Everett Moreland

Because you posted your question on the governmental plans bulletin board, I should have added that careful drafting is needed to avoid giving employees a contract right to the plan benefits. If union employees are eligible to participate in the plan, I would also consider addressing this in a supplement to the collective bargaining agreement.

Provisions to that effect are often in plans. The provisions allow contributions to be returned to the employer if the IRS does not issue a favorable letter.

I vote update. I view the suspension as comparable to extension of the remedial amendment period. A terminating plan needs to be current even for law changes for which the remedial amendment period has not expired.

You may elect to apply Revenue Procedure 2003-44, under which your VCP fee is $5,000 or $8,000, depending on the number of participants.

If the first payment was not allowed by the plan document, you might consider whether the plan needs to correct it under Revenue Procedure 2003-44.

I'm an attorney, not an actuary, and have a client in this situation. I think this is a real issue that requires correction under Revenue Procedure 2003-44.

With no more authority than you have, I agree with your analysis and conclusion.

My research indicates that an employer may reduce a 100% QPSA to a 50% QPSA with respect to all service without violating 411(d)(6) or giving a 204(h) notice, because the QPSA is an ancillary benefit. The reduction would apply to deaths occurring after the date of the amendment, to both active and vested terminated participants. This is a fully subsidized mandatory QPSA (waiver not allowed) in a defined benefit plan. This answer seems right but leaves me uncomfortable. Do you agree or disagree with this answer or know of something I've missed?

Pax: It is a freeze. Mike: I am in the 9th Circuit, where the possibilities are wonderous (see Lessard v. Applied Risk Management and Schott v. Commissioner), but modest compared with those in the 5th Circuit (see Rickey v. United States ["We . . .. reject a crabbed reading of the Code"]).

Would an amendment ceasing benefit accruals effective 8/1/03 violate 411(d)(6) by limiting 2003 plan year compensation to pre-8/1/03 compensation? Assume a calendar year accumulation plan with a benefit of 2% of plan year compensation; the full benefit is provided with 1000 HOS; and no benefit with less than 1000 HOS. If this would be allowed in a money purchase plan (and I believe it would), is there any reason it would not be allowed in a defined benefit plan? The amendment would not violate the double-proration rule in 2530.204-2(d) or the anti-cutback rule in 1.411(a)-7©(5). Neither discrimination nor top heavy is a consideration.

Blinky: Thank you. After reading your post I looked at the 401(a)(26) regs and found 1.401(a)(26)-1(b)(3), which gives underfunded db plans a pass on 401(a)(26). The plan is well underfunded. I also previously looked at the vesting-on-partial-termination rules in 1.411(d)-2(b)(2). There is a good possibility that the underfunding will prevent full vesting on benefit suspension.

I'm looking for problems that would arise from amending a defined benefit plan to suspend benefit accruals for 2 or 3 years. Assume the plan provides a monthly benefit at normal retirement age of $30 per year of service and is amended to provide that the benefit will be $0 for service during 2004-2005 and $30 per year of service after 2005. The plan now satisfies the 133 1/3 percent rule. As so amended the plan would satisfy the 133 1/3 percent rule, according to 1.411(b)-1(b)(2)(ii)(B), the conference committee report on ERISA, and IRS Document 6390. Is there something else I'm missing that would cause a problem?

The tax rules do not require a 403(b) plan document for a 403(b) plan and do not require that the terms of an existing 403(b) plan document be followed. The tax rules allow salary reduction contributions that exceed the limit in the plan document if the contributions do not exceed the limit in the IRC. ERISA requires the plan administrator to follow the terms of an existing plan document, but there may be no harm in allowing salary reduction contributions in excess of those allowed by the plan document if the employer clearly communicates to all employees that the limits in the plan document no longer apply. That said, the plan document should be updated to conform to current law. For example, a plan document that limits salary reduction contributions to less than allowed by the IRC might cause the plan to lose its ERISA exemption.

1.401(a)(26)-5(a)(2)(iii)(A)(2) requires that "The employees who benefit under the formula being tested also benefit under the other plan on a reasonable and uniform basis . . . ." I don't know what "benefit . . . on a . . . uniform basis" means. That's why I have concern about an age-weighted profit sharing plan. I would like to know what you think it means.

If you will rely on 1.401(a)(26)-5(a)(2)(iii)(A)(2), I have concern about whether an age-weighted profit sharing plan would satisfy that requirement.

The ancient GCM is 39310, which is discussed on page 13-14 of Volume 2/Fall 2002, Employee Plan News

Revenue Ruling 2002-22 taxes the alternate payee

Yes, employees can be excluded from the ermployer contribution if they do not have 1000 HOS. Consider making the employer contributions under a separate plan, to avoid subjecting the employee contributions to ERISA.

Revenue Ruling 99-51 might be relevant. I don't pretend to understand that ruling.

I assume from your post that the employer wants to take away previously granted COLAs and not grant future COLAs, both as to current retirees. I agree with mbozek that the issue is whether the employer contractually agreed to pay the COLAs (unless you are in a state where courts apply constitutional restrictions on reducing retirement benefits that go beyond those agreed to by the employer). My sense is it wouldn't take much for a state court to find a contractual agreement to pay the COLAs. State courts often go beyond the technicalities of protecting the "accrued benefit" as defined in ERISA and protect the reasonable expectations of the employees. If an employee retired at a time when the plan document included an automatic COLA provision, it might be tough to convince a court that the COLA can be taken away.

edited to delete my response

The imputed compensation rules in 1.414(s)-1 might help. I've not looked at them in any detail.

If the contributions will be made to an individual annuity contract, you should read the contract to determine whether it provides for vesting and has a mechanism to forfeit and to return forfeited amounts to the employer. I have not looked at whether it is permissible for 403(B) forfeitures to revert to the employer.

I represent local government defined benefit plans that want to change their disability benefit to compy with the ADEA. The disability benefit in these plans is determined by projecting service to normal retirement age, which according to the EEOC and the 9th Circuit (Arnett v. CALPERS) violates the ADEA. Two disability benefits that comply with the ADEA are (1) a benefit of x% (usually 50%) of final average salary and (2) the benefit accrued to date, with no actuarial reduction for starting before normal retirement age. Please post suggestions about any other disability benefits that comply with the ADEA.

As to the statute of limitations, the mitigations provisions, IRC §§ 1311-1314, might help. As to whether the contributions are pre- or after-tax, the definitions of elective and employee contributions in 1.401(k)-1(a)(2)(i) and (g)(4) and 1.401(m)-1(f)(6) give some weight to whether the employer reports the contributions as pre- or after-tax.