Protected Benefits

[Guest susan w]

What specifically is considered a protected benefit?

Plan A is merging into Plan B, which has more stringent eligibility (protected), but Plan A employees are also concerned about losing the loan provision and having a much lower deferral max, among other differences

Before the merger actually takes place, we want to be sure that as many potential litigation or hr-relations issues are addressed.

Is there anything else besides protected benefits that we should be looking out for?

[Guest Gaylord]

Susan,

Loan processing costs should be minimal and passed on to the borrowers, not the employer. Since the employer will be the one hurt by removing this feature, I'm puzzled as to why he would take this move...

1)Is the larger plan enormous, expensive, and incapable of handling loans?

2)Can the larger plan not be amended easily?

I also cannot understand who benefits from lowering deferral levels...Do you mean matching of deferrals?

Both loans and deferrals refer to the employees' monies and restricting the plans should be done with extreme care regarding both the law and workplace morale. There should be low-cost ways of avoiding a mutiny.

E-mail me if you wish more details. Best wishes,

Gaylord Rohloff

[Guest susan w]

The larger plan does not offer loans and apparently does not want to add the feature when the smaller, loan-friendly plan is incorporated into it.

The larger plan has an extremely low maximum deferral deferral rate (40% that of the smaller plan)- no match.

Obviously, both of these issues could be morale busters, but is there any legal reason to use in convincing the larger plan to accomodate the smaller plan?

Because these are two issues that easily came out into the open, I am concerned that they may just be the tip of the iceberg. Is there anything else which we should be looking out for during a merger of plans?

[John A]

Check IRS Reg 1.411(d)-4 for a discussion and list of what is and what is not a protected benefit. Clearly, loans are not protected benefits. As far as other issues to consider when merging plans, that seems like too broad a question to answer here unless someone knows of an article they can refer you to. I hope this helps a little anyway.

[MoJo]

There are many reasons a plan may not want to offer loans (yes, some people still consider these things "retirement" plans, and the money should actually be there for retirement). Same for a lower max deferral - 415 problems, ADP problems, corporate benefit philosophy (ie maybe they want to encourage other savings or investments through a stock purchase plan, or other vehicle). We are too quick to assume that this is "employee money" (legally it isn't - its the plan's money whose sole purpose is to provide benefits) and that if a feature is possible, it should be offered. Neither of these is a protected benefit, and I have (and will continue, where apprpriate) advise that loans be eliminated, and max deferrals be reduced.

[LCARUSI]

None of the items you mentioned are protected forms of benefit:

loans, eligibility, max def rates

They can be changed at will by a sponsor. Whether or not such a move is smart is another question.