Plan Termination

[Dinosaur]

A DB plan has an Early Retirement Benefit (ERB) if the participant has attained age 60 and completes 20 years of service. The reduction is 1/2 of 1% for each month that retirement precedes normal retirement age. Normal Retirement Age is 65.

Now the plan terminates in a standard termination.

Say an active participant is age 61 and has 19 years of service at plan termination. At date of plan termination the participant did not meet the service requirements for an ERB.

Since the plan terminated, does the participant still get the ERB at date of distribution since the participant would have had 20 years if the plan did not terminate? Is this preserved?

How about if an active participant is age 58 and has 17 years of service?

I think that if the participant would have the 20 years by normal retirement age then you would value the ERB.

I remember doing this a long time ago but can't find anything on it.

[Andy the Actuary]

So long as organization is on-going, in a standard termination the annuities and lump sums must provide for active participants to grow into the subsidy. See attached IRS Rev. Rule 85-6

IRS_Rev._Rul._85_6_Early_Retirement_Subsidy_Termination.PDF

[Dinosaur]

So long as organization is on-going, in a standard termination the annuities and lump sums must provide for active participants to grow into the subsidy. See attached IRS Rev. Rule 85-6

Perfect. Thanks so much