Amending Normal Retirement Age in DC Plan (Impact on Vesting)

If a DC Plan wants to amend the Normal Retirement Age (i.e. for 55 to 65), is that an amendment that can be done mid-year or should it wait for the first of the year?  The question is due to vesting, as the Plan states that they become 100% vested at Normal Retirement (which the previous TPA set at 55). 

The second question is, I know a change like this can't have a negative impact (like when you amend the vesting schedule).  Does that mean that anyone who is currently employed must still become 100% vested once they reach 55, or can it impact anyone who has not yet reached NRA (if a current employee is 54 and they amend the NRA to 65, does that mean that participant has to wait until 65 or to work the necessary years).

Thanks!

Someone can correct me if I'm wrong as it's been a few years, but my recollection is that any current participant with an accrued benefit would need to have the existing (more favorable) NRA rule apply to their accrued benefit as of the date of the amendment. Any new contributions could be subject to the new NRA. Like a vesting change, this would require tracking pre- and post-amendment balances. In the small handful of times I've done this, the plan sponsor has always applied the new NRA only to participants newly eligible on or after the effective date of the amendment.

And it will likely only affect a small handful of people. Anyone who has already met the six-year (or less) vesting schedule will not be affected at all, regardless of age, unless there is some other right tied to NRA (e.g., in-service distributions). So a 58-year-old participant with 20 years of service will not be adversely affected, even if their "new" NRA is 65. 

A good consultant would have his/her spidey-sense tingling.  Ask leading questions to find out what is really going on and/or what the sponsor is really trying to accomplish.  (BTW, it's not "Plan wants to amend", but "sponsor wants to amend".)

I agree with EBECatty - accrued benefits will be under the more favorable schedule, new contributions could be subject to new NRA. 

But recordkeeping this will be a nightmare and guaranteed to get screwed up. 

On the few plans we have had make a change similar to this, it only applied to participants that became eligible after effective date of amendment.

On 6/15/2022 at 7:21 PM, Dare Johnson said:

I agree with EBECatty - accrued benefits will be under the more favorable schedule, new contributions could be subject to new NRA. 

But recordkeeping this will be a nightmare and guaranteed to get screwed up. 

On the few plans we have had make a change similar to this, it only applied to participants that became eligible after effective date of amendment.

A plan sponsor/TPA denied my wife's claim of 100% vesting b/c she left with fewer years of service than were required under the vesting schedule.

We pointed out that she had already attained age 55, the defined NRA at the time she left.  They had changed the NRA to age 65 since she left and applied the new NRA without looking back, so yes, TPAs and plan sponsors will screw this up even if applied only to new entrants.

On 6/17/2022 at 2:25 PM, acm_acm said:

A plan sponsor/TPA denied my wife's claim of 100% vesting b/c she left with fewer years of service than were required under the vesting schedule.

We pointed out that she had already attained age 55, the defined NRA at the time she left.  They had changed the NRA to age 65 since she left and applied the new NRA without looking back, so yes, TPAs and plan sponsors will screw this up even if applied only to new entrants.

You might consider requesting assistance thru the American Academy of Actuaries, at this link:

https://www.actuary.org/content/pension-assistance-list-pal

@metsfan026 Consider adding an early retirement date of 55 for those eligible before the amendment, and keep the 100% vesting at early and normal attainment.

On 6/15/2022 at 6:21 PM, Dare Johnson said:

I agree with EBECatty - accrued benefits will be under the more favorable schedule, new contributions could be subject to new NRA. 

I am not sure it's that simple. Although that may work under 411(d)(6), the IRS interpretation of 411(a)(10)(A) is that you can't decrease a participant's nonforfeitable percentage in future accruals either.  This would mean that anyone who has already hit the current (lower) NRA would need to remain fully vested, even in future accruals.