Amortization Extensions

[Effen]

I was discussing an amortization extension with a fairly high up IRS representative and they reminded me that the Trustees are not allowed to increase benefits to ANY plan during the extension period.

In other words, if during the period of the extension the union negotiates a higher contribution rate for the defined contribution plan, they have violated the terms of the extension. I knew they couldn't increase benefits in the db plan, but I didn't know it applied to ANY plan.

Just thought I would throw this out there for the group’s consideration.

[Effen]

I did a little more research and found that the IRS has been putting the following on their 431(d) extension approval letters:

Your attention is called to section 412©(7) of the Code and section 302©(7) of ERISA which describe the consequences that would result in the event the Plan is amended to increase benefits, change the rate in the accrual of benefits or to change the rate of vesting, while the amortization extension remains in place. Please note that any amendment that increases liabilities for a profit sharing plan or any other retirement plans (whether qualified or unqualified) maintained by the Trustees for the Plan and covering participants of the Plan to which this ruling applies, would be considered an amendment for purposes of section 412©(7) of the Code and section 302©(7) of ERISA. Similarly, the establishment of a new profit sharing plan or any other retirement plan (whether qualified or unqualified) maintained by the Trustees for the Plan and covering participants of the Plan to which this ruling applies, would be considered an amendment for purposes of section 412©(7) of the Code and section 302©(7) of ERISA.

I questioned thier position and thier reply was that they were concerned that people could use other plans to circumvent the intent of 412(f) before PPA and 412©(7) after PPA and therefore, they will treat increases to other plans as a violation.

So, it looks to me like this is similar to the ".5% rule" to determine if someone is benefiting under 401(a)(26). We can explain the IRS's position to the Trustee and let them decide if it is worth the fight.