"suspension of benefits"

[Belgarath]

Not a DB person, so I want to see if I've got the gist of this. Assuming a plan has a suspension of benefits (I'll hereafter refer to as SOB) clause, this doesn't prevent a participant from accruing additional benefits, right? But it does mean that benefits can be suspended without actuarial increase for the later payment (but not for retirees who weren't subject to the SOB), and with some quirks, such as actuarial increase still required for active employees over 70-1/2 who are not 5% owners, and taking into account anti-cutback regs for existing retirees, etc...

But in the absence of this SOB, if a participant retires on or after NRD, starts receiving benefits, and is later rehired, then the employee will continue to receive payments, with no actuarial increase in those payments, 'cause payments weren't suspended?

I'm not sure I can properly phrase an example of what I'm thinking, so I apologize in advance! Suppose $$ retires at age 65, and starts receiving normal plan benefit of $1,000/month. Returns to work another year later. Plan has no SOB. Participant continues to receive $1,000/month with no actuarial increase, plus each year may accrue another piece of benefit, which is added to the $1,000.

Now, suppose plan has SOB. In same situation, plan suspends payments of the $1,000. Participant works another 3 years, (prior to 70-1/2) and accrues an additional benefit of $100 monthly for each of those 3 years. Then terminates employment, and starts to receive monthly benefit of $1,300 monthly, 'cause no actuarial increase.

Am I on the right track? Thanks!

[Calavera]

2 hours ago, Belgarath said:

Participant continues to receive $1,000/month with no actuarial increase, plus each year may accrue another piece of benefit, which is added to the $1,000.

Not necessarily. A plan document should outline the methodology. For example it may utilize the recalculation based on the total service and benefit formula in effect upon the latest calculation date (generally end of the year) and offset by the actuarial equivalent of benefits received resulting in the same $1,000. This situation occurs a lot in case of in-service distributions, or in case of RMD payable to an active employee.

 

2 hours ago, Belgarath said:

Now, suppose plan has SOB. In same situation, plan suspends payments of the $1,000. Participant works another 3 years, (prior to 70-1/2) and accrues an additional benefit of $100 monthly for each of those 3 years. Then terminates employment, and starts to receive monthly benefit of $1,300 monthly, 'cause no actuarial increase.

Same here. Plan document may say something like this: "...pension shall cease and any election of an optional benefit form shall be void...; re-calculate benefit based on the total service and benefit formula in effect upon the latest retirement date and offset by the actuarial equivalent of benefits received..."

[Belgarath]

Thank you! There doesn't ever seem to be a simple answer for DB plans, which of course is why all such questions would be referred to the actuary anyway, but I like to attempt to have SOME idea of how things work. Or don't work, sometimes...

[david rigby]

Just an observation: if the plan is frozen to new accruals (but not frozen to any necessary actuarial increase), and a retiree (i.e., receiving annuity payments) is rehired, day-to-day plan administration will be better/simpler/easier to communicate if the plan provisions do not create a suspension of current annuity payments, whether the rehired retiree works 5 hours a week or 40 hours a week.