411(d)(6) and Alternative Forms of Benefit

[Guest NPWA]

I'd really appreciate anyone's thoughts on the following scenario:

1. A subsidiary is being spun-off from the parent corporation. The parent sponsors a 401(k) plan that covers the sub's employees.

2. The 401(k) plan accounts of the current and former employees of the subsidiary are going to be transferred in a plan-to-plan transfer to a newly established 401(k) plan of the subsidiary upon the spin-off.

3. Certain current and former employees of the subsidiary were previously participants in plans that were merged into the parent plan and various different forms of benefits were grandfathered with respect to those employees.

4. The subidiary would like to offer only lump sum distributions under the new 401(k) plan if it's possible to eliminate the other forms of benefits.

I read 411(d)(6) and the regulations at 1.411(d)(4) to provide the following:

a. The grandfathered forms of benefit could not be eliminated in the course of the plan-to-plan transfer because the requirements of 411(d)(6)(D) are not met because the direct transfer is not being made pursuant to a voluntary election by the participant whose account is being transferred.

b. A defined contribution plan may eliminate all alternative forms of benefit except for a lump-sum on otherwise identical terms to the forms of benefit eliminated. 411(d)(6)(E) and 1.411-d(4), Q&A 2.

My question is this: Could the spun-off subsidiary transfer the accounts to the newly established 401(k) plan on Day 1 complete with all of the various grandfathered forms of benefit and then, on Day 2, amend the 401(k) Plan to eliminate all but the lump sum?

I've not found anything in the Code and regs that would preclude this course of events, but it seems like a real end-run around the rules about retaining forms of benefit in a spin-off.

All thoughts would be very much appreciated.

Julie