Reducing Benefit

[Dougsbpc]

This is somewhat related to what Sueczer posted.

We administer a 5 participant DB with 3 HCE's and 2 NHCE's. The plan has provided a benefit of 8.25% of average salary for all participants. The employer now wishes to create two groups of participants. Group A will receive 5% and group B 8.25%. The one participant in group A is a 45 year old highly compensated participant. It turns out the group A participant will be terminating employment this year. So the reduction in benefit will mean she will not accrue a benefit this year.

Is there anything wrong with doing this given:

1) A 204(h) notice was given in time (prior to 1,000 hours).

2) The plan will pass 401(a)(4).

3) The amendment was properly executed in time.

Thanks very much.

[SoCalActuary]

I don't see any ERISA issues given the care you have already taken.

Since you say it is an HCE, non-discrimination is no problem.

Does the employee have any other recourse, such as an employment contract?

[Dougsbpc]

Thanks Socal.

The employment contract does not specify anything about a promised pension benefit. Would there be anything else about an employment contract that would override the plans ability to be amended prospectively?

[SoCalActuary]

No. You can do what you intend with the pension.

The employment contract would only matter if it gave grounds for suit for breach of contract.