Plan document and SPD disagree

[J Simmons]

A new client brings in a money purchase pension plan. The old document provider is going out of business. The current adoption agreement specifies NRA to be 65/5. The SPD explains NRA to be 55/5.

In preparing new EGTRRA restatement documents, I think I've got to go with 55/5 to avoid a prohibited cutback. That will take the NRA out of the 62 and above safe harbor, but at least the plan would yet have the presumption that it is an appropriate NRA since it is not below 55.

Any thoughts or suggestions?

One other glitch. An SMM that properly described a change made by an amendment signed by the employer also includes curious language about elective deferral catch-ups, although this is not a pre-ERISA, grandfathered MPP w 401k feature. There have never been any elective deferrals allowed or made to this MPPP.

Are there any steps that need to be taken by reason of this misinformation having been included in the SMM?

[Jim Chad]

Hi John

I'll start the discussion here. I would go with the usual caveat that when anything disagrees with the doc, the doc is superior authority. If the employer wanted 65/5, I would stay at 65/5.

As far as the mention of catchups, I think it would be proper to ignore it. I am thinking that it says something like "in any plan that allows deferrals under a qualified CODA, catchups are allowed." That or it was that technical thing called a "screwup"...and I would still ignore it.

At least, that is all I can think of right now,

[Kevin C]

John,

Have you looked at Notice 2007-69? There was some 411(d)(6) relief for a change in NRA included in the regulations. If you take the approach that the SPD language has the effect of a plan amendment, you may still be able to change back to age 65/5.

[J Simmons]

Thanks, Kevin.

Do you understand that Notice 2007-69 would allow for an interim amendment (still timely for the calendar year plan I'm facing) to raise the NRA to 65/5 rather than to just the lower end of the safe harbor, i.e. 62?

[Tom Poje]

more info from that desk drawer that collects 'odd' information that comes up from time to time

Publication: The Tax Adviser

Date: Wednesday, June 1 1994

SPD Trumps Plan Document

The Fourth Circuit recently reiterated its view that representations in a summary plan description (SPD) control over inconsistent provisions in an official plan document (Aiken v. Policy Management Systems Corp., 4th Cir., 1993). Plan sponsors should be concerned about this case because it reflects the views of at least five other circuits, and because the court maintained its position even though the plan, as with most plans, contained language stating that the plan document would control.

In Aiken, an employee accused of sexual harassment was offered the choice of resigning or being fired. The employee opted for resignation "under protest." The employee claimed that he resigned in part because he believed he would be immediately eligible for his retirement benefits. He based his claim for benefits on the SPD, which on its face indicated that he was entitled to a lump-sum distribution of his vested benefits. The employer, Policy Management Systems (PMSC), denied his claim because the terms of the plan itself did not provide for such a distribution. On cross-motions for summary judgment, the district court concluded that the terms of the plan controlled over those of the SPD and dismissed the employee's claim. It alternatively found that even if the SPD controlled, the employee was not entitled to recover; he had failed to demonstrate reliance on the SPD or any resulting prejudice. In effect, the court of appeals overruled the district court on both issues, ruling that the case was not ripe for summary judgment.

The specific provision in the SPD on which the employee based his claim stated, "...if a participant terminates employment after completing 20 years of service but before attaining age 60, the participant is entitled to distribution of the vested interest in the Plan." At the time of his resignation, the employee was not yet 60 years of age and had served with PMSC for more than 20 years.

Reversing the district court, the Fourth Circuit stated that "under controlling precedent in this Circuit, representations in a SPD control over inconsistent provisions in an official plan document." The court cited its decision in Pierce v. Security Trust Life Insurance Co., 979 F2d 23 (4th Cir. 1992), in which it recognized that the SPD is "the statutorily established means of informing participants of the terms of the plan and its benefits," and the "employee's primary source of information regarding employment benefits." In that case, the court found that the logical import of the status of the SPD was that "if there was a conflict between the complexities of the plan's language and the simple language of the SPD, the latter would control."

The court then went on to list the following cases and circuits in accord with this view: Heidgerd v. Olin Corp., 906 F2d 903 (2d Cir. 1990); Hansen v. Continental Insurance Co., 940 F2d 971 (5th

[Kevin C]

John,

Take a look at the example in 1.411(d)-4, Q&A12. They change the NRA from 45 to 65/5 and eliminate in-service distributions prior to the new NRA.

[J Simmons]

I owe you one!