Most Valuable Accrual for Early Retirement Subsidy

[LarryDavid]

I have a plan that provides an early retirement reduction at 4.8% per year from age 62 to age 55, with no reduction at any age with 30 years of service.

For General Test purposes, should I incorporate future service in determining the most valuable accrual rate for an employee that does not yet have 30 years of service, but would attain 30 years before age 62?

For example, I have a participant age 50 with 25 years of service. Should his most valuable accrual rate be based on an age 55 benefit with no reduction (since he would have 30 years of service at this age), or the plan's regular 4.8% per year reduction (since he does not have the required service eligibility for unreduced benefits as of the testing date)?

[Effen]

1.401(a)(4)-3(d)(1)(ii) - Most valuable accrual rate.—

The most valuable accrual rate for an employee for a plan year is the increase in the employee's most valuable optional form of payment of the accrued benefit during the measurement period, divided by the employee's testing service during the measurement period, and expressed either as a dollar amount or as a percentage of the employee's average annual compensation. The employee's most valuable optional form of payment of the accrued benefit is determined by calculating for the employee the normalized QJSA associated with the accrued benefit that is potentially payable in the current or any future plan year at any age under the plan and selecting the largest (per year of testing service). If the plan provides a QSUPP, the most valuable accrual rate also takes into account the QSUPP payable in conjunction with the QJSA at each age under the plan. Thus, the most valuable accrual rate reflects the value of all benefits accrued or treated as accrued under section 411(d)(6) that are payable in any form and at any time under the plan, including early retirement benefits, retirement-type subsidies, early retirement window benefits, and QSUPPs. In addition, the most valuable accrual rate must take into account any such benefits that are available during a plan year, even if the benefits cease to be available before the end of the current or any future plan year.

I think if you are doing a general test, you would need to count those subsidized benefits if they are currently eligible, but not if they were not. This makes sense to me based on the intent of the rule, but I'm not positive and hope for other responses.