Accrued Benefit - After NRA

[Guest Heather_PA]

I am taking a course on Defined Benefit plans and my study partner and myself are conflicting on a certain situation. We have a participant who is age 66 and has not commenced benefits. The NRA is 65 and no suspension of benefits notice was provided. I believe that the benefit would be the greater of NRB actuarially adjusted OR the NRB recalculated by plan formula to include the additional year of accrual. Therefore, I used the following formula to determine the actuarially adjusted benefit...

NRB times APR@65 times (DX65/DX66) divided by APR@66

Now I would compare this to the adjusted accrued benefit by plan formula and use the greater of the two... correct?

[AndyH]

The comparison part is correct. The exact actuarial increase formula is a matter of opinion, and also may depend on the wording in the plan document. It happens to be a contested matter in some circles. If the plan has a pre-mortality assumption for actuarial equivalence, your method (assuming it is N(12)65/N(12)66) is the correct one according to one of the relevant government agencies. Others say that the correct method is APR 65 x (1+i) /APR 66 if there is no forfeiture of the accrued benefit upon death.

(Edited due to initial misread of first post - thanks AtA)

[Effen]

Just throwing in that it in addition to the wording in the plan, it might also depend upon the status of the participant. If the participant is actively working beyond 65 than the discussion is on point. However, if this is a terminated participant who simply did not claim his benefit when he reached NRD you may have an added issue. If you plan is silent, or doesn't specifically state that not requesting the benefit is the same as an election to defer, you may have no authority to suspend his payments and therefore may need to pay the benefits retroactively.

I throw this in because you said "I believe ...", when in reality the document should tell you what to do and it shouldn't be a question. Generally, a plan only gives the ability to suspend a benefit payment if the participant is actively working.

[Hojo]

I have two questions along the same vein:

1) If the plan defines preretirement act equiv as 6% no mortality and post-retirement as 5% with some table with NRD age 65, actual retirement at age 66, how would you define the increase? I've got arguments for APR65 (5% with mort) x 1.06/APR66 (5%with mort) and APR65 (5% with mort) x 1.05/APR66 (5%with mort).

2) If the plan defines the late retirement actuarial increase as occurring at the end of every plan year and someone is retiring mid-plan year after NRD, do you still have to apply the act equiv at the actual ret date or only the increased benefit to the end of the prior plan year? (IE do the regs specify enough to overrule the plan?)