most valuable accrual rates

[Gary]

generally the plans I work with provide that if an employee terminates with a vested benefit before NRA, for example age 40, he can recieve his benefit as an act equiv. life annuity at age 40.

so when computing the MVAR I compute the EBAR for each age from 40 to NRA of 62 for eg.

This often results in an MVAR that is much larger than the normal EBAR.

It appears in the above eg. vesting percentages are not applied.

If a plan (though not common) has terms that only provide for payment of benefit at NRA (aside from plan term) then it would seem that the MVAR would only be computed at NRA.

This would minimize the disparity between normal EBAR and MVAR. Perhaps small payouts (under 5k) could be made and that is it.

The above is presented in the context of a small plan (i.e. less than 10 participants).

Why not? Am I missing something?

Thanks

[SoCalActuary]

I don't know what question you are asking.

Remember that the issue is also about the pre-retirement death benefit, which must show the conversion of the J&S benefit at plan rates vs the benefit at testing rates.

Here's another perspective: If you have a small plan that pays no benefits until retirement, then you also have an administrative burden to track that 25 year old terminee until the business closes.

[AndyH]

I think I understand the question, and agree with you except for SoCal's point, which is that the benefit that is tested is the plan QJSA at each age, so as I understand the proper procedure you convert the benefit to a QJSA using the plan rates, then convert that to a SLA at testing age using testing rates. Essentially this would in theory highlight any early retirement subsidies, or form of payment subsidies.

[Gary]

i was trying to take position that no payment before age 62 thus no MVARs computations before age 62. that is, whether it be death or termination, payment is deferred to when participant is or would have been age 62; granted administratively it is inefficient, but with small plans (< 10 participants) it likely won't be relevant.

intent being that the HCEs do n ot have the high MVARs at young ages (like age 30, 40 or so), thus making testing easier to pass.

thanks

[AndyH]

If no payment before 62 then no MVAR before 62. Agree.

Larry Deutch used to advocate this design for small plans to avoid the MVAR - no payment at all before NRA. Or at least he did in a session that I attended years ago. This could cause other issues, but is simplifies the MVAR.

[SoCalActuary]

If no payment before 62 then no MVAR before 62. Agree.

Larry Deutch used to advocate this design for small plans to avoid the MVAR - no payment at all before NRA. Or at least he did in a session that I attended years ago. This could cause other issues, but is simplifies the MVAR.

As mentioned before, it means that you track terminated participants until the plan is terminated, then you try to find and pay them.

Also, you pay PBGC premiums each year for them, and you have per-participant administrative fees from the TPA each year.

Do you really want the testing to drive the administration?