New plan - too fast

[Guest ICannotDiscloseMyIdentity]

An employer reviews a new DB plan design proposal and agrees with everything, except, during the discussion with the plan consultant, they decide they want to include one year of past service for a larger deduction limit. They signed an agreement with the consultant to have a new design done and to have them prepare the plan document.

The provider prepared the new design and the plan document. The employer signed the plan document. The plan's effective date is January 1, 2010.

After a few days of reviewing the revised plan design, the owner-employees question the mechanics of the plan. It shows a beginning of the year accrued benefit. It also shows an end-of-year accrued benefit, which is basically 2x the beginning of the year accrued benefit for all employees. All employees that is, except for the owner-employees who are up against the 415 limit on January 1, 2010, so their 12/31/2010 accrued benefit is shown to be no bigger than their 1/1/2010 accrued benefit.

They now want to change the plan to not provide a past service credit. The higher deduction is no longer a priority. However, they signed the plan about a week ago.

Since the employees have already worked 1,000 hours, is there anyway such a change could be made?

[Effen]

Not really. Once the pen was put to paper the benefits were accrued and therefore protected under 411. You can change the provision to the exent it might impact future participants, but you can't really change what has already happened. The horse is already out of the barn.

Maybe look closely at the plan language and make sure the statements were done correctly. Do the participants really have 2 years of benefit credit at the end of year one, or should it have been that they just accrued their year 1 benefit as of the first day of the first year so that end the end of the first year they still only have 1 year of benefit credit?

We don't do many with past service credit, so I don't know if this is a common "problem" or not. How do others draft the past service language?

[D Syrett]

How about looking at projected benefits to see if the 415 problem goes away down the road? This doesn't get rid of the current issue but could make it somewhat moot.