Combo plan testing and early retirement age (ERA)

[Jakyasar]

Hi

This is a first for me.

Looking into a proposal for DC/CB combo.

DC plan already exists and has early retirement age (ERA) provisions

• NRA is 65/5 and date on which participant attains NRA
• ERA is age 59.5 and at least 6 years of service for vesting purposes (1000 hours) and on anniversary date with/next following satisfaction of ERA

I am confused the way written as at least I would this the retirement date would need to be the same (again, no idea and/or experience)

The above aside, for CB plan design, other than NRA being 65/5, do I need to include ERA in the CB plan and cross test as well or just 65/5 is sufficient?

How is the testing done?

Any comments/suggestions?

Thanks

[C. B. Zeller]

I would just eliminate the ERA in the DC plan. What is it even doing there? Since you can already have distributions at age 59½ without needing an early retirement feature, you should be able to remove it without it actually being a cutback.

No need to add an ERA in the DB plan. Your testing age will still be NRA.

I don't think I've ever seen a DB plan with an ERA that is combo-tested with a DC plan. I believe that in that case, you would need to test the MVAR at every early retirement age to see if it is more valuable. So my recommendation is, don't do it.

[Jakyasar]

Believe me, I would never test this way nor add ERA to the DB plan. My problem is that this is a 2023 design so was curious on how the ERA in the DC would affect it. Looks like, if not included in the DB, no issue, all can be tested under NRA.

I will advise the DC TPA to remove the ERA under the DC which has absolutely no benefit whatsoever, at least, not for this group of employees.

However, removing ERA, would it not violate BRF issues? Just curious.

Thanks for your input.

[C. B. Zeller]

12 minutes ago, Jakyasar said:

However, removing ERA, would it not violate BRF issues? Just curious.

I don't see a BRF issue unless there is some benefit, right or feature that is available to HCEs but not to NHCEs. Getting rid of the ERA for everyone shouldn't be a problem.

There might be a 411(d)(6) issue but again, what is actually being removed if you eliminate the ERA in the DC plan? Not the availability of distributions, since you can still have that at age 59½. Not full vesting, since the definition of ERA already requires 6 years of vesting service. Is there something else that is granted by the attainment of ERA in the DC plan that could be a cutback if eliminated? Read the document to see, but I can't think of what that might be.

[david rigby]

There is a larger issue here.  When creating ANY plan, the sponsor (and by extension, anyone who thinks/acts as a consultant) should ask him/herself if there is ANY need for an Early Retirement definition.  If you don't understand my point, note that E.R. came into vogue many decades ago when there was a need to "clear out" the workforce to make room for the post-WW2 workers (the parents of the baby boomers and then the baby boomers themselves).  If there is no similar demographic "bubble", there is likely very little need for any set E.R. provision.  Alternatively, an E.R. definition should (probably) include a significant minimum service requirement (e.g., 20+ years).  (Yes, this could vary by industry and/or geographic location.)  Do not fall into the habit of including E.R. provisions just because "it's always been that way".

[Jakyasar]

Thank you both for your comments

[CuseFan]

Early retirement in the DCP - no harm, no foul for combo testing - and there may be employer objectives for having as David notes.

CBP - do NOT include early retirement in the plan and test the combo as you would otherwise.

[Bri]

obviously a DC plan might have an exception to its last-day rule for retirees.  An ERA definition can inadvertently trigger an allocation you weren't expecting, especially when the allocations aren't "individual groups."

But otherwise, yeah, what benefit is that definition bestowing upon anyone?

[Jakyasar]

Bri interesting point.

Again, I have no idea as to why it was put it.

It is not going to affect the PS allocation for 2023 and 2024 so we are good on that.