Protected Benefits & PIA Offset DB Plan

[Guest Grumpy456]

I am having difficulty finding an answer to what should be an easy question:

If a DB plan contains a PIA offset, is the protected benefit (in the context of Code sec. 411), the gross benefit (i.e., the benefit prior to application of the offset) or the net benefit (i.e., the benefit after application of the offset)?

A client wants to freeze its DB plan. The plan's benefit formula contains a PIA offset provision. As part of the PIA offset provision, the plan provides that it will estimate pre-hire wages using the method prescribed in the 401(a)(5) regulations unless a participant provides evidence that their actual pre-hire wages were less than the estimated wages using the prescribed method. Such evidence has to be provided to the plan within a reasonable time after (1) the date their employment terminates (by retirement or otherwise) or (2) the date they are notified they may commence payment of their benefit, whichever is later.

As part of the benefit freeze, the sponsor would also like to amend the plan to provide that unless such notification is made by a certain date, say December 31, 2006, your PIA offset will be based on estimated pre-hire wages and you will lose the right to provide evidence that your actual pre-hire wages were less.

It seems that if the gross benefit (i.e., the benefit prior to application of the offset) is protected, then this additional amendment can be done without violating 411(d)(6). However, if the net benefit (i.e., the benefit after application of the offset) is protected, then this additional amendment would, in a sense, eliminate a protected right. Any comments or thoughts?

Given the number of DB offset plans and the number of frozen DB plans I find it difficult to believe this is a novel issue. Any help is greatly appreciated!

[david rigby]

I'm unsure the proposed amendment, as described above, would be OK, or whether it might be considered a 411(d)(6) violation. Even if a gray area, why would the sponsor want to be so harsh? What is the proposed freeze date? Will participants receive a "certified" benefit calculation? Will that calculation (certified or not) show the pre-hire assumed compensation? How much time will the participant have to respond to this?

Practicality is useful here, as well as precedent. How much time/information is currently provided to a VT?