Protected Benefit - In-service provision

[Guest M. Martin]

Plan B will be merging into Plan A due to an acquisition. Plan B provides for in-service distributions at Age 59 ½ on all or any part of Vested Account Balances while Plan A provides for Age 59 ½ from 100% vested account balances, subject to administrative restrictions of at least a $1,000 minimum and only one withdrawal per year. For the Plan B balances the “all or any part of Vested Account Balances” won’t conflict because all of the participants will be 100% vested in all of their funds.

However, can the Plan A administrative restrictions of a $1,000 min. and one (1) withdrawal versus no administrative restrictions be applied to the Plan B balances? Or, must the less restrictive provisions of Plan B be grandfathered on these prior balances?

Thank you

[ETA Consulting LLC]

Or, must the less restrictive provisions of Plan B be grandfathered on these prior balances?

Thank you

Yes. The less restrictive provisions must be maintained. This is one of the major considerations when deciding whether to terminate a plan and roll it over or merge the two plans.

Good Luck!

[Guest M. Martin]

I suspected so. Unfortunately as often happens, the plan comparison was performed after the acquisition had closed.

Thank you!

[ETA Consulting LLC]

Unfortunately as often happens

"Like" Sad when a 15 minute analysis could've prevented the "potentially" 15 weeks (or even 15 months) of work required to fix it. I don't think I ever learned to reconcile this part of our industry. You know the same individuals who dropped the ball on this one likely dropped the same ball on tens (or even hundreds) of other similar circumstances.

Just a little harmless vent

[Guest GeerTom]

Have you looked at sanitizing the transferred funds by providing a cashout option? I am inferring this is a profit sharing plan allowing the distributions as "stated event" distributions. And you are saying everybody is full vested. So you should at least look at the possibility and ask the employer if this would create business problems.

[Kevin C]

You might want to take a look at 1.411(d)-4 Q&A 2 regarding changes that can be made to protected benefits. In particular, under (b)(2)(ix) up to a 6 month change in timing for an in-service benefit is allowed as a de minimis change in timing. Also, under (e) DC plans can eliminate optional forms of benefit if an otherwise identical single-sum distribution is available.

The de minimis timing change may not get you to one distribution per year, but I think you have a strong argument that (e) should allow the removal of in-service distributions under $1,000 if the larger in-service distributions remain available.