Time frame for amending Eligibility service Requirement

[Guest ChopperPilot]

A client wants to amend their Eligibility Service Requirement from 3 months to 12 months while still keeping quarterly Plan Entry Dates. The next Plan Entry Date is April 1, 2005. Am I correct in assuming the Amendment must be effective and Resolutions executed no later than March 31, 2005? Thanx.

[alanm]

You can execute anytime you want; but you must grandfather all employees hired before the amendment date.

[Blinky the 3-eyed Fish]

Alanm, what do you mean by grandfather? If you mean that you must keep them actively eligible for the plan, then I disagree. You can take away their right to continue further active participation until they meet the new eligibility requirements.

[alanm]

I don't think so; I think 411(d) compels you to let the people hired, before you do the amendment, come into the plan after three months of service. I think it would be regarded as a cutback in benefits. The same issue came up in Egtrra or a Rev Proc a few years ago about eliminating the Joint survivor annuity option as a form of payout in liew of a lump sum, the regs made you grandfather everyone for 90 days after the plan amendment. In this case, it would be safer to grandfather the existing employees unless those effected where high comps. Then you would be sure of compliance.

[Guest jefe96]

411(d)(6) only protects those benefits already accrued, it does not guarantee the right to accrue benefits in the future. In this case anyone who already accrued a benefit under the old eligibility rules does not lose that, they would just have to meet the new requirements, if they haven't already done so. If they want to grandfather in participants, then the amendment should explicitly say so. Otherwise, they would need to meet the new reqt's. Eliminating a QJSA or some other form of benefit is an optional benefit and cannot be eliminated by amendment.

[Blinky the 3-eyed Fish]

Alanm, ah, but that's a different issue. You have already earned the benefit and the right to the form of benefit earned. Being a participant leads to benefits but is not a benefit itself. Removing them from active participation is no different than freezing the plan for them prospectively. I think we can agree that a prospective reduction in benefits is not a cutback.

This topic has come up before if you want to search. I too think there is something in the ERISA Outline Book. I may go try and find it.

An easy find. See page 2.64 of the 2004 Edition.

[WDIK]

Related Discussion.

[alanm]

I thought of this announcement made september 6, 2000; the final 411(d) reg changes:

"However, the final regulations include a provision that protects

participants taking distributions shortly after the plan is amended,

who may have planned on the availability of the payment form that is

being eliminated or restricted. Under this provision, a plan amendment

that eliminates or restricts the ability of a participant to receive a

particular optional form of benefit cannot apply to any distribution

that has an annuity starting date earlier than the 90th day \1\ after

the date the participant receiving the distribution has been furnished

a summary that reflects the amendment and that satisfies the

requirements of the Labor Department regulations at 29 CFR 2520.104b-3 relating to a summary of material modifications for pension plans"

If you would grandfather them for the 90 days, for sure you wouldn't have an issue and the employees affected wouldn't feel shafted: a win win, instead of coming across as scrooge.

[Blinky the 3-eyed Fish]

What does that language have to do with this? We are talking about eliminating eligibility not an optional form of benefit. Why is 90 days a criterion for not feeling "shafted". As you see, I fail to understand your comments.

[alanm]

maybe you should have a conversation with those employees that started work two months ago thinking their employer would provide them a plan after three months and now they find out they have to wait a year. I'm sure they can shed some light on the efficacy of grandfathering them. Its like getting hit by a car running that runs a stop sign; you may be in the right, but you may be dead right; no employer likes to rub the employees the wrong way when nothing important is at stake: so my advice is still to grandfather them.

[Blinky the 3-eyed Fish]

I am going to try the QDROphile technique of posting what you meant to say on your next to last post:

"Blinky, my mistake, the eligibility can be extended to 12 months for all employees whether or not they have met the plan's current eligibility requirements. However, the employer should consider the ramifications of this decision on those employees affected by it. As a human I can appreciate their distaste to such an action."

[austin3515]

You mean you're not really a 3-eyed fish?

[alanm]

I think Blinky is now out of the fish bowl and has morphed into a teddy bear.

[Blinky the 3-eyed Fish]

You mean you're not really a 3-eyed fish?

I think you folks didn't understand the post. See the little things that look like "" - they are quotes. They indicate that I am quoting someone. In this case, that would be Alanm. Comprende? (In case no comprende, they were her words in quotes.) In other words, I was trying to say what I thought she should have said. This means, that the words in the quotes (those "" thingys) are not my words.

[austin3515]

Now I see what you were trying to do. Maybe if I was more familiar with the teachings of QDROPhile I would have fared better?

[Lori Friedman]

I think Blinky is now out of the fish bowl

Nope, Blinky's still in his fish bowl. You can see him in this photo.

[Earl]

Not to be a kiljoy by bring this back to reality, my take is always that the IRS determines what is "fair". If IRS says it is ok, then by definition, it is ok.

Like the guy said, "if you don't like the news, go out and make some of your own."