different dates on 204h notice and amendment

[dmb]

DB plan with less than 100 lives. 204h notice issued 9/30/08 saying benefit accruals will cease 10/31/08. Plan amendment says benefit accruals cease and plan will terminate 12/31/08. What are consequences of different dates. Since participants were notified of accrual freeze, can another notice be issued saying the freeze is 12/31/08, not 10/31/08??

[J Simmons]

I don't think you have a valid 204h notice. The 9/30/2008 one did not accurately describe the cessation of benefit accruals per the plan documents, that included the amendment. While EEs were notified of an impending freeze, it wasn't the freeze set forth in the amendment.

[Mike Preston]

I'm not so sure. I haven't reviewed the 204(h) (4980 something or other) regs for this particular issue, but as I recall they were a bit more lenient for things such as this than I would have originally thought. Certainly wouldn't hurt to read them and see, huh? Failing that, if the regs are silent, this one belongs squarely in the lap of an ERISA attorney.

[Kevin C]

It looks like your attempted 204(h) notice did not satisy the content requirements because it did not list the effective date of the amendment.

Reg 54.4980F-1, Q&A 11 (a)(3) Required narrative description of amendment --(i) Reduction in rate of future benefit accrual. In the case of an amendment reducing the rate of future benefit accrual, the notice must include a description of the benefit or allocation formula prior to the amendment, a description of the benefit or allocation formula under the plan as amended, and the effective date of the amendment.

[dmb]

It looks like your attempted 204(h) notice did not satisy the content requirements because it did not list the effective date of the amendment.

Reg 54.4980F-1, Q&A 11 (a)(3) Required narrative description of amendment --(i) Reduction in rate of future benefit accrual. In the case of an amendment reducing the rate of future benefit accrual, the notice must include a description of the benefit or allocation formula prior to the amendment, a description of the benefit or allocation formula under the plan as amended, and the effective date of the amendment.

Thanks for the help, i will definitely look closely at the Reg.

[dmb]

I'm not so sure. I haven't reviewed the 204(h) (4980 something or other) regs for this particular issue, but as I recall they were a bit more lenient for things such as this than I would have originally thought. Certainly wouldn't hurt to read them and see, huh? Failing that, if the regs are silent, this one belongs squarely in the lap of an ERISA attorney.

Thanks. I'm sure this will make its way to an ERISA attorney.

[Guest Sieve]

The regs require that the Notice not contain information which is "materially false or misleading" and that it not "omit information so as to cause the information provided to be misleading". (Treas. Reg. Section 1.4980F-1, Q&A-11(a)(5).) I don't think a Notice which otherwise adequatley describes a freeze of accruals under a DB plan violates the 204(h) Notice requirement if it inadvertently accelerates the freeze date by 2 months, because I don't see how that is a misleading statement--especially since the amendment requires accruals to continue longer than specified in the Notice (i.e., in favor of the employees when compared to the Notice's benefit freeze date).

Of course, the determination will be made on the precise facts and circumstances relating to the miscommunication.

[J Simmons]

So the date that benefit accruals will stop is not material? Wonder why then the DoL requires the notice be so many days before the date.

[Guest Sieve]

John --

The date of the cessation of benefit accruals is material, but I don't see how this particular misstatement voids the Notice. And, yes, the Notice is keyed into that freeze date. But, this Notice was timely given--and, even if it wasn't, the regs can permit a "do-over" despite the materiality of the date of the accrual feeze.

The issue, as I see, when the Notice is proper and timely but the date is misstated (as here), is not the materiality of the date itself, but whether the misstatement of that date is "materially false or misleading". In this instance, I don't think it was materially false or misleading because benefit accruals actually continued for an additional 2 months beyond the date stated in the Notice, and no voluntary action on the part of an employee (other than terminating employment on account of the misstated date) probably would have detrimentaly impacted his/her benefit accruals during those 2 months.

I know that the 204(h) Notice is not requried when a matching contribution stops, but bear with me for the following hypo. If a notice were given that 401(k) matching contributions would cease as of 10/31, then that might be materially misleading if matches actually did not stop until 12/31, because employees might reduce their salary deferrals as of 11/1 because they believed that the matching contribution was going to stop, and therefore their volunatary act of reducing deferrals, based on the misstated date, would have a detrimental impact on them. There is nothing like that with a DB, or with a MPPP, if the benefit continues for a few months beyond the date stated in the Notice.

But that's just my opinion. I have no case or regulatory authority for that position.

[J Simmons]

Hey, Larry, your post #9 makes a compelling, succinct case for why a 204h notice ought to be required anytime a fixed match is to be reduced or removed, more so than when a DB or money purchase pension future benefit accrual is. Any idea why Congress/DoL have not extended the 204h notice to fixed match reductions?

[Guest Sieve]

No idea. Bigger fish to fry, I guess. From what I can tell, 204(h) is an ERISA provision, so it existed before 401(k) plans did (although the old after-tax thrift plan deferrals were around at that time). I do think that 204(h) should be extended to include any plan where there is a mandatory contribution per Plan provisions (like a match or even a formula contribution to a PSP). If you promise a level of contributions/allocations, then you should notify participants before you reduce it or take it away.

Likewise--although off subject--I cannot understand why QJSA & QPSA have not been extended to salary deferrals. Not that I want that from an administrative point of view, by any stretch of the imagination! But, after all, if a spouse has to sign off on a mandated QJSA for $$ that went into a plan strictly as contributions directly from the employer (which would not, presumably, have been salary payments), don't you think that a spouse ought to be promised a return of 401(k) salary deferral $$ at participant's retirement since the participant, at his/her own choice, takes money directly from family coffers during the participant's working years? I would argue that there is more logic behind a spouse sign-off on a QJSA for deferrals than for a DB plan.