Csp Q07

Front 1

QBS 7: 1 of 9
What is phased retirement?

Back 1

1) Obtain a bridge job
2) Work reduced hours in career job before full retirement

Front 2

QBS 7: 2 of 9
Actuarial equitable phased retirement plan designs

Back 2

a) FAP
- Methods of protecting final average pay decreases
1) Use highest FAP during career
2) Annualize pay
3) Use partial year in the divisor
b) Creditied service
- Providing a year of service proportional to the hours they worked is fair
c) Offset
- Make full actuarial reductions for early and postponed retirement

Front 3

QBS 7: 3 and 4 of 9
Disadvantages of a Phased Retirement Program/Items that need to be considered (1 and 2 of 2)

Back 3

1) Higher administrative costs and complexity
2) Difficult to understand and communicate
a) Participants and their spouse need to understand the impact of phased retirement on ultimate benefit
i) Might reduce benefit
1) Reduced FAP
2) Partial or no service credits
3) Effect of offset might result in no or little future accruals
ii) Might reduce QPSA and QJSA
b) Multiple spousal consents may be difficult to understand
3) Conflicts with goals of early retirement incentives
a) Member must quit to receive full value of subsidy
4) May experience nondiscrimination/legal issues
5) May reduce the effectiveness of early retirement window
a) However, may be a more cost effective alternative to a window

Front 4

QBS 7: 5 of 9
One method of calculating a Phased Retirement Benefit

Back 4

- Calculates the accumulated value of past benefits, convert it to an annuity and then use it as an offset against heir additional accruals

Front 5

QBS 7: 6 of 9
Final phased retirement regs: in-service distributions

Back 5

In-service distributions permissible if at least 62 or working past NRA

Front 6

QBS 7: 7 of 9
Final Phased retirement regs: NRA restrictions

Back 6

- NRA can't be earlier than the earliest age typical for industry
- Age 62 is a safe harbor NRA
- A facts and circumstances test necessary if the NRA is at least 55 and less than 62
- Employer can implement under good faith compliance
- Need IRS approval for NRA less than 55
- A mere reduction in the number of working hours does not constitute retirement

Front 7

QBS 7: 8 of 9
Other Example of a Gradual Retirement Program

Back 7

- DROP arrangements

Front 8

QBS 7: 9 of 9
What are the advantages of a DROP

Back 8

1) Protects early retirement incentives
2) Encourages retention of early retirement employees
3) Can continue to work full or part time
4) Attractive for those who don't need pension during phased retirement