Post NRA Actuarial Increase - 401(a)(26) and 401(a)(4)

[jpm56]

I have a post-NRA actuarial increase 401(26) and 410(b)/401(a)(4) scenario I’d like to get people’s thoughts on.

I have a plan with an active career average benefit formula, (annual accumulation plan) with two participants entitled to a benefit of 13% and 0.5% of plan year comp respectfully. Both participants have compensation and have worked the hours required for a benefit accrual. The participants’ post-NRA actuarial increase is greater than what they would have accrued under the benefit formula.

FIRST, in regards to 1.401(a)(26), I would think they are considered benefit. 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)(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 that the employee benefits due to the actuarial increase.

SECOND, 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; 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 would be helpful. Thanks!

Jeff