ER Subsidy On Plan Termination

[Andy the Actuary]

A plan provides ye olde 1/15, 1/30 early retirement adjustment factor with e.r. as early as age 55.

The Plan is terminating and will pay lump sums. The employer is ongoing.

As I understand (possibly incorrectly), the distributions must include the early retirement subsidies, if any. That is, we should value the lump sum as the greatest of the lump sums that would start at all possible dates. For example, the lump sum to someone age 35, disregarding non-integral ages, would be valued as the greatest of the lump sums at age 35 of the pension starting at age 65 or the early retirement benefit at ages 55, 56, 57, 58, 59, 60, 61, 62. 63, and 64. This is far more unpredictable now that we have segment rates at play.

How has anyone handled this?

[Effen]

I don't agree. I don't think the lump sum needs to include the ER subsidy. The disparity in the value should be apparent in the relative value disclosures.

[david rigby]

I think Effen is correct, but there may be two other issues:

- what does the plan say (maybe nothing, maybe not), and

- what is the historical precedent (if any).

[Rball4]

In the example the person is only 35 and not early retirement eligible, so they are not entitled to the subsidy. Straight forward age 65 deferred lump sum calc only.