436(d)(4) in Final Regs

[dmb]

The wording of IRC section 436(d)(4) in the final regs are a little different than the proposed regs with regard to benefit increases pursuant to a plan amendment for a plan that was frozen as of 9/1/05. The final reg states "If a plan this is described in this paragraph (d)(4) provides for benefit accruals during any time after 9/1/05 (treating benefit increases pursuant to an amendmen as benefit accruals), this paragraph (d)(4) ceases to apply for the plan as of the date any benefits accrue under the plan (or the date the amendment takes effect)."

Under the proposes reg we have been treating all our plans that were frozen as of 9/1/05 as exempt from 436 restrictions per (d)(4) since there were no actual benefit accruals. However the wording of the final reg is gving us second thoughts about whether simply the provision in the plan that increases benefits for 415 increases would eliminate that exemption regardless of whether benefits actually accrue.

I was wondering if any others have given this any thought what the consensus might be. Thanks.

[david rigby]

Just an opinion: the intent of the exemption is to cover a plan with a hard freeze, not any variation of a soft freeze.

[Everett Moreland]

If I understand your question, doesn't the following statement in 1.436-1(d)(4) indicate that 436(d) applies to a plan if a benefit increases on or after September 1, 2005, because of an increase in the 415 limit?

"For example, the exception in this paragraph (d)(4) does not apply to a plan after the plan increases benefits to take into account increases in the limitations under section 415(b) on or after September 1, 2005."

[AndyH]

Just an opinion: the intent of the exemption is to cover a plan with a hard freeze, not any variation of a soft freeze.

Seconded.

[dmb]

If I understand your question, doesn't the following statement in 1.436-1(d)(4) indicate that 436(d) applies to a plan if a benefit increases on or after September 1, 2005, because of an increase in the 415 limit?

"For example, the exception in this paragraph (d)(4) does not apply to a plan after the plan increases benefits to take into account increases in the limitations under section 415(b) on or after September 1, 2005."

The question is does the exception in (d)(4) not apply simply because the plan provides for increases under 415 or only if there are actual benefit increases due to increases in 415??

[Everett Moreland]

I misunderstood your question. My reading of the following 436(d)(4) is that the exception in 436(d)(4) applies until there is a benefit accrual. I think that is what "during such period" means. I think that 1.436-1(d)(4), read in light of the words of 436(d)(4), also applies the exception in 436(d)(4) until there is a benefit accrual. For example, the last sentence of 1.436-1(d)(4) applies 436(4) only "after the plan increases benefits," not "after the plan provides for possible future benefit increases."

IRC § 436(d)(4):

This subsection shall not apply to any plan for any plan year if the terms of such plan (as in effect for the period beginning on September 1, 2005, and ending with such plan year) provide for no benefit accruals with respect to any participant during such period.

Treasury Regulation § 1.436-1(d)(4):

This paragraph (d) does not apply to a plan for a plan year if the terms of the plan, as in effect for the period beginning on September 1, 2005, provided for no benefit accruals with respect to any participants. If a plan that is described in this paragraph (d)(4) provides for benefit accruals during any time on or after September 1, 2005 (treating benefit increases pursuant to a plan amendment as benefit accruals), this paragraph (d)(4) ceases to apply for the plan as of the date any benefits accrue under the plan (or the date the amendment takes effect). For example, the exception in this paragraph (d)(4) does not apply to a plan after the plan increases benefits to take into account increases in the limitations under section 415(b) on or after September 1, 2005.