Plan Compensation Issue

[Guest erisafried]

Oh, the fun you can have when you amend your plan without thinking about the consequences!

The situation: a DB plan historically used a definition of compensation other than W-2 (a narrower definition). Without fully appreciating the consequences of its actions, the plan sponsor amended the plan in 2002 to adopt the W-2 definition. The chickens have now come home to roost (i.e., they've figured out how much this little change is going to cost them), and the plan sponsor is trying to figure out a way to mitigate the effects of the amendment.

Rescinding the amendment outright does not appear to be an option at this point. The plan sponsor could obviously amend the plan to reinstate the prior definition of compensation, but the issue this raises in my mind is whether this might amount to an indirect cut-back of additional benefits accrued by virtue of the broader definition. On the other side of this issue, the additional compensation picked up by the W-2 definition has not actually been paid to anyone yet, so it may be hard to argue that the participants have "accrued" any additional benefits under the plan.

I have taken it as a given that a plan's definition of compensation is not a protected benefit on its face.

Anyone have any thoughts on this?

[Mike Preston]

well, let's see. Is it possible that the plan was amended such that the formula is the accrued benefit at the effective date of change plus an additional benefit based on the modified definition of compensation? If so, and if nobody has accrued a benefit under the new formula, you can just change the definition back. If not, and the modification of compensation is retroactive, the only choice you have, I think, is to go into EPCRS and ask for a retroactive modification based on a scrivener's error. I have no idea whether you would be successful or not. You might want to hire an attorney familiar with EPCRS filings to give the plan a better chance.