non-discrimination testing a partial plan freeze

[ishi]

How do you verify that a plan amendment is non-discriminatory? Specifically, how do you test a partial plan freeze?

Assume the DB plan in question is part of a larger controlled group. My plan is to test the plan before the partial freeze (on a controlled group basis) and after the partial freeze (also on a controlled group basis). I'm stuck on the middle portion ... how to test the freeze itself. Do we just test those affected (i.e. those in the DB plan in question)? Is it sufficient to just test on 410(B)?

[david rigby]

Can you be more specific in describing your term "partial plan freeze"?

Also, are any plan participants covered by a collective bargaining agreement?

[ishi]

There are no bargained employees in this plan. The company intends to freeze accruals for those with less than X years of service (X to be determined). Those frozen will get heightened accruals in the 401(k) plan. Also, the DB plan will be closed to new members.

Ishi, the last of his tribe

[Guest JamesD]

Any comments on this proposed freeze? I have a client who is also considering freezing future benefit accruals under their DB plan for all employees with less than 5 years of service. I'm wondering if this will present a problem under IRC section 410(a), as an illegal restriction on participation based on required years of service. Any thoughts?

[Guest merlin]

Will 401(a)(26) be a problem,either now or in the future as the benefiting population declines?

[ishi]

401(a)(26) will be a problem in the future (perhaps 10+ years out). I believe that by that time, further modifications will be made...maybe total freeze, maybe termination.

Ishi, the last of his tribe

[Guest JamesD]

For my client, 401(a)(26) won't be a problem because they have tens of thousands of employees and this freeze will only apply to one business unit. My concern, however, is whether the freeze of benefits for employees who have less than 5 years of service will be an illegal age and service restriction under Code section 410(a) and section 202 of ERISA. We did discuss this issue informally with the IRS, and their response was that while they don't like it, it would be permitted as long as the Plan passes the 410(B) and 401(a)(4) requirements. Any other thoughts?