Adding Offset Provision to Existing DB Plan - 411(d)(6) issues

[Guest APierce]

A sponsor of a single employer DB plan ("Plan A") for its union employees is contemplating freezing accruals under Plan A and joining a multiemployer pension plan. The multiemployer pension plan will provide some benefits based on past service with the employer. It has been proposed that Plan A be amended to provide that the accrued benefit of participants under Plan A be offset by the amount of the past service benefits to be provided under the multiemployer plan.

My tentative conclusion is that this would be impermissible under Code Section 411(d)(6), because the result of the offset amendment would be a decrease in the already accrued benefits of participants under Plan A. Others have suggested that 411(d)(6) is not a problem here and have pointed to floor-offset arrangements as an analagous situation. Clearly, in a floor-offset plan the DB plan benefit decreases as the DC plan account balance increases. However, this is a function of the benefit formula of the DB plan. I don't think you could add an offset to an existing plan if the result is that the already accrued benefit is decreased (although you could certainly add an offset against future accruals).

Any thoughts or comments would be appreciated?

[AndyH]

I think it is clear that you are correct. The amendment is the issue. You can't add a DC plan to a DB plan, call it an offset, and reduce an accrued benefit. The analogy does not fly.

[mwyatt]

How about the other way - benefits for past service under the multi plan are offset by the original plan accrued benefit? This is the only way that this would work.

As far as the floor offset analogy goes, you can put one in, but you still have an inviolate minimum accrued benefit of the accrued benefit immediately preceding the FO amendment.

[Guest Brian4]

I agree with AndyH and mwyatt on the protection of the accrued benefit at date of amendment. This type of provision in a single employer DB plan can be made for Machiavellian purposes. For example, by a company that wants to discourage its non-union employees from joining a union. With this provsion, the company tells its employees "You'll lose benefits from the (name of company) plan if you join the union". The technical issue of protected benefits is not described by the company, or perhaps they ignore it in the administration of the company plan.