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VeryOldMan

Mid yr reduction in pension benefit formula

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General Rule: We have a plan where the sponsor wants change the pension formula from (Z x comp x service) to (1/2 Z x comp x service).  Employee R did not have the 1,000 hours needed to accrue before the amendment and only accrued 500 hours during the year.  Since Participant R has not yet met the 1,000 hours needed to accrue a benefit for the current year, it seems that anti-cutback does not apply and Employer can reduce his current year accrual.  No problem there.  However, the amendment will be adopted next week and will also reduce the hours required to accrue a current year benefit from 1,000 to 100.  Since Employee R completed 500 hours, so he then get an accrual.  The question is: which accrual is he entitled to receive?  My interpretation is the reduced accrual under the 1/2 Z formula because he didn't gain the right to an accrual until the very day that the benefit formula had changed.  Since both the formula and hour change occurs at the same time, it is confusing.  Better to amend the formula first, then the hours requirement in the following day?  Appreciate any comments here. 

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Need more facts - is R the owner, is this an owner-only plan, or is R an employee/NHCE?

If R is the owner and no employees/NHCEs impacted, then I think you can do at the 50% rate provided amendment adopted by 12/31. I don't think subject to 204(h) in general and even so, having not completed 1,000 hours, the expected rate of accrual for R for 2019 is zero, and it also looks like the future expectation is also under 1,000 hours a year - hence the lower hours (and lower rate) amendment going forward. So this amendment appears to actually be a benefit increase rather than a decrease.

If there are other employees involved then all bets are off.

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R is an employee, and I don't see how it should matter. A 204(h) notice was given as part of the announcement of the plan restructuring, and it explained that current employees would receive the greater of their prior accrued benefit or the benefit under the 1/2 formula. Since R had not yet earned an accrual for the current year, he would get the greater of his prior year accrued benefit or the new formula current year accrual. The only question to me is the amendment reducing the hours required for an accrual at the end of the year. 

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I think we are all confused because you say one thing and then contradict yourself and then, for good measure say something that doesn't seem to make sense.  So.......

Agreed that it should not matter.

Then you say "Since R had not........he would get the greater..." which is saying that something is different about R even though he would "get the greater" just as if he had rather than had not.

Bottom line that either adopt on consecutive days or have the Administrator disambiguate as it sees fit.  

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I would like to return to this topic because I can see where the confusion is; "prior accrued benefit" in the notice is the accrued benefit for the year before the changes were made. The notice simply tells the employee that what he had earned before the year in which the plan was changed is his to keep. We had a lively discussion in our office about this topic and would like to pass this on for further discussion to anyone who has interest in this topic.

A Plan can be amended at any time during a plan year, and as long as there is adequate notice and the benefits accrued up to the day before the change are protected, there is no issue with 411d6.The amendment can change  the benefit formula and/or the accrual features. So that in my example above, the amendment can reduce the pension benefit formula and at the same time liberalize the accrual features, e.g. lower the 1,000 hour requirement to 100, and again there is no issue under 411d6. Lowering the hours to accrue after the amendment doesn't give rise to a change in the protected benefit accrued prior to the amendment. So I could include  the 100 hours provision to accrue in the amendment reducing future accruals In effect each such amendment is tantamount to a termination or freeze of the prior "plan benefit structure", and I could have numerous such amendments during a plan year. 

If anyone disagrees with this, I would like to hear about it. In fact I'd like to a good erisa lawyer about this, if anyone can recommend one.

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I agree there is no issue with 411(d)(6) currently but I would argue that a participant's future benefit accrual may not be reduced unless a proper ERISA 204(h) notice is timely issued and it remains unclear to me if the notice that was issued satisfied the requirements of 204(h).    This is why I was not willing to go along and agree you can now decrease the hours requirement and expect the new formula to prospectively kick in.

But just one (non-lawyer) opinion.

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