Vested Terminations with Early Retirement Factors

[jwb0323]

A plan allows lump sums. Early retirement is defined as 55&10 and provides subsidized early retirement factors. A participant who is 40 but has 10 years of service wants to retire and take a lump sum, so we are calculating the annuity available at BCD.

Do you have to provide the early retirement reduction factors and then actuarial equivalence reduction thereafter? In practice, we do that for plan terminations but this is not a plan termination and the plan document doesn't state to do this.

Thanks!

[Andy the Actuary]

You should follow the plan document. Your question is one of the reasons the Relative Value disclosures are required.

[FAPInJax]

Definitely follow the document! An early retirement benefit does not necessarily mean a lump sum computed based on the early retirement benefit.

[My 2 cents]

It is my understanding that defined benefit plans must permit participants who terminate employment after meeting the service requirements for early retirement to commence receipt of benefits upon attainment of the required age for early retirement. In that case, the plans are not required to do better than provide the actuarial equivalent of the deferred accrued benefit (even if people who separate from service after meeting both requirements are given a subsidy). Many plans do provide for the same benefit. As noted above by others, do what the plan says!

And don't forget that if lump sums are offered prior to early retirement eligibility, the plan must also permit immediate annuity payments. Not a valid spousal waiver if the choice is between a QJSA later or a pile of money now!