Frozen DB Plan - early retirement window

[Guest ERISAk]

Can a frozen defined benefit plan be amended to add an early retirement window for employees who may potentially be highly compensated employees (because of age and service)?

[Andy the Actuary]

So long as coverage/benefits are non-discriminatory. Careful: If Plan was frozen before magic September 2005 date and you haven't been certifying AFTAP, this might now subject the Plan to the 436 requirements.

[Guest ERISAk]

Can the frozen portion of plan and non-frozen early retirement window portion of the plan be tested separately for purposes of nondiscrimination? That is, will the fact that the plan has been amended for early retirement window affect the frozen portion of the plan and the fact that the frozen portion of the plan was satisfying nondiscrimination on a frozen plan basis?

[My 2 cents]

_{It's always necessary to worry about an early retirement window passing coverage if any of the eligible group are HCEs, whether the plan is frozen or not. Sometimes the window needs to exclude one or more of the HCEs to be sure that coverage will be passed.}

_{I would second Andy the Actuary's caution - watch out if there are any plan improvements if the plan has been frozen since before September 2005. If that exemption is lost, you can't get it back! This could be particularly acute if liberalizing the early retirement requirements were found to lose the exemption, the plan's funded percentage were found to be below 80%, and the plan offers accelerated options that would be subject to IRC Section 436 restrictions. Not much fun offering an early retirement window if the participants can't elect the forms they want, especially if they could before the window. Even tougher to take if an HCE is not eligible for the window but due to reach retirement eligibility in a year or two, the window is adopted, and then when the HCE goes to retire, the choice of taking a lump sum without restriction is gone.}

_{We generally would certify AFTAPs for frozen plans, whether exempt from application of IRC Section 436 or not. An actuarial valuation is required every year anyway. How much extra work is an AFTAP certification? It could be relevant for other purposes anyway. Long-frozen plans aren't exempt from the at-risk rules (including possible restrictions on non-qualified deferred comp), are they?}

[david rigby]

Excellent advice above. One other thing to worry about: assuming you construct a non-discriminatory ERW, if any of the accepting EEs have a QDRO, it is very likely that the Alternate Payee must also get a portion of the ER subsidy. Check carefully.

[david rigby]

_{How much extra work is an AFTAP certification?}

It's enough extra that we invoice for it.

And if you have accrued contributions, it's possible (likely?) that your final AFTAP differs from your estimated AFTAP ratio.

[My 2 cents]

If any HCEs benefit from the window, it would probably become necessary to worry about compliance tests that would otherwise have been passed on a virtually automatic basis. You might find it necessary to separate the covered population into two groups to be tested separately if those eligible for the window include any HCEs. Whether the plan loses status as a frozen plan or not, the testing of the group not getting the window is trivial (since no HCEs in that group are benefitting), and you only need to worry about testing those getting the window, to make sure that it passes coverage. The testing is with respect to those offered the window, not just those taking it.

[Guest ERISAk]

Is there a special rule under code section 401(a)(26) applicable to early retirement windows..that would still apply with a frozen d/b plan?

[ubermax]

I've attached a write-up discussing early retirement windows - it may or may not address the current issue but it looks pretty good . .

Early Retirement Windows.doc

[Guest ERISAk]

thanks

[Andy the Actuary]

I've attached a write-up discussing early retirement windows - it may or may not address the current issue but it looks pretty good . .

Thank you. This was a handout at a professional meeting? While I haven't read the entire piece, it doesn't appear to say.

Would you please identify the source and the approximate year prepared. Thank you.

[ubermax]

the note goes back to 2006 - got it from an attorney who along with myself was representing a client that was undertaking a window - at the time there wasn't too much available from various meeting notes that I had - I thought the note was good in that it touched on several different areas .

my primary interest and focus at the time was non-discrimination testing - don't think PPA changed that very much if at all - but I could be wrong on that ??

but again I didn't necessarily think it would answer the OP's question but rather wanted to share what I had and much of it is probably still relevant.