Testing Age

[figure 8]

DC Plan NRA = 65

CB Plan NRA = 65+5

When combining the plans for testing, is the testing age 65 (because there is no uniform normal retirement age, in which case you use 65)? Or is it 65+5 (because there are different uniform normal retirement ages provided, in which case you use the latest nra)?

I have always understood the answer to be one thing, but for some reason I'm reading over the code today, reading through discussions, and find myself second-guessing things. It doesn't seem like there should be much controversy on this issue though. Just looking for some reassurance.

Thanks in advance.

[figure 8]

This is what's getting me caught up...

From 401(a)(4)-12, definition of testing age:

(1) If the plan provides the same uniform normal retirement age for all employees, the employee's testing age is the employee's normal retirement age under the plan.

(2) If a plan provides different uniform normal retirement ages for different employees or different groups of employees, the employee's testing age is the employee's latest normal retirement age under any uniform normal retirement age under the plan, regardless of whether that particular uniform normal retirement age actually applies to the employee under the plan.

(3) If the plan does not provide a uniform normal retirement age, the employee's testing age is 65.

 

"Plan" refers to the aggregated plans. (1) doesn't seem to apply since you have two different uniform normal retirement ages for all employees. (2) doesn't seem to apply since you don't have different uniform normal retirement ages for different particular employees or employee groups (i.e., all employees have the same two different uniform NRA definitions). But I might just be getting caught up on the word "different," as I'm thinking that means (2) only refers to cases where you have employees that have different NRA definitions than other employees.

Which leaves (3) as the choice. But what seems strange about that logic is if you had a case where DC NRA = 62 and DB NRA = 62+5, that means you'd use 65 as the testing age. It seems like (2) "should" make more sense as the choice (take the later of the two). But (2) has that phrase "different employees or different group of employees" that seems to imply that it would be 65 (choice 3) if all employees had the DC NRA of 62 and DB NRA of 62+5. Is this a case where the literal reading does not match the intent?

[CuseFan]

Here is an Answer Book excerpt. Note that 65 & 5 is considered uniform. I would defer to Tom for further clarification but expect that he may be unavailable dealing with Irma. So in your 65/65 & 5, or 62/62 & 5 examples, I think your "& 5" would be your testing age as I read it. Interested in hearing other opinions. Thanks for the Friday brain teaser!

Coverage and Nondiscrimination Answer Book - Poje, Bitzer and Topazio,Q 8:8,How is the testing age for purposes of the general test determined? Last Updated: 6/2017 Most plans have a uniform normal retirement age, so that is the testing age. (A retirement age of "65 and 5" is considered to be uniform, but see below how this is to be interpreted.) If the plan provides for different uniform normal retirement ages for different groups of employees, then the testing is the latest normal retirement age for any of the groups, no matter which normal retirement age actually applies to that employee. If the plan does not provide for a normal retirement age, the testing age is 65. For example, a plan’s normal retirement might be the plan valuation date nearest age 65. In a calendar-year plan, participants born in the first half of the year would actually be age 64 at retirement, while those born in the second half of the year would be age 65. This is a non-uniform retirement age, and therefore the testing age for all employees is age 65. If an individual has continued in employment past the normal retirement age, the testing age for that individual is his or her current age. [ Treas. Reg. § 1.401(a)(4)-12 Definition: testing age] By definition, normal retirement age is the: 1. Earlier of the definition specified in the plan document, or 2. The later of: a. Age 65 b. The 5th anniversary of the date the participant began participation in the plan. [ I.R.C. § 411(8) ] Be aware, the Code does not say five years of plan participation—this is a common mistake many people make. It is simply the 5th anniversary after the date of entry into the plan!

 

[Belgarath]

Yeah, our document defines it (65/5) more liberally (in the participant's favor) than that - it specifies that the 5th anniversary discussed above is the 5th anniversary of the first day of the Plan Year IN WHICH participation in the Plan commenced. So if you have monthly entry dates, and enter on December 1, 2012, your 5-year anniversary is January 1, 2017, not December 1, 2017. Is there any reason that this would not be considered a "uniform" retirement age?

[figure 8]

Thanks for the responses. I don't question that 65+5 is uniform. It is.

My general question is if the DB and DC plans both have uniform retirement ages, and both uniform retirement ages are different from one another, and all employees have these same retirement ages in each plan - then is the testing age:

a) the later of the two

b) age 65

 

[figure 8]

38 minutes ago, CuseFan said:

Coverage and Nondiscrimination Answer Book - Poje, Bitzer and Topazio,Q 8:8,How is the testing age for purposes of the general test determined?

Last Updated: 6/2017 Most plans have a uniform normal retirement age, so that is the testing age. (A retirement age of "65 and 5" is considered to be uniform, but see below how this is to be interpreted.) If the plan provides for different uniform normal retirement ages for different groups of employees, then the testing is the latest normal retirement age for any of the groups, no matter which normal retirement age actually applies to that employee. If the plan does not provide for a normal retirement age, the testing age is 65. For example, a plan’s normal retirement might be the plan valuation date nearest age 65. In a calendar-year plan, participants born in the first half of the year would actually be age 64 at retirement, while those born in the second half of the year would be age 65. This is a non-uniform retirement age, and therefore the testing age for all employees is age 65.

 

Thanks for posting this. This is in line with what I can find, but it still doesn't seem to address the basic question at hand. I would argue that the bolded above seems to only apply to when certain employees have different NRA definitions than other certain employees. At least, that is a literal reading of it in my opinion.

But I suspect that the intent of the code is that you take the later of the two retirement ages. That just seems like the thing that makes the most sense.

[duckthing]

1 hour ago, figure 8 said:

Thanks for posting this. This is in line with what I can find, but it still doesn't seem to address the basic question at hand. I would argue that the bolded above seems to only apply to when certain employees have different NRA definitions than other certain employees. At least, that is a literal reading of it in my opinion.

But I suspect that the intent of the code is that you take the later of the two retirement ages. That just seems like the thing that makes the most sense.

In my mind, the first group is "employees who are participants in the DC plan" and the second group is "employees who are participants in the CB plan". It might just happen that both of those groups describe the exact same set of employees.

[figure 8]

4 minutes ago, duckthing said:

In my mind, the first group is "employees who are participants in the DC plan" and the second group is "employees who are participants in the CB plan". It might just happen that both of those groups describe the exact same set of employees.

This makes a lot of sense. So much sense that it seems like it should have been obvious. Sometimes you dig yourself so deep into the words that you confuse yourself. Thanks!