Timing of Distributions - Protected Benefit?

[Guest notapensiongeek]

We get quite a few takeover plans whose existing documents call for immediate distribution vs. having to wait until after the close of the plan year after they terminate to take a distribution. When we go to put the takeover plan on our VS document, can we modify this provision to where the participant cannot take an immediate distribution, but rather, they have to wait until after the close of the plan year after they terminate in order to take a distribution? Or is this a protected benefit?

Any thoughts would be greatly appreciated. Thanks!

[Bird]

It's a protected benefit.

[Guest notapensiongeek]

Thanks!

[Kevin C]

You are only allowed to make de minimis changes in the timing of distributions. You can't change the timing more than 2 months. For in-service distributions, it's 6 months. Other than that, distribution timing is protected.

[John Feldt ERPA CPC QPA]

If you want to track two sets of account balances for each current participant, then you could have the old grandfathered immediate distribution accounts, and then all new money going in could be held until some later date. I've seen that done before. Ugly, but possible.

[ERISAnut]

If you want to track two sets of account balances for each current participant, then you could have the old grandfathered immediate distribution accounts, and then all new money going in could be held until some later date. I've seen that done before. Ugly, but possible.

Or better yet, reference the provision for only those employees who were hired after a certain date. You wouldn't have to track two sets of account balances, but two sets of employees.

[QDROphile]

Kevin C:

Can you identify the guidance about the leeway to change and number of months. That guidance would be very helpful.

[John Feldt ERPA CPC QPA]

§1.411(d)-4, Q&A-2(b)(2)(ix):

De minimis change in the timing of an optional form of benefit. A plan may be amended to modify an optional form of benefit by changing the timing of the availability of such optional form if, after the change, the optional form is available at a time that is within two months of the time such optional form was available before the amendment. To the extent the optional form of benefit is available prior to termination of employment, six months may be substituted for two months in the prior sentence. Thus, for example, a plan that makes in-service distributions available to employees once every month may be amended to make such in-service distributions available only once every six months. This exception to section 411(d)(6) relates only to the timing of the availability of the optional form of benefit. Other aspects of an optional form of benefit may not be modified and the value of such optional form may not be reduced merely because of an amendment permitted by this exception.

[J Simmons]

Suppose the plan document merely specifies payout will be made within 60 days of the end of the plan year during which the distribution triggering event occurs, but the plan has operated by paying out during the year, in response to each triggering event. May the plan simply stop that practice and begin distributing out during those 60 days following the end of the plan year or would that de facto amend the plan beyond the latitude permitted by IRC § 1.411(d)-4, Q&A-2(b)(2)(ix)?

[John Feldt ERPA CPC QPA]

I'll rephrase your scenario, as I imagine the terms of the plan you have described. I've emphasized the terms of the plan that must already exist for the plan to be operating in compliance:

Suppose the plan document allows for immediate payment, specifying payout will be made within 60 days of the end of the plan year during which the distribution triggering event occurs. The plan has been paying out during the year, in response to each triggering event.

You ask: Can the plan simply stop that practice and begin distributing out during those 60 days following the end of the plan year or would that de facto amend the plan beyond the latitude permitted by IRC § 1.411(d)-4, Q&A-2(b)(2)(ix)?

I'd say no, that's not going to work.

[J Simmons]

Thanks, John, your wording was not only more precise, but spot on the situation at hand.