employee communications

[Gary]

say a plan changes from pbgc to gatt.

and that the spd stated that lump sums were based on pbgc.

my feeling is that a SMM s/b provided as a result of this change.

my question is say the company does not provide a SMM. would they be liable to pay max of pbgc or gatt basis? i.e. would that be the remedy to a participant seeking damages?

for eg. if a 204(h) notice is not provided, the plan must continue accruing benefits under the old provisions.

gary

[mwyatt]

My thoughts:

I think that you would be hard-pressed to pursue damages for two reasons:

One, assuming GATT amendment in place in a timely fashion, there was specific protection under IRC 411 on anti-cutback.

Two, since this change is the "G" in "GUST", most plans have only recently (or haven't yet) updated documents for GUST restatement, so current SPD hasn't been issued yet. (BTW, I haven't seen too many SPDs that cover IRC 417 rates).

I don't think, given the transition time, that you have much basis for pursuing a greater LS using PBGC. Assuming someone (Mike Preston or Mbozek, are you out there?) will probably have a more definitive answer.

[Gary]

your points well taken.

i have seen quite a few spd's that refer to the 417(e) rates. not a majority but many none the less.

and i have come across participants that have actually understood the calculation under pbgc and gatt rates.

so for them, it means something which basis is used. of course, i don't know that a case could be made that any of them actually relied on the pbgc basis to make a retirement decision, but possible.

true 411 protection is afforded for the change to gatt. but i am wondering if it could be different if no SMM were provided in such a situation.

[Mike Preston]

I'm not sure I understand the use of the term "411 protection" as it has been used.

The regs under 417 (1.417(e)-1(d)(10)) define the circumstances in which a plan may amend the existing 417(e) rates to GATT rates from PBGC rates without offering 411(d)(6) protection to the participant.

If done in conformance with the regulations, I have always felt that SMM or no SMM, the provision of the SPD that states the plan provisions control is the determining factor.

Of course, it wouldn't surprise me to see a particularly egregious case give rise to case law that reverses that long-standing position. But in the absence of that, the plan document controls.

Now, if an employee were to ask whether the plan was contemplating changing to the GATT rates and the employer gave false information, then I think recent cases have made it pretty clear that the employer had a duty to tell the employee what is going on behind the scenes.

[Gary]

so my interpretation of what mike said is

1. that the plan can convert to gatt

2. even if the spd states the pbgc rates for lump sums, it is ok to use gatt if the plan has been properly amended (this is prior to 2000). and the plan does not even have to provide a SMM.

of course it seems like a good idea to provide a SMM to participants.

is my interpretation correct?

[Mike Preston]

I think it depends on the language of the SPD. Does it have the standard language in it which states that the plan controls?

[mbozek]

In what year was Gatt change adopted? SMM is due 210 days after the close of the plan year in which the amendment was adopted regardless of retroactive application. SMM is not required if employer issues revised SPD.

[Gary]

in response to mbozek's thread.

i do not know when the amendment was adopted (as of now). but the participant claims to have NEVER received anything in that regard. i.e. revised spd or smm.

the participant terminated in 1993 w/ a vested right and is now getting ready to begin distribution.

[Mike Preston]

I think the regulation is pretty clear. If you adopt the amendment now and as long as the replacement of the PBGC rates with the GATT rates is faithful to the requirements as to the timing of the interest rate selection, the amendment doesn't violate 411(d)(6).

You could even give the participant an SMM.

The question is whether the IRS's regulation is enough to satisfy an ERISA claim. Since, I believe, that the IRS has regulatory authority over this section of ERISA, I think that it should. That won't be enough to stop a participant from suing, though, unless they contact me for my opinion beforehand, which certainly isn't likely.

[david rigby]

I'm not so sure about that last comment.

My recollection is that the adoption of the GATT lump sum basis was specifically exempt from IRC 411(d)(6) until the 2000 plan year (last day of the plan year which began in 1999, I think). If the adoption occurred after that, then the lump sum had to be the greater of the prior basis or the new basis for all distributions until the actual adoption date.

[Gary]

pax, i agree with what you are saying.

however, my question is in the event that the plan amendment is already adopted, but the participants received no SMM or revised SPD.

true there is 411(d)(6) relief, which is probably sufficient for the plan sponsor's perspective.

my understanding is that the 411d6 relief allows for the payment of the lump sum without preserving the pbgc rules. but the challenge or question is, should this 411d6 apply, if the participant receives no notification of such change?

it sounds like the consensus is that the relief s/ still apply. but if the plan amendment is not yet adopted, then i certainly believe that the pbgc rates must be preserved too, until the amendment is adopted.

[Mike Preston]

OK, would somebody please read the reg with me?????

There are a number of confusing options in the section I quoted. But there is no specific timing associated with an amendment that implements GATT rates as long as the specific timing of the GATT interest rate selection conforms to the section indicated. Didn't I say that before? I'm gonna hafta workie on my Englishie.

See (i) which is the rule that says you have until 12/31/99 in the case of a calendar year plan to adopt an amendment that implements GATT in any way you want, and you get 411(d)(6) protection.

Now, see (ii) which generally says that if you adopt after 12/31/99 (again, in the case of a calendar year plan) you must use the 1 year "better of both worlds" method and then, after that year, the prior method goes away.

Now, see (iii) which says you can adopt an amendment at any time, even after 12/31/99 as long as the specific choice for the interest rate is the first full calendar month preceding the calandar month that contains the annuuity starting date. In order for this to apply, the interest rate being replaced must be the PBGC interest rate.

If that doesn't get you where you want to go, see (iv) which expands on (iii) and allows you to change not to the rate of "the first full calendar month preceding the calendar month that contains the annuity starting date" but instead, to the rate that "contains the date as of which the PBGC interest rate (or an interest rate or rates based on the PBGC rate) was determined immediately before the amendment, or for one of the two calendar months immediately preceding such month". In other words, if you wanted to use a 5 month look back, you had to adopt before 12/31/99. But if you are happy with the timing rule that exists in the plan, you can use that same timing rule or use a timing rule that is based on a one or two month lookback from that timing rule and still have 411(d)(6) protection.

Now, see (v) which gives you even more options.

What you are implying is that the rule of (i), dealing with the implementation date deadline, still applies to (ii) through (v), even though each of those sections includes the phrase: "notwithstanding the general rule of paragraph (i)....".

Gary, if needed, you can just adopt another amendment that conforms to one of the amendment options now and issue an SMM.