We are working on a plan in which a participant who left the company 20+ years ago never began receiving his monthly pension benefit. He was originally due a $500/month life annuity. He is now 75 and has missed 10 years of payments (and also RMDs).

Do we have to actuarially increase his benefit? Or can we calculate the amount of the missed payments (+ interest) and make a payment to him in that amount and begin the $500/month annuity?

You should check your plan document, since the 401(a)(9) RMD rules would indicate that you must give actuarial equivalent increases if the participant remained employed.

Alternatively, you might need to deal with retroactive annuity starting date issues here. You might have 5 years of retroactive payments to consider, but also watch out for 415 limits.

Notwithstanding SCA's comments, it would seem you cannot forfeit the payments from 65-75. Different attornies handle this in different ways. My preference is to amend the plan to provide for a retroactive annuity start date. This, however, can create another problem if benefit restrictions apply since the retroactive payments, including interest, would be considered to be a lump sum.

Thanks for the replies, in terms actuarially increasing the benefit if a participant remains employed, this participant has not been employed since the late 1980s...would this alter the analysis if the plan provides actuarial increases for those that remain employed?

The caution is that actuarially increasing benefits is far from the same as making the missed payments -- in your case, 10 years of back payments that the participant should have received.