DC Eliminate Early Ret.?

[John A]

May a defined contribution plan eliminate its early retirement provision? Is it possible under some circumstances and not in others?

[MGB]

What does the provision actually do?

Let's assume it says early retirement at age 55. What happens if the person terminates at age 50? Do they have the same options as a person age 55 (i.e., a lump sum)? If they do, then getting rid of the early retirement language is of no consequence and can be gotten rid of. In this case it really isn't a provision, it is just empty language.

However, if you can only receive a payment (annuity or lump sum) at early retirement age and not at a regular termination of employment, then you have an accrued right under the plan that cannot be taken away. I would say this cannot be taken away for funds already in the plan. For new funds, taking away the option would be possible.

[Kirk Maldonado]

MBG:

Don't the new 411(d)(6) allow some of these distribution options to be eliminated?

[davef]

In some plans, participants become fully vested at early retirement -- so it can be more than just a distribution event. I believe that this is an option that can be selected in the Corbel M&P adoption agreements.

[Guest Jeff V]

Under the new law you may eliminate any/all optional forms of benefit as long as a lump-sum provision is one option remaining.

But what protected benefits are tied to early retirement currently?

[John A]

It sounds from the posts above as if it is generally okay to eliminate the provision as long as it would not take away vesting rights or the right to receive a lump sum at a particular time (which is generally not a problem in DC plans as most plans provide availability of lump sums on termination of employment).

The early retirement provision may affect in-service withdrawal rights, but my understanding is that in-service withdrawal provisions can be eliminated from a plan document without violating the anti-cutback rules.

Am I missing anything?

[Guest carsca]

John A,

Could you (or someone else) provide a cite as to whether an in service withdrawal provision may be eliminated (Treas Reg. Sec. 1.411(d)-4(B)(2)-Example 6 indicates that in-service withdrawals are a protected benefit) ?

Thanks in advance!

[Kirk Maldonado]

Plan can eliminate hardship distributions at any time. Treas. Reg. 1.411(d)-4, Question 4(B)(2)(x).

[Guest carsca]

Kirk,

Sorry for the confusion, but I am referring to eliminating an in-service withdrawal provision that is not a hardship withdrawal provision (for example, a profit sharing plan provision that provides that Matching Contributions can be withdrawn after 5 years of service).

Would that change your answer?

[Guest asire2002]

I share carsca's concerns: the new regulations do not allow forms of benefit that are rights to a distribution at a particular time to be eliminated; only certain forms of payment and mediums of payment may be eliminated (i.e., you can eliminate an installment form of payment, but not the right to a payment at early retirement age).

[AndrewZ]

We've also been researching this for our GUST restatements.

If the plan allows for in-service distributions upon early or normal retirement age (or 59 1/2, etc.), it seems to me that you would need to preserve the in-service distribution rights for benefits accrued at the time of amendment:

Reg § 1.411(d)-4 states that the timing of a benefit distribution is an optional form of benefit that may be protected.

Reg § 1.411(d)-4, Q&A 2(e) provides that an optional form of benefit may be eliminated as long as an "otherwise identical" single-sum distribution option is available. However, it requires that the commencement timing of this distribution option remain identical to the one being eliminated, so it seems that this doesn't allow you to eliminate in-service distributions as an optional form of benefit.