Actuarial Assumptions and Post-Retirement Age Increases

[mal]

Under IRC 411(b)(1)(H) a defined benefit plan must generally pay an actuarially increased benefit to any participant who delays retirement beyond normal retirement age. (I know some exceptions apply, but that is not our issue here.)

I would assume that the plan's definition of actuarial equivalency would need to be the same for all participants, including those who are beyond normal retirement age, but honestly I'm not sure. If the actuary deemed the assumptions to be reasonable, could a plan adopt a different set of equivalency factors for those who have reached NRA?

This causes me concern because of 411(b)(1)(H)(i) which prohibits a reduction in the rate of benefit accrual because of the attainment of any age.

Thanks in advance.

[david rigby]

"adopt" is a potentially confusing term in this discussion. In general, AE must be defined in the plan (it's part of "definitely determinable").

Can you have different AE definitions for different groups? Maybe, but that's a potential violation of non-discrimination. Not sure why you would want to do this.

Must the AE defnition for post-NRD increases be the same as other AE defintions? Yes, NO, assuming no discrimination in favor of HCEs, and clarity is essential.

This discussion might also help: http://benefitslink.com/boards/index.php?/topic/53203-late-retirement-benefit/

[My 2 cents]

If a plan's definition of actuarial equivalence specifies (for most purposes) 8% and a particular mortality table but the definition of actuarial equivalence goes on to say that actuarial equivalence for purposes of calculating benefits deferred beyond normal retirement age is 7% compounded annually (with no recognition of mortality), would that be an acceptable basis for actuarial equivalence for deferred commencement? Would it obviate the need to issue suspension notices?

If the 7% were not mentioned in the definition of actuarial equivalence but were specified in the provision governing deferred retirement benefits, would that make any difference from the 7% being in the actuarial equivalence definition?