Unreduced Early Retirement causing forefeiture?

[John314]

Suppose a plan allows for an unreduced early retirement benefit as early as age 55. Normal Retirement Date is age 65. The plan was frozen a couple of year's ago. A participant is currently working and is now eligible to receive an unreduced pension benefit, but the plan does not allow for in-service distributions. Assume that 415 limits don't apply to this person. If this participant waits until a later date (perhaps age 65) to commence their benefit then there has clearly been some benefit "left on the table", but has an impermissible forfeiture of benefits occurred? What if the plan offered in-service distributions? Does it make a difference if the participant is a former participant who consequently is not currently receiving a paycheck from the plan sponsor?

[AndyH]

I don't see why there is an issue with a participant not taking advantage of a subsidized benefit in a frozen plan.   While the person is active, he/she does not qualify for the payment.  If terminated, the language in the document should be read carefully and all required disclosures (at a minimum) should be sent to the participant.

[david rigby]

1.  No.

2.  The plan cannot offer in-service distributions to a participant under NRA.

3.  By "former participant", you probably mean "former employee".  In that case, the participant is a VT, but also happens to be eligible to elect commencement prior to NRA.  However, eligibility at separation of employment is important:  the plan might not provide the same ER subsidy to a participant who terminates employment prior to becoming eligible for ER as to a participant who terminates employment after becoming eligible for ER.

[My 2 cents]

If the participant continues in employment after the date the unreduced early retirement benefits could have commenced but the plan does not permit early retirement without separation from service, in my opinion there cannot be any impermissible forfeitures, since the participant is receiving something of value instead of pension benefits (known as "wages").

Most plans define Normal Retirement Age as age 65 and specify that terminated participants would commence receipt of their benefits at Normal Retirement Age (although the plan may permit the participant to elect to commence benefits at an earlier date).  Even if the benefits at the earlier date would be unreduced, I don't think that the onus is on the plan to get those payments started prior to Normal Retirement Age.  The responsibility to get the payments started moves over to the plan administrator at Normal Retirement Age.

While plans doing so are few and far between, aren't all defined benefit plans permitted to offer in-service benefits commencing at age 62?

[CuseFan]

26 minutes ago, My 2 cents said:

While plans doing so are few and far between, aren't all defined benefit plans permitted to offer in-service benefits commencing at age 62?

Yes. However, a fully subsidized unreduced early retirement benefit is most likely in place to get people to actually retire early, so allowing someone to take in-service of such would seem counter-productive.

[Mike Preston]

Yes, but 2 cents was clarifying point 2 from David's post.