Elimination of optional forms for nonelecting church plan

[Medusa]

We would like to merge a nonelecting church's profit sharing plan into their defined benefit plan. The profit sharing plan has a lump sum distribution option upon termination of employment, whereas the defined benefit plan does not.

We would like to eliminate the option after the merger. It is our understanding that 411(d)(6) does not apply to nonelecting church plans, but despite this, the IRS has informally suggested that they are not so sure we can eliminate the option.

If anyone has an opinion on this, would appreciate your comments.

[mbozek]

Ask the IRS for the citation of authority for their position since the cut back rule does not apply to non ERISA plans. Under 1998 IRS reform act the IRS is required to provide a taxpayer with any citation of authority to a position taken.

[Everett Moreland]

Would participants have the right under state law to preserve the lump sum option for profit sharing benefits accrued to the merger date?

[mbozek]

Yes if there was such a state law in the governing jurisdiction, e.g., the state where the retirement trust was sited or where the plan had its principal place of business. I have never heard of a state law that protected such a right.

[Everett Moreland]

I'm thinking of state contract law. It might be that the profit sharing plan includes a binding promise to pay benefits in an optional lump sum.

[mbozek]

Yes but the plan will usually contain a provision permitting amendment at the election of the employer. The only issues is whether the plan would forbid an amendment that reduces a participant's rights and whether plan could be amended to eliminate this provision. Need to check the plan document.