ERISA REG re Suspension of Benefits

[Guest ircreader]

I am really struggling with ERISA Reg. sec. 2530.203-3(a). Our plan allows suspension of benefits and we have a defined benefit plan with no voluntary employee contributions. NRA under our plan is 65 and we send suspension of benefit notices if anybody works past NRA. We suspend the whole benefit. According to our company "expert" we don't have to provide an actuarial increase once the reemployed retiree stops working and commences benefits again.

I am reading the ERISA reg. and I am just not sure not sure what it is saying: "... A plan may provide for the suspension of pension benefits which commence prior to the attainment of normal retirement age, or for the suspension of that portion of pension benefits which exceeds the normal retirement benefit, or both, for any reemployment and without regard to the provision of sec. 203(a)(3)(B) and this regulation to the extent (but only to the extent) that suspension of such benefits does not affect a retiree's entitlement to normal retirement benefits payabe after attainment of normal retirement age, or the actuarial equivalent thereof."

We'd really like to comply with the law if we can figure out what it really says. Is there a portion of the benefit that cannot be suspended? I gather from previous posts that there is a divergence of thought re the actuarial increase issue. Thanks!

[Guest Harry O]

That is the whole point of giving the notice -- it allows you to NOT provide an actuarial increase (at least until age 70.5). Remember that the suspension of benefits rules are an exception to the general rule that an employee's normal retirement benefit must be completely nonforfeitable. If you don't actuarially increase the benefit for late commencement after NRD, you have an impermissible forfeiture. The suspension of benefits rule allow the plan to impose a forfeiture by not actuarially increasing the benefit for work past NRD.

Don't forget that the actuarial increase comes back into play after age 70.5.

[Blinky the 3-eyed Fish]

Harry, more specifically, the actuarial increases must be provided for those past 70 1/2 that do not commence minimum distributions, i.e. certain non-owners, correct?

[FAPInJax]

I presume that IF I had a participant who had the benefit suspension notice provided to and he happened to keep working that the initial actuarial increase would be from 70 to 71. The plan is NOT required to provide an actuarial increase from 65 to 71 for all the years suspended - correct??

[MGB]

Frank, correct.

irc,

The paragraph you are focusing on can only happen with a reemployment, not a continued working situation. This is describing what can be suspended (i.e., forfeited) when a person takes a subsidized early retirement benefit and later returns to work. It basically is saying the extra subsidy is suspendible and need not get an actuarial increase for later retirement. But, the actual normal retirement benefit underlying that cannot be suspended unless proper notice is given.

There have been a couple of recent (last 2-3 years) court cases that also clarify this ER subsidy issue.

[Guest ircreader]

Thanks for this information. If we have an employee who received benefits, was reemployed and worked to age 67 but now wants to defer benefits until age 69, can he do that? If so, do we have to give the actuarial increase from age 67 to age 69?

[RTK]

If I recall, there are a couple of circuit court cases that hold no forfeiture arises for delayed payment for continuing employment after normal retirement age in any case, contrary to DOL/IRS's position.

One interesting thing about the notice provision is that the DOL specifically noted in the final reg preambles that the notice provision only affects the plan's right to begin suspension of payments, it does not affect plan's right to ultimately suspend or recover all payments the plan is entitled to suspend under 203(a)(3)(B) regs. Intended application to reemployed participant is fairly clear (offset at later re-retirement), but not so clear for participant continuing in employment.