Payments Post-NRA

[EGB]

Facts: As allowed under Reg. 1.401(a)-14(a), the DB plan at issue requires a participant to file a claim for benefits before payment of benefits will commence. NRA under the plan is 62. Plan is frozen and provides suspension of benefits notices to avoid an actuarial increase during the time of suspension. Assume that the plan document does not address these questions (even if it should), so I am looking for what the Code and/or ERISA may require in these circumstances.

Questions:

1. If participant is actively employed past normal retirement age (62)(assume suspension notice properly given), the participant terminates employment at age 63 and does not file a claim for benefits until age 66:

(a) Once the payments commence, is the participant entitled to an actuarial increase from date of termination until age 66?

(b) Or, is the participant entitled to back payments for the period of time from date of termination until age 66?

© If back payments are made, can they only be made if the plan allows "retroactive annuity starting dates" ("RASDs") and, accordingly, must be made in accordance with the RASD rules?

(d) Can the employer choose between an actuarial increase and back payments (assuming the plan allows RASDs, if required)?

2. Same questions as above, but with respect to a vested participant who terminates employment at age 60 and does not file a claim for benefits unitl age 66?

3. What is the annuity starting date for the foregoing participants in (1) and (2) for purposes of providing QJSA notices? Is it the date the participant finally elects to commence payment?

I would truly appreciate any comments on any of the foregoing questions.

[Effen]

First and foremost, these are legal issues and should be handled by the ERISA attorney. I also depends on what your document says and what your suspension notice said. The document should tell you what to do.

I am unsure of the legality of requiring "a participant to file a claim for benefits before payment of benefits will commence". I have heard about it, but have never actually seen a document that used it. I would be interested if any lawyer friends know if that language will stand up in court. For some reason I am thinking that the DOL regs would not let a benefit be suspended unless the participant was still working. Again, another legal issue.

Assuming you can't really suspend someone until they file a claim, and assuming the plan contains no language for an actuarial increase, many attorneys I work with would say retro payments is the only option. They would look at this as a corrective action, not a benefit option. The plan never really had the right to suspend; therefore the benefits must be paid retroactively. I would say retro to 63, since that is when he last worked.

Q2 - same logic, retro to 62.

Q3 - QJSA gets tricky, probably best to correctively amend the plan to allow retro payments so you can obtain proper QJSA elections.

Again, all these are legal questions. The lawyer has to be able to defend whatever the plan decides to do and they may have a completely different opinion. I think the answer hinges on the legality of not paying a benefit until requested, which would get into other issues. For example, did the plan clearly communicate to the participant that they were entitled to a benefit and that they had to formally request it in order to receive it? Did the plan provide benefit statements at least every three years?

[Andy the Actuary]

Agree with Mr. E -- It's retroactive annuity start date time. Of course, the Plan must be amended to so provide. At least these are the conclusions a client's attorney and I came to.