Nondiscrimination Testing in an Early Retirement Window

[ERISA-Bubs]

We are setting up an early retirement window in our pension (DB) plan -- retire within a specified time an you get two additional years credited service and two additional years age.

Our actuaries are wondering if it would make sense to add a statement in the early retirement window amendment that the early retirement window enhancements are subject to meeting non discrimination testing requirements. By doing this, they think it gets out of paying the benefits out of the plan if the discrimination test is failed or by giving non HCE’s additional benefits in the plan to allow discrimination testing to be met.

This seems unnecessary to me -- wouldn't both of those things be options if we fail nondiscrimination testing anyway?  Why do we need to include it in the amendment?

 

[david rigby]

Most pension actuaries will advise to do the testing (at least approximately) first; ie, before plan design and timing is finalized.  Has this been done?

 

[CuseFan]

Agree with David, why would not you test first and know that your design will work rather than scramble afterwards when you find out there is/might be a problem? How would you include in the amendment? If after all the elections are made and we test, if fail, then HCE ER elections are null and void? So the benefit does not accrue for an HCE until testing is performed and passes, which would have to be done by a specified time. Maybe that flies.

[Cloudy]

I don't know that you can condition a benefit formula on passing nondiscrimination testing, in terms of being definitely determinable.