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Section 204(h) notice for freezing ESOP


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With no money purchase component, why do you think ERISA 204(h) applies?

§54.4980F-1

Q-3. What is an "applicable pension plan" to which section 4980F and section 204(h) apply?
A-3. (a) In general. Section 4980F and section 204(h) apply to an applicable pension plan. For purposes of section 4980F, an applicable pension plan means a defined benefit plan qualifying under section 401(a) or 403(a) of the Internal Revenue Code, or an individual account plan that is subject to the funding standards of section 412 of the Internal Revenue Code. For purposes of section 204(h), an applicable pension plan means a defined benefit plan that is subject to part 2 of subtitle B of title I of ERISA, or an individual account plan that is subject to such part 2 and to the funding standards of section 412 of the Internal Revenue Code. Accordingly, individual account plans that are not subject to the funding standards of section 412 of the Internal Revenue Code, such as profit-sharing and stock bonus plans and contracts under section 403(b) of the Internal Revenue Code, are not applicable pension plans to which section 4980F or section 204(h) apply. Similarly, a defined benefit plan that neither qualifies under section 401(a) or 403(a) of the Internal Revenue Code nor is subject to part 2 of subtitle B of title 1 of ERISA is not an applicable pension plan. Further, neither a governmental plan (within the meaning of section 414(d) of the Internal Revenue Code), nor a church plan (within the meaning of section 414(e) of the Internal Revenue Code) with respect to which no election has been made under section 410(d) of the Internal Revenue Code is an applicable pension plan.
(b) Section 204(h) notice not required for small plans covering no employees. Section 204(h) notice is not required for a plan under which no employees are participants covered under the plan, as described in §2510.3-3(b) of the Department of Labor regulations, and which has fewer than 100 participants.
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A blackout seems unlikely, but if there is one, the usual 30 day advanced notice requirement would apply.

The ESOP freeze likely affects information in the SPD, so an SMM or a new SPD may need to be sent to participants no later than 210 days after the close of the plan year of the change.

I can't think of anything else that might require a notice. Of course, they may have other reasons for wanting to notify participants about what is going to happen.

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I can't think of anything else that might require a notice.

Courtesy is not a requirement, but it might be a good reason.

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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Complete discontinuation of employer contributions is the plan or if there are forfeitures would that not necessarily constitute "complete discontinuance"?

If a new participant entered January 1 and the freeze is effective June 1, those new participants would be entitled to any forfeiture reallocation.

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You need to better define "freeze". Depending on what (if any amendment) has been done it might qualify as a type of plan termination which would vest everyone.

If the employer is merely not going to make any more contributions and require share distributions then it might be a few years before you have to vest everyone.

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