Change in Death Benefits Conditions

[Guest kredlin]

If an employer changes the conditions required for an employee to be eligible for a death benefit so that fewer employees will receive the benefit, do those changes affect current employees? Or is the benefit an accrued benefit that cannot be changed or reduced?

[Mike Preston]

I don't believe that death benefits are protected under 411(d)(6). So you can eliminate them at will. Recognize, however, that they are subject to the general benefits, rights and features rules of the non-discrimination regulations.

[david rigby]

Mike is correct. But to clarify a bit: assuming an ERISA-covered plan, the minimum REA death benefit is the only death benefit that is protected under 411(d)(6).

[MGB]

Just to add to Mike's comment on BRFs: Assume that this is a plan with one very high paid person and the rest are low paid. The high paid dies under the "good" death benefits. A month later, the plan is amended to strip it down to the REA benefit. This would be a discriminatory timing of the amendment.

I would also consider this a change that should be given a 204(h) notice ahead of time.

I agree with the others it is permissable to cut back death benefits except the REA minimum. I would be cautious if there are life insurance contracts in the plan covering the former death benefits. Perhaps there are rights to be able to have these contracts that carte blanche terminating of them might not be appropriate.

[Guest kredlin]

I am brand new to pension issues, so please bear with me. What is the REA minimum death benefit?

[david rigby]

Sorry. REA refers to the "Retirement Equity Act of 1984". This enhanced the minimum surviving spouse death benefit that was first mandated by ERISA, effective in 1976. In a nutshell, the minimum death benefit is a life annuity to the surviving spouse payable as if the employee had elected a 50% Joint and Survivor benefit. If there is no surviving spouse, the survivor benefit can be zero. The minimum applies to any plan which pays benefits in the form of an annuity. A plan can offer a more generous death benefit, but not required. The primary exception to this minimum is government-sponsored plans.

My explanation is intentionally oversimplified. If you need additional info, please post.

[Guest kredlin]

Where would I find this in the Code? I'd like to take a look at it and see how it applies to this situation. I guess I'm confused how you would determine the REA if the rules are changed so that a participant is no longer eligible for the death benefit. Specifically, the employer currently offers the death benefit even if the participant is not engaged in Covered Employment at death. The employer would now like to require the participant to be engaged in Covered Employment or not engaged in Prohibited Employment at the time of death to receive a benefit. In this case, what would the REA be?

[david rigby]

Well, that fact just might change things. The minimum death benefit applies to any participant who is vested, even if not currently employed by the plan sponsor.

The minimum death benefit provisions are found in IRC Sections 401(a)(11) and 417.