NRA in new plan's document

[doombuggy]

We are having a "discussion" about the wording of the Normal Retirement age in a couple of new documents I have been asked to review. Do you think the following choices are the same or different - and why do you think that?

Choice #1: Attainment of Age 65 and 5 Years of Participation.

Choice #2: The participant's 65th birthday or the 1st day of the plan year containing the participant's 5th anniversary of joining the plan, if later.

[GMK]

If I joined the plan 4 years ago and separated from employment 2 years ago, never to return, I will never have 5 years of participation, so I'll never reach NRA under choice 1. Under the same conditions, I would eventually reach NRA under choice 2.

[Peter Gulia]

Without meaning to diminish a discussion about how text choices can affect provisions in a way that a document's adopter might not understand (and might not intend):

If a 401(k) plan's terms permit a retirement distribution before a participant's normal retirement age and do not require a distribution until a participant's age 70-1/2 (or even later if a non-owner employee has not ended her work for the employer), is it likely that a participant's normal retirement age triggers only an election (or deemed election) to delay a distribution?

Is there anything else that turns on the happening or non-occurrence of a participant's normal retirement age?

[Kevin C]

If choice #1 is the statutory definition from 411(a)(8), i.e. the later of age 65 or the fifth anniversary of participation, I think they yield the same date, assuming no changes in the plan year. Under 1.411(a)-7(b)(1), for determining the NRAge, participation is treated as commencing on the first day of the plan year in which participation commenced.

So, with a calendar year plan and an age 62 participant entering 7/1/2014, the NRAge under 1 is 1/1/2019, since that is treated as being the 5th anniversary of participation. Under option 2, the 5th anniversary of participation is in the 2019 plan year, so NRAge is 1/1/2019, too.

Now, if they change the plan year after someone starts participation, but before reaching NRA, I think you could get a different NRA under #1 versus #2.

[doombuggy]

I have had this issue crop up over 2 plans in 2 days. Both plans allow for in-service w/d and a distribution if you separate from service.

GMK makes an interesting point, however. It gave me a thought that in that example would I end up 100% vested if I left my money in that plan until I was age 65, even though I don't work there? Making the assumption that I am less than 60 YO and the plan 100% vests a participant upon retirement....

[david rigby]

Answering the original question, NO they are not the same.

Note that the statutory definition in IRC 411(a)(8) has nothing to do with service.

[GMK]

I prefer to have NRA simply be an age, regardless of years of service, and then define vesting, etc. separately.

As FGC suggests, how you define NRA may or may not of much consequence, depending on what you want the Plan to say will happen to participants when they reach their NRA.

[My 2 cents]

I prefer to have NRA simply be an age, regardless of years of service, and then define vesting, etc. separately.

As FGC suggests, how you define NRA may or may not of much consequence, depending on what you want the Plan to say will happen to participants when they reach their NRA.

It is my understanding that 100% vesting is automatic upon attainment of NRA while actively employed, so if NRA is a flat 65, someone hired at age 64 would be fully vested on his or her 65th birthday (and anyone hired over age 65 would be fully vested in any accruals immediately).

Answering the original question, NO they are not the same.

Note that the statutory definition in IRC 411(a)(8) has nothing to do with service.

As noted, the law says the earlier of the plan's NRA or the later of age 65 or the 5th anniversary of the time of plan entry. So choice #1 in the original post would only be satisfactory if 65 and 5 years of participation occurs on or before the 5th anniversary of plan entry.

[GMK]

so if NRA is a flat 65, someone hired at age 64 would be fully vested on his or her 65th birthday (and anyone hired over age 65 would be fully vested in any accruals immediately).

Frankly, I don't have a problem with that, but then our plan has immediate 100% vesting.

Depends on your workforce, turnover rates, etc. It's a choice.

[K2retire]

I prefer to have NRA simply be an age, regardless of years of service, and then define vesting, etc. separately.

As FGC suggests, how you define NRA may or may not of much consequence, depending on what you want the Plan to say will happen to participants when they reach their NRA.

It is my understanding that 100% vesting is automatic upon attainment of NRA while actively employed, so if NRA is a flat 65, someone hired at age 64 would be fully vested on his or her 65th birthday (and anyone hired over age 65 would be fully vested in any accruals immediately).

Answering the original question, NO they are not the same.

Note that the statutory definition in IRC 411(a)(8) has nothing to do with service.

As noted, the law says the earlier of the plan's NRA or the later of age 65 or the 5th anniversary of the time of plan entry. So choice #1 in the original post would only be satisfactory if 65 and 5 years of participation occurs on or before the 5th anniversary of plan entry.

Most of the time what we tend to call age 65 with 5 years of participation actually reads 5th anniversary of participation if you go back to the document.

[Peter Gulia]

As others here have noted, it seems that the nuances of defining normal retirement age might matter if the employer might hire (or rehire) a middle-age person who might reach the relevant age without having completed enough vesting service for a fully vested benefit.