post age 65 actuarial increase

[Gary]

An employee turns 65 on 1/1/91 w/ a pension of 20 * 25 = 500/mo. The person retires on 1/1/94 w/ an accd ben of 23 * 28 =644/mo. The rate per month increased from 20 to 23 per month for each yr of svc. The person gets greater of age 65 benefit act increased or 644. My question is should the age 65 benefit be recomputed due to increase in benefit rate and thus be a pension of 23 * 25 =575 and have that amount act. increased?

[david rigby]

Not unless the Plan says to do it that way. The usual understanding of the phrase "normal retirement benefit actuarially increased" is to apply such increase to the actual dollar amount (monthly or annual as the case may be). Intervening plan amendments are not applied.

[Guest]

I may disagree with pax. I think it depends on when the amendment that increase the multiplier from 20 to 23 was effective. If it was effective 1/1/92, I think the participant gets the greater of 1) the age/service (23*28=644), 2) the actuarially increased Normal Ret Ben. (20*25*N65/N69) or 3) the 1/1/92 ben increased to 1/1/94 (23*21*N66/N69).

The actuarial increase is granted to avoid a 411(d)6 violation and therefore if the '92 benefit is not also increased, you may violate 411(d)6.

All of this, of coarse, assumes that there was no suspension of benefits notice issued to the participant.

[Gary]

The suspension of benefits notice was not provided. Your comments make sense. Any place in regs that might specifically address this type of situation? Perhaps I need to dig in 411. Any thoughts?

[david rigby]

I've been back at this issue. I could not find any regs. My only reference is IRC 411(B)(H). Am I missing something?

Oh, there it is: IRS Proposed Reg. 1.411(B)-2(B)(4)(iii).

BTW, I agree with Keith's comment above. The adoption date is relevant. My original response hastily assumed that was not an issue.

[Gary]

I agree with you Pax

[Gary]

Getting more specific. Say a person reaches age 65 on 1/1/95 and say he retires on 7/1/99. Let's assume that the actuarial increase as of 1/1/99 is greater than the actual accrued benefit.

Say the benefit formula is increased from $ 25 per month for each year of service to $ 30 per month as of 4/1/99.

It turns out that the AB at 7/1/99 applying the new formula is larger than the 1/1/99 AB act. increased until 7/1/99.

However, if I compute the AB at 4/1/99 at the time of the amendment then act. increase that 4/1/99 AB until 7/1/99, it is greater than the 7/1/99 AB.

Is that a reasonable way of determining the AB after age 65 or can we only do it as stated at first in this question?

Gary

[david rigby]

I'm not sure why you are actuarially increasing the 4/1/99 benefit to 7/1/99. Usually this provision refers to the normal retirement benefit, which in this case is calculated as of 1/1/95.

[Gary]

Yes pax

but isn't it true when act increasing a ben after age 65, you do this at the end of each plan year and then again at actual ret?

The only difference in my eg. is that I am considering doing it again at the time of amendment.

Keith N addresses this issue to an extent in one of his earlier responses (you may want to look at his repsonse too).

[Guest]

Gary, I think you have 3 pieces:

1) 1/1/95 acc ben actuarially increased to 7/1/99 actual retirement date (BTW it's now 11/00 and further adjustments may need to be made if it wasn't done correctly on 7/1/99)

2) 4/1/99 acc ben calced under new formula based on age/service at 4/1/99, then actuarially increased to 7/1/99

3) 7/1/99 acc ben calced under new formula based on age/service at 7/1/99

I think I'm agreeing with your earlier post. Also, a suspension notice can be issued at any time in order to stop the actuarial rollup if your client desires.

[Gary]

Keith

I agree with your response # 2, or at least the logic behind it. On what grounds can you support # 2? I think the 411 regs can lead us to the conclusion you make in #2, but do you find it to explicitly handle that situation or any other reg explicitly support that? Although, I do come to the same conclusion as your # 2 also.

[Guest]

My position has been that 411(d)(6) prohibits the reduction of the accrued benefit. If the actuarial equivelant is not granted, than the accrued benefit has been reduced.

I think technically the age/service benefit at EVERY day from 1/1/95 to 6/30/99 should be actuarially increased to 7/1/99, but practically you probably only need to look at the 1/1/95 benefit and the 4/1/99 benefit because everything else will most likely be lower. I have had situations where due to large fluxuations in pay, the actuarial equivelant of the NRA benefit was less than the actuarial equivelant of an age/service benefit from a later date so it's not always a slam dunk.

[Gary]

Does anyone know if the 411 post normal ret age accruals apply to State Plans? i.e. for a teachers plan? I thought there may be something in ADEA that might require a gov plan to apply 411 post NRA accruals.

Gary

[david rigby]

IRC 411 (in entirety) does not apply to governmental plans.

However, the plan itself or some provision of state law might make the plan subject to the application of all or a portion of 411.