Amending Plan to Eliminate Match from Pre 59 1/2 withdrawals

[rocknrolls2]

Company X sponsors a 401(k) plan for its employees. Currently, the plan provides that participants may obtain an inservice distribution of matching contributions prior to age 59 1/2 if such contributions have been held in the plan at least 24 months or the employee has participated in the plan for at least 60 months. The distribution of the matching contribution results in a 6-month suspension of matching contributions. The same provisions apply to withdrawals of matching contributions after age 59 1/2. Company X would like to amend its 401(k) plan as follows: (1) with respect to pre-age 59 1/2 inservice distributions, by removing matching contributions as an eligible source for distribution; and (2) to remove the suspension period for post 59 1/2 in-service distributions.

With respect to (1), is such an amendment a cutback prohibited by Code Section 411(d)(6)? If so, is a viable alternative to simply amend the plan to state that matching contributions after a certain date will not be available for pre-59 1/2 in-service distributions? I looked at the IRS regs and thought there was more flexibility as applied to in-service distributions than appears to be the case.

[Guest Sieve]

It's a cutback to eliminate the age 59-1/2 distribution--which is an optional form of benefit--to the extent that it has accrued, i.e. for matching accounts earned (already contributed or required to be contributed) as of the date of the amendment. But the new rule (no in-service distributions at age 59-1/2) can apply to all new matches after the effective date of the amendment (or its adoption date, whichever is later).

[rocknrolls2]

It's a cutback to eliminate the age 59-1/2 distribution--which is an optional form of benefit--to the extent that it has accrued, i.e. for matching accounts earned (already contributed or required to be contributed) as of the date of the amendment. But the new rule (no in-service distributions at age 59-1/2) can apply to all new matches after the effective date of the amendment (or its adoption date, whichever is later).

Thank you for your response. I interpreted your response to reach the same conclusion with the prospective unavailability of matching contributions prior to age 59 1/2. I was not proposing to eliminate the age 59 1/2 distribution option but rather the pre-age 59 1/2 distribution option for matching contributions. For the post 59 1/2 distribution option, the proposal was merely to eliminate the 6-month suspension period.

[Guest Sieve]

Sorry to have misinterpreted. For post age 59-1/2 in-service distributions, eliminating subsequent 6-month suspension is not a cutback. Pre-age 59-1/2 in-service distributions can be eliminated prospectively, but only with respect to new $$ accured after the amendment.