Automatic Plan Freeze

[Gary]

A pension attorney recently said that there is a provision that plans are automatically frozen as a default.

That is, plans can be designed to have an automatic freeze.

He is not referring to the AFTAP test in connection with benefit restrictions.

I am not talking about making a plan amendment to freeze benefits, but more like a a standard plan provision.

Does anyone know what this attorney may be referring to?

Thanks.

[Andy the Actuary]

Can the attorney provide a sample of such provision?

[tymesup]

IIRC, I recently read of a plan (union?) with frozen benefits. Late in year 1, they would amend the plan to provide a year's worth of accruals. They would ignore the amendment for funding purposes that year. In year 2, the benefit accrued in year 1 would be part of the accrued liability, but there would again be a frozen plan for funding purposes. They would then amend the plan late in year 2 to provide another year's worth of accruals.

It would seem this approach could be applied post PPA.

Hope this helps.

[Andy the Actuary]

IIRC, I recently read of a plan (union?) with frozen benefits. Late in year 1, they would amend the plan to provide a year's worth of accruals. They would ignore the amendment for funding purposes that year. In year 2, the benefit accrued in year 1 would be part of the accrued liability, but there would again be a frozen plan for funding purposes. They would then amend the plan late in year 2 to provide another year's worth of accruals.

It would seem this approach could be applied post PPA.

Hope this helps.

(For FASB87 purposes, the Plan would not be considered frozen?)

[Blinky the 3-eyed Fish]

IIRC, I recently read of a plan (union?) with frozen benefits. Late in year 1, they would amend the plan to provide a year's worth of accruals. They would ignore the amendment for funding purposes that year. In year 2, the benefit accrued in year 1 would be part of the accrued liability, but there would again be a frozen plan for funding purposes. They would then amend the plan late in year 2 to provide another year's worth of accruals.

It would seem this approach could be applied post PPA.

Hope this helps.

I know the IRS does not like this approach. Whether they have standing to do anything about it is a different story, but just them not liking it may cause you problems.