Rehabilitation Plan Adoption Period Restrictions

[Brian Haynes]

Under Code Section 432(f)(4), for a critical status plan, during the rehabilitation plan adoption period, the trustees of a Pension Fund are prohibited from accepting a collective bargaining agreement that provides for a reduction in the level of contributions, suspends contributions for any period or service, or results in the direct or indirect exclusion of younger or newly hired employees from participation. This prohibition does not technically apply once the rehabilitation plan adoption period has commenced (unlike for endangered status plans). Has anyone seen a Pension Fund that allows such provisions once the period has commenced? It is my understanding that there were once proposed technical corrections that would have applied the restrictions for critical status plan once the period commenced (just like for endangered status plans). These were never enacted. Under these restrictions, would a new provision in a collective bargaining agreement requiring employer contributions only after the new employee has completed 1,000 hours of service be allowed (assume the Pension Fund allows initial participation only after the completion of 1,000 hours of service)? I assume the restrictions would prohibit the establishment of a new plan for new hires. Would the IRS rule on a potential provision that may violate the prohibition? Thanks.

[Guest Smash]

I don't think the adoption period restriction applies to rules of plan operation already in place when the plan entered critical status (e.g. 1,000 hour participation rule).

As a trustee, I would be uncomfortable circumventing the restriction upon entering the rehab period. Many plans had these restrictions in place as part of the trust agreement pre-PPA.