Change of Control Questions

[Guest cphcs]

(1) Grandfathered nonqualified plan provides for distributions upon a change of control. A change of control will likely occur next year, but participants do not want distribution.

Any thoughts on whether it would be a material modification to provide that no distribution due to that specific change of control? any change of control?

(2) For non-grandfathered plan, same issue. Any thoughts on whether participant could avoid distribution on the basis that transition relief permits a new distribution election for amounts payable in the next year?

[jpod]

As to the g-fathered plan, it's probably a material modification. But if you know that the cc won't occur in 2006, I think the transition rule can work perfectly in both cases, as long as the amendment/new election is made before the end of 2006.

[namealreadyinuse]

I agree that transition relief should allow both to be deferred, but it will still be a modification for the grandfathered plan, right?

I guess that if the grandfathered plan would otherwise pay out next year, it may be beneficial to give up all other benefits of grandfathering for additional deferral, but you normally wouldn't.

You would have to elect by 12/31 and if the deal doesn't go through, you have given up any of the protected provisions in the grandfathered plan.

[Guest cphcs]

I agree at first look it appears to be a material modification, but the proposed regs indicate that reduction of an existing benefit, right or feature is not a material modification. The example given in the proposed regs is removal of a haircut provision. Also, the conference committee report provides: "As another example, amending a plan to remove a distribution provision (e.g., to remove a “haircut”) would not be considered a material modification."

Additional thoughts?