401(a)(26) - Post NRA Actuarial Increase

[jpm56]

I have a plan with an active career average benefit formula. (annual accumulation plan) There are two participants receiving $0 compensation for the plan year, so they do not receive a benefit accrual for the plan year. However, they're accrued benefit is actuarially increased because they are both post NRA, and the plan takes the greater of the two.

I would think that for 1.401(a)(26) purposes they would not be considered benefit, however under 401(a)(26)-5, it states that in general "an employee is treated as benefiting under a plan for a plan year if and only if, for that plan year, the employee would be treated as benefiting under the provisions of §1.410(b)–3(a)".

Under 1.410(b)-3(a), it states that an employee is considered benefit in a defined benefit plan if "the employee has an increase in a benefit accrued or treated as an accrued benefit under section 411(d)(6)."

Technically, the participants do have an increase in their benefits accrued. Would you consider them benefiting for 401(a)(26) purposes?

Thanks for any feedback on this,

Jeff

[SoCalActuary]

From my perspective, these two did not have an increase in their accrued benefit payable at NRA. They just "reinvested" their benefit not taken.

As $0 was paid, did they have any hours worked? If not, they have no place in the 401(a)(26) calculations, IMO.

[jpm56]

From my perspective, these two did not have an increase in their accrued benefit payable at NRA. They just "reinvested" their benefit not taken.

As $0 was paid, did they have any hours worked? If not, they have no place in the 401(a)(26) calculations, IMO.

Thanks for your take on this. The two did have 1000 hours worked, both are 5% owners.

[jpm56]

I have another scenario I wanted to get people's take on.

This single ER plan has two participants entitled to a unit benefit of 13% and 0.5% of plan year comp respectfully. Both participants’ post-NRA actuarial increase is greater than what they would have accrued under the benefit formula. Under 1.410(b)-3(a)(2)(iii)(F), an employee is considered benefiting if "The employee has attained normal retirement age under a defined benefit plan and fails to accrue a benefit because of the provisions of section 411(b)(1)(H)(iii) regarding adjustments for delayed retirement." I read 411(b)(1)(H)(iii) to basically say in this case that the employee benefits due to the actuarial increase. From a 401(a)(26) perspective, it looks to me that they would be considered benefiting, and therefore be included in the test.

Assuming they are considered benefiting, they would need to be included in the 410(b) and 401(a)(4) tests. Under 1.401(a)(4)-3(f)(3), the general rule indicates to me that the accruals for the plan year are taken into account, however it states that any actuarial increases in an employee's accrued benefit solely because the employee has delayed commencing post NRD may be disregarded. In reviewing the examples in the code, it looks to me that the benefit accrued based on the benefit formula would be used for testing. Any thoughts?

Thanks,

Jeff