Amend plan to delay payment to terminee

[Jed Macy]

FACTS: ABC, Inc. has sponsored a 401(k)plan since 1987 which allows immediate payment to pre-retirement age terminees. They want to amend the plan to delay payment (other than rollouts) for two years after termination of employment.

Since 411d6 protects the timing of the benefits, they want to make the delay effective for the increase in benefits after 6/30/2000 from both contributions and investment gains. For example, Joe has an account balance of $10,000 on 6/30/2000 and terminates employment at age 40 in 2006 when his account balance is $50,000.

ISSUE: Can payment to Joe in 2006 be limited to $10,000? Or must it include the allocable investment gain from 6/30/2000 to 6/30/2006?

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[Alf]

The payment can be limited to $2,000 if the amendment is drafted properly. 411(d)(6) protects the balance that is in the plan at the time of the amendment, not any future earnings on those amounts.

[Jed Macy]

Alf, thanks for your response. Please let me know how you come up with $2,000 as I figured at best the participant could be limited to $10,000.

Also what do you have in mind when you say "drafted properly"?

While I appreciate and like your opinion, do you have a citation to authority for your position?

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[LCARUSI]

I was involved in a similar situation recently. Client's counsel took the position that future earnings is also a protected benefit. That position is different than Alf's. (And I'm assuming Alf meant to say $10,000 and not $2,000.)

[IRC401]

411(d)(6) "protects" benefits attributable to service before the amendment which appears to "protect" the investment gain.