IRC Section 411(b)(1)(H) issue.

[Guest janie]

I am in the process of drafting GUST amendments to an individually-designed DB plan which provides different benefit formulas for different groups of employees, but my question involves a non-GUST issue. The basic benefit formula in the plan provides that a participant's "annual rate" of retirement income will be x% of his final average compensation "at normal retirement date" times his years of credited service "at normal retirement date." "Normal retirement date" is defined as the first day of the month following a participant's 65th birthday. A participant can keep on working past age 65 and retire at a date later than his normal retirement date. The plan contains a suspension of benefits provision that appears to comply with IRC Sec. 411 and ERISA Sec. 203. However, it contains nothing expressly stating that a participant who is entitled to benefits under the basic benefit formula and keeps on working past his normal retirement date will continue to accrue benefits for his post-normal retirement age service. Nor is there any language stating that such a participant will receive the greater of (i) the actuarial equivalent of his normal retirement benefit computed as of his normal retirement age, or (ii) his normal retirement benefit using years of service (including those completed after age 65) and applicable compensation determined as of his actual retirement date. It seems to me that there may thus be a violation of IRC Sec. 411(B)(1)(H). A second benefit formula (applicable to a different group of employees) states that the "annual rate" of retirement income will be x% of the participant's final average compensation "at his normal retirement date or later retirement date" times his years of credited service "at his normal retirement date or later retirement date." This formula seems to comply with 411(B)(1)(H). Am I missing something about the first formula? Could a plan have a formula like that and still comply with 411(B)(1)(H)? It is my understanding that the plan got a TRA 86 determination letter. Any help or insight is greatly appreciated.[Edited by janie on 09-13-2000 at 05:01 PM]

[Guest]

I think your right, the first formula should contain some method for continued accruals beyond NRD.

As an actuary (not a lawyer) I would be more concerned about the actual practice of the employer. Even though the document doesn't call for continued accruals, has anyone ever worked beyond NRD? And if so, did they get the proper benefit regardless of the document's language.

Not saying it in the document can be treated as an oversight, but actually not doing it could be much more serious.