service. For example, benefits would accrue at 1% annually, but will accrue 1.25% after age 55 + 30 years service.

Is this allowed?

[Andy the Actuary]

Does your formula overall satisfy one of the minimum accrual rules under IRC Sec. 411(b)???

Does youramended formula satisfy the grants of past-service under IRC Sec. 401(a)(4)

[Guest Quagmire]

We would like to amend our defined benefit pension plan to encourage older employees to stay. One idea is to increase the annual accruals upon the attainment of a specified age/service. For example, benefits would accrue at 1% annually, but will accrue 1.25% after age 55 + 30 years service.

Is this allowed?

As you've described it, generally yes, but as ATA implied, in more complex situations possibly not. This could be facts-and-circumstances discrimination in favor of the highly compensated employees, see § 1.401(a)(4)-5.

[eeyore]

As noted above, there are legal/regulatory issues you will need to consider. However, if your goal is to reduce costs by encouraging employees to work longer, I want to caution you that this may not work. Presumably, there are already some employees working beyond 55/30. In my expereince, it has been difficult to construct realistic retirement patterns under the new design that would offset the cost for those already working longer careers. Keep in mind that your proposed sweetener is a fairly mild incentive, and won't change behavior significantly.