Early Retirement Pensioner Returning To Work. What Happens To Benefit?

[Stash026]

How does everyone generally handle someone who is out on early retirement who returns to work? The person had a 1 year break in service before returning to work 1/4 in '14 and 1/4 in '15 before retirning again.

Is there an IRS regulation that freezes the early retirement benefit from the first time employed, with a new reduction for the new accrued benefit?

Or do people generally recalculate the previous benefit, based on the additional time worked, since there was only a 1 year break?

[david rigby]

First, follow the plan document. Likely, it already contains guidance.

Second, while many plans contain language that suspends the monthly benefit during the period of re-employment, I urge plan sponsors to consider removing this provision if the plan is frozen. (That is, if the participant can't get additional accrual during re-employment, what value is there in a suspension?)

[My 2 cents]

If the return to work was prior to NRA and payments are stopped, probably have to have a new benefit commencement date (and spousal consent etc.) when payments restart.

[Stash026]

The document doesn't actually explicitly state how to handle this. The participant returned to work before NRA, for all of 6 months, before retiring again. Basically, what he's asking is for his entire benefit to be recalculated with about 20 months taken off his early reduction, instead of having the initial benefit stay the same and the new early reduction only on the "new" piece

[My 2 cents]

Probably would be appropriate to reduce the total benefit (with the new service) by the present value of the payments already made and revise the early retirement reduction. Both aspects would presumably be part of there being a new annuity start date.

Is the plan totally silent on all relevant aspects? Says nothing about stopping payments while reemployed? How to handle the restart? Probably ought to get an official interpretation of the ambiguous aspects of the plan from the plan administrator (unless you are or want to be a plan fiduciary).