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Terminated Pension now with F&G showing incorrect "Early Retirement Date."


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I have another strange one, but this time I made sure to make sure that I have this well documented before asking questions. 

Client left employer a few years ago, after age 55. She had a pension benefit (Defined Benefit Plan) that was from a frozen plan. In 2019, the pension offered a lump sum buyout. They opted to continue to delay starting the pension. In June of 2023, the pension terminated and sent out elections for, again, lump sum, start income now, or delay. Again, they opted to delay. Their plan was to start the pension now, at 62 years old. Normal retirement age is 65. Every communication at every point indicated that they were eligible for Early Retirement, though, as of both the 2019 documents and the 2023 documents. We have it in writing: "You have met the requirements for Early Retirement as described in the Plan. You are eligible to receive an early retirement benefit at any time between now and your normal retirement date reduced under the terms of the plan." 

F&G "issued a group annuity contract" for the pension in December 2023. F&G is now stating that they cannot start their benefit until 2027, when they hit 65 years old. I was certain that the person they spoke with must just have been mistaken, so we logged in, and sure enough: the site shows February 2027 as both the "Early Retirement Date" and the "Normal Retirement Age." 

This is not something they could have changed, correct?

This is a screen shot from a video that the sponsor released regarding the plan termination.  

What recourse does the client have in this situation? 

Unfortunately, I don't have access to the actual plan documents. The annuity certificate has apparently not been issued yet (or at least isn't available on the site yet) and the previous pension service center does not have any documents available. But we do have the election notices from both 2019 and 2023 clearly stating that they are eligible for early retirement. 
 

Centrapension.JPG

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@Lou S. is correct, but don't overlook the possibility of a mistake in the original statement quoted in the first post above.  It happens.

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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1 hour ago, Lou S. said:

File a claim for benefits and send the supporting documentation you have with the early retirement eligibility.

Removal of an early retirement benefit the participant was entitled to would be a prohibited cutback.

Okay, we will try that. She requested claims forms from the annuity company and they just stated that she isn't eligible, but we did see a claimant packet on the site and requested it. Hopefully that will clarify things. 

Does a non-profit terminating a pension like this indicate financial issues with the entity? I ask because I know people with 457b deferred comp funds still in their 457 plan, and I realize 457 plans are not technically theirs, and can be lost if the entity becomes insolvent. 

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Plans get terminated all the time, for a variety of reasons, and it isn't necessarily an indication of financial difficulty. Sure, it COULD be, but very well may not be. If the plan is subject to PBGC, the participants should generally be ok anyway, up to the PBGC maximum. (Caveat - I'm not a DB person, so the actuarial wizards here may give you a different take on this. I stand in awe of folks who don't have to count on their fingers.)

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1 hour ago, Belgarath said:

Plans get terminated all the time, for a variety of reasons, and it isn't necessarily an indication of financial difficulty. Sure, it COULD be, but very well may not be. If the plan is subject to PBGC, the participants should generally be ok anyway, up to the PBGC maximum. (Caveat - I'm not a DB person, so the actuarial wizards here may give you a different take on this. I stand in awe of folks who don't have to count on their fingers.)

I was under the impression that transfer to a PRT meant that PBGC no longer covered it? 

 

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Unfortunately, they're going to have an uphill battle. If they go back to their former employer, the employer is going to say that the plan is terminated, and the benefits were transferred to the insurance company, so it's not their problem. The insurance company is going to say that the benefit isn't payable until age 65, and whatever information was provided previously is wrong, or not binding on them since it was provided by someone else, and again not their problem.

Hopefully you have a copy of the Summary Plan Description. It will describe the early retirement benefit. That might be enough to convince the insurance company to take it seriously, but then again it might not. The insurance company should have an appeal process for denied claims, which you will probably have to use.

And yes, you are correct that PBGC protection ended when the benefit was transferred to the insurance company.

Good luck.

Free advice is worth what you paid for it. Do not rely on the information provided in this post for any purpose, including (but not limited to): tax planning, compliance with ERISA or the IRC, investing or other forms of fortune-telling, bird identification, relationship advice, or spiritual guidance.

Corey B. Zeller, MSEA, CPC, QPA, QKA
Preferred Pension Planning Corp.
corey@pppc.co

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2 hours ago, C. B. Zeller said:

Unfortunately, they're going to have an uphill battle. If they go back to their former employer, the employer is going to say that the plan is terminated, and the benefits were transferred to the insurance company, so it's not their problem. The insurance company is going to say that the benefit isn't payable until age 65, and whatever information was provided previously is wrong, or not binding on them since it was provided by someone else, and again not their problem.

Hopefully you have a copy of the Summary Plan Description. It will describe the early retirement benefit. That might be enough to convince the insurance company to take it seriously, but then again it might not. The insurance company should have an appeal process for denied claims, which you will probably have to use.

And yes, you are correct that PBGC protection ended when the benefit was transferred to the insurance company.

Good luck.

I didn't see anything that explained how the plan document defined Early Retirement. "Missing plan documents" are not an excuse for bad pension administration. Also, I don't think PBGC protection has ended yet, as the PBGC can audit this plan termination. If the Group Annuity Contract provisions do not match the plan document provisions, the plan will have to correct this and amend the Group Annuity Contract. 

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3 hours ago, TheBoxMan said:

I didn't see anything that explained how the plan document defined Early Retirement. "Missing plan documents" are not an excuse for bad pension administration. Also, I don't think PBGC protection has ended yet, as the PBGC can audit this plan termination. If the Group Annuity Contract provisions do not match the plan document provisions, the plan will have to correct this and amend the Group Annuity Contract. 

This is good to know. Thank you. Unfortunately, we are struggling in getting our hands on the summary plan description. We are still working on it, though. 

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in addition to SPD it owuld be extremely beneficial to obtain a copy of the actual Plan Document in effect as of the termination date.  It is not that uncommon (especially if we are going back) that the SPD and the Plan Doc language are not lined up perfectly.

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You might want to look at the 5500 filing that is in public domain.  The plan provisions are a required attachment to the Schedule SB.  They won't be as detailed as the SPD, but they should define the early retirement provisions. https://www.efast.dol.gov/5500Search/

The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action or inaction. You should obtain appropriate tax, legal, or other professional advice.

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3 hours ago, Effen said:

You might want to look at the 5500 filing that is in public domain.  The plan provisions are a required attachment to the Schedule SB.  They won't be as detailed as the SPD, but they should define the early retirement provisions. https://www.efast.dol.gov/5500Search/

You are amazing! I had pulled the 5500 on FreeErisa, but that did not have the supplemental plan document. Thank you, this is tremendously helpful!!

Pension Benefits

Participants are fully vested after five years of service or upon attaining normal or early retirement age. Annual benefits are calculated as follows:

Normal Retirement - The Normal Retirement Date for each participant is the first of the month coincident with or next following the attainment of age 65, but not earlier than the five-year anniversary of Plan participation. The amount of annual retirement benefit payable is equal to 1.50% of the participant's average compensation, times their years of service, less 1.50% of their primary Social Security benefit, times their years of service. The average compensation is the average annual compensation during the five consecutive calendar years out of the last ten before the calendar year of retirement which produces the highest average. The Plan agreement details additional restrictions. Effective December 31, 2009, the plan was frozen to additional accrual of benefit.

Early Retirement - A participant may retire on the first day of any month following attainment of age 55 and the completion of 15 years of service. The amount of monthly early retirement benefit is equal to the Normal Retirement benefit reduced by 1/15th of each of the first five years and 1/30th for each of the next five years by which the benefit commences prior to the Normal Retirement Date.
 

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Alright, this may seem like a very obvious question, but I want to make sure I understand this correctly. If she is exactly 62, will her benefit be reduced by the 1/15th or the 1/30th per year? 

I can't tell whether to interpret this to say: between ages 55-60 it is 1/30 then 60-65 it is 1/15th or if it is the opposite. It seems strange to do it the opposite way. Less of a per year reduction, the earlier someone retires? That doesn't make a lot of sense actuarially, unless I'm missing something, which is likely.

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The 1/15 would be from 65-60.  If she commenced retirement payments at age 62, they would be 80% of her benefit at 65.  
 

The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action or inaction. You should obtain appropriate tax, legal, or other professional advice.

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Did she have the 15 years of service? If so it sounds like she would qualify for the ER benefit and that it's a question of getting the Plan Sponsor who terminated the plan and transferred liabilities to the Insurance Company on the same page.

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  • 1 month later...

Reach out to whoever brokered the annuity. While ultimately the plan sponsor's responsibility to make sure all benefits are preserved, they rely on the broker to do this on their behalf. The broker is in between the insurance company and the plan/participants and should be able to address/get this fixed if needed.

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