Offsetting Amendment Impact-204(h) Needed ?

[JAY21]

The same amendment make changes that impacts future benefit accruals in opposite directions: (1) One part of the amendment changes the def'n of compensation (in a non-discriminatory manner) to exclude certain components of compensation previously included (a reduction) and (2) another part of the same amendment increases the benefit formula. Both changes are contained in the same amendment and have the same effective date. When viewed in its "totality" the net impact of the "entire" amendment on each participant is either an increase in future accruals or a negligible decrease, although one component of the amendment viewed by itself (comp change) is clearly a reduction. Is the 204(h) notice based upon the amendment's overall impact or based on each individual component of the amendment ? Also what guidance do we have as to what constitutes a "significant" reduction in future benefits ? (I recognize to be safe we may want just do a 204(h) notice as there may be some minor reductions in a few participants' future accruals).

[Mike Preston]

There is no guidance that I'm aware of as to what constitutes a significant reduction. Better to be safe than sorry.

In a rational world, one would expect the 204(h) determination to be based on the totality of the amendment.

Not so, says the 9th Circuit. See Michael v. Riverside Cement. A most illogical ruling that can only be attributed to the fact that the 9th Circuit Judges have historically looked for ways to prove that, if they had their way, the 9th Circuit would not be part of the USA. Strong letter to follow.

http://www.groom.com/articles_display.asp?display=120

[Everett Moreland]

68 Federal Register 17277, 17279 (April 9, 2003):

"The final regulations . . . clarify in an example that where a reduction occurs at the same time as an immediate increase in accrued benefits such that the participant’s aggregate benefit can never be less than what it would have been had the amendment not been adopted, the reduction is not significant."

This example might be the example at 54.4980F-1 Q&A-8(d).

[JAY21]

Thanks Mike. That's a great case law cite even though It does seem overly protective. We'll take the cautious approach and issue the 204(h) notice.

[Mike Preston]

Great cite, Everett. Keep in mind, though, that the 9th Circuit holding is a bit more than just the 204(h) issue. It also applies to the basic rule of 411(d)(6).

It would be interesting to see whether Michael v. Riverside would be ruled differently today.