What rights do defined contribution participants in pay status have to

[John A]

If the plan document is silent on the issue, what rights do participants in defined contribution plans have to change the amount or form of the benefit they are receiving? What rights do a plan sponsor, or a TPA, have to set policies preventing or limiting the changes, or the frequency of the changes?

For example, suppose a DC participant elects to receive a 10 year certain form of payment, gets payments for 2 months, then decides a 5 year certain form would be better 2 months later, then decides the 10 year certain form was fine 3 months later. (The plan document allows both forms). Can a participant do this if the plan document is silent? Can a plan sponsor or TPA adopt a policy not allowing this?

[Alonzo]

My reaction is different than the prior post. If the Plan has no language saying that a participant may change his benefit election form after the commencement date, then it is likely the plan does not provide for it. The plan administrative discretion the prior post speaks of was supposed to be prohibited by the original set of 411(d)(6) regulations.

You've got to be careful in this area about what you tell your participants. A case involving Federal Express or Flying Tiger let a db plan participant change his benefit election because it was never disclosed to the participant that benefit elections were "irrevocable" after benefit payments began.

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[KIP KRAUS]

John:

It sounds more like you are talking about a defined benefit plan. I realize that some DC plans have payment options, but I can't understand why they would have a 10 year certain option when most dollars in a DC plan are fully vested at the very least in 7 years.

If the plan is a DB plan it most common to disallow a change in the form of benefit payment once benfit payments begin.

[John A]

Kip, thanks for the response. I am talking about a DC plan, but a years certain option was a bad example. I was thinking more in terms of a DC participant who is taking installment payments of, say, $500 per month (until the money runs out of course, not a period certain) and wants to change the amount of the installment to $300, and 2 months after changing to $300, wants to change the installment amounts to $700. Most DC plan documents I've seen do not specifically prevent this. I was wondering if plan sponsors and/or TPAs could adopt a policy to prevent this. What do you think?

[KIP KRAUS]

Thanks for the clarification. As long as the plan allows for periodic timed distributions, I would allow the person to make a change in the absents of Plan language to the contrary. However, I certaintly believe that you should require a reasonable notice period in advance of making such a change. I was envolved in a plan in the past that did periodic distributions to terminated/retired participants, but I would not recommend this, especially if the employer is footing the bill for recordkeeping on a per head basis, or asset basis.

If you have been allowing the periodic payment on an administrave basis, you may only be able to stop doing so safely by amending the plan for future terminated participants. In addition, if you plan to continue to do these types of distributions, you may want to establish some perameters and provide for them by amendment to the plan.

There are grey areas, in my experience as to what you can do admistratively and what you have to do by plan provisions, but I suspect periodic distribution practices should be in the document. Check with your legal council.

[M R Bernardin]

If the plan document is silent, then the plan administrator likely has the discretion to determine whether a participant in pay status may change the form of payment. If they do not want to allow this, then they could help clarify things by adding something to that effect to their distribution forms. If they do choose to allow a change, then they should be prepared to extend that right to all participants. I would recommend against it. As for the TPA, unless they want to be treated as a fiduciary, their policies should not override the document and/or administrator's decisions. And, you would also need to consider whether additional spousal consent (to the extent required) is needed.