Significant Detriment

[jpod]

Employer is opening up an early retirement incentive window. Eligible employees who elect to take advantage of the incentive get extra years of service factored into their qualified defined benefit pension plan benefit, whether they are retiring at, after or prior to the NRA, which is 65. All of this being done via an appropriate plan amendment; no EEOC, 401(a)(4) or other qualification concerns, except possibly one: Employer wants to condition the extra years of service on pre-age 65 employees taking an immediate pension rather than deferring until age 65, which they have the right to do, obviously. Is this a "significant detriment" that would make any consent to take a pre-65 distribution invalid under the 411 regulation?

[My 2 cents]

Just curious as to why the employer wants to complicate the window with this requirement.

[david rigby]

Is the ER concerned about the ERF?

Many DB plans that offer early retirement use an early reduction factor that provides some subsidy (perhaps small), as compared to a true actuarial equivalent reduction. If so, that means the employee who defers receipt until 65 will forego some or all of that subsidy. The net result is that the employer's proposed condition will cost the plan more.

[jpod]

Does it make a difference what the reasons are? While I didn't hesitate to question my client on the reasons, I wasn't asked for an opinion on the reasons, just the legality.

[david rigby]

OK. IMHO, the proposed condition is likely to be irrelevant, in which case I suggest there is no "significant detriment". I base my conclusion on experience with many ERWs, where everyone elected an immediate commencement date. Others may have different experience.

Caveat: I've seen a ERW in a government plan with some different wrinkles, but not covered by ERISA.

[jpod]

How is it irrelevant? If it's a "significant detriment" you have a qualification problem. And, arguably, the participant's consent and therefore any spousal consent to something other than a J&S are invalid.

[Kevin C]

So, if they consent to an immediate pension, they get extra years of service credit, but if they defer the distribution, they don't get the extra service credit? I don't see how that could be anything but a significant detriment to someone who does not consent to immediate payment.

It's been a long time since I dealt with an early retirement window, but from what I recall, termination of employment within a certain date range was all that was required to receive the extra service.