When 436 Benefits Restrictions Lifted

[Andy the Actuary]

We all know that all participants must be notified when a 436 restriction applies within 30 days from the date the restriction applies. It does not appear, however, that there is any parallel obligation to notify particpants that a restriction has been removed One might ask, "What's the difference? The participant will know this when he/she gets a benefit election package." However, notifying the participant of the benefits restriction removal might affect the participant's financial planning.

Is anyone aware of a legal requirement to notify participants that restrictions have been removed?

[Effen]

Not that I am aware of.

[david rigby]

Just my opinion, but I think there is an obligation, although this is not necessarily the same as "legal requirement": since the plan is required to notify of an event that imposes a temporary restriction, the plan is also obligated to notify when the temporary event has expired. The participant has no other way to obtain this information.

Example, suppose the restriction on accelerated distributions applies. Mary Doe, who hoped to retire and get a lump sum under the plan, decides not to retire, and waits for the restriction to expire. If the plan does not notify her of the expiration, when will she ever get that information? (Perhaps a later annual funding notice, but it's not spelled out there anyway.)

[Andy the Actuary]

Mr. R, you are heard. Unfortunately, the new law has created situations that defy intelligence. For example, most of the sponsors of larger DB plans I serve now -- after heavy asset losses -- contribute less than they would have under old 412. First, minimums are lower. Second, credit balances can hurt you. Hence, why fund a plan faster than required? Again, you may have sponsors failing to obtain AFTAP certifications to promote well funding. There are sponsors who want to be told what they have to do rather than what they should be doing.

The reason I posted my question is like you, I had no idea how participants would learn that their plan was well funded if you don't tell them. Sort of a hybrid would be if a plan that paid lump sums went from under 60% funded to between 60% and 80% funded. Now, a different restriction applies. In this case you would be obligated by law to notify participants that a restriction (albeit different) applied. However, I believe the door was left open that there is no legal requirement to notify participants that a (50%) restriction no longer applies.

[tymesup]

Suppose last year's AFTAP was 85% and gets presumed down to 75% on April 1st. The sponsor sends the required notice of the restriction.

The sponsor provides data to the actuary, the AFTAP is back up to 85%. The sponsor sends the optional, morally required notice that the restriction is lifted.

Repeat for a few years. Mix in a 95% presumed down to 85%, followed by an AFTAP of 75% to confuse the participants and administrators. Sweet!