Interpretaion of a plan amendment

[Gary]

A plan amended the definition of compensation as of 1/1/96. An employee terminated in 1997. The plan sponsor interprets the employee's accrued benefit using the new def. of compensation for the years 1993 to 1997. However should the old def. of comp. be used for 1993,4 and 5 compensation, or is it reasonable to use the new def. which results in a lower avg. comp.

[david rigby]

It depends on the wording in the amendment.

If the new definition is silent, then a reasonable interpretation may be that it affects all years compensation. That is OK, as long as the 411(d)(6) protection applies to the accrued benefit as of 1/1/96 (or adoption date of the amendment if later).

[richard]

If the wording in the amendment is clear, then the answer is easy.

If this wording in the amendment is not clear, then it's dicey. However you interpret the (unclear) wording will affect future benefit calculations (you've set a precedent). But, if the intent of the amendment was to essentially use a lower pay and the amendment was poorly written, the employee would have a right to sue.

What was said in the new SPD (or SMM)? This could help.

How have you done other post-1996 terminations? You may have already set a precedent?

Good luck.

[Wessex]

Was a Section 204(h) notice given? If yes, did the notice describe the effect of the amendment or just give the amendment language? If no, and the amendment provides for a "significant reduction" in future accruals, the amendment is ineffective would be ineffective. As indicated in the prior response, Section 411(d)(6) would prohibit a reduction of previously accrued benefits. Does the amendment have any language that protects the benefits already accrued?