Cutback of Accrued Benefit

[Christine Roberts]

For purposes of Code Sec. 411(d)(6), can the right to a discretionary employer contribution be said to have accrued before the contribution deadline (12/31 for this 403(b)plan), where the employer actually makes the contribution on a payroll to payroll basis? Employer has traditionally contributed 5% of contribution but wants to reduce this level retroactive to 1/1/99.

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[Dowist]

A 403b plan is not subject to 411d6, but there's a similar rule in ERISA.

If there was a year end employment requirement, the benefits haven't accrued yet. BUT Why was the er making contributions as it went along if there was a requirement that the ee be employed at year end? This is not a particularly good thing to do administratively, and would be inconsistent with most 403b providers investment capabilities - they generally don't have a good place for suspensed amounts (Is it possible there isn't a year end requirement? If not, the amounts have probably accrued.)

But even assuming a year end requirement, what have the ees been told? Are you taking away something at the last minute that everyone was expecting?

Will the employer request a refund, or will it just allocate what it has already contributed? The former doesn't sound like a good idea (pushing it). If the latter, and if there is a year end employment requirement and if the employes aren't going to get really depressed by this, it may be ok.

[Christine Roberts]

Actually, I can't find anything in the prototype plan document stating the deadline for contributions, I was just assuming (always dangerous) that for deduction purposes 12/31 was the deadline. There is no year end requirement to receive a contribution, thus the question is raised, does the right to the contribution accrue on the first day of the plan year, or just as each installment payment is made? Employee expectations are an issue here. Also, the employer would probably just apply the existing installments toward the new, lower contribution amount.