Two non-discriminatory amendments

[Dougsbpc]

A traditional DB plan has a special 415(b) provision that limits it to the pre-EGTRRA $140k. Would amending this be considered discriminatory? No participant was ever affected by this lower limit. The owner of the business reached NRA 65 and accrued his full benefit two years ago. His benefit has been adjusted for post-NRA increases. This year, his adjustment will be affected by the lower limit.

In this case, increasing the 415 limit will only serve to allow him his age 65 accrued benefit equivalent. Would amending the 415 limit be considered discriminatory?

Also, they would like to amend actuarial equivalent interest rates from 6.5% pre and post to 5.5% pre and post. I know this is a 411(d)6 protected benefit, but in this case all current participants will have higher lump sums not lower. The participants who received lump sums in the past all received lump sums that were based on 417(e) rates that were lower that what the new 5.5% actuarial equivalent rates. Would this change be considered discriminatory?

Thanks.

[Effen]

I think they are both ok, but don't forget about the other optional forms of payment. Some might be higher under the old assumptions and would need to be protected.

As always, you should bounce this off the attorney, who should have the final say.

[Dougsbpc]

Effen

Thanks for your reply.

We would run this by our attorney before going forward with anything.

If the actuarial equivalent assumptions were ever amended, we would make sure all forms of benefits under the prior assumptions were preserved. Do you think lowering act equiv interest rates would be an amendment that needs to comply with 1.401(a)(4)-5?

[Effen]

Definitely.

[Dougsbpc]

I don't want to beat this to death, but by lowering actuarial equivalent interest rates and preserving any other forms of benefit that could be higher under prior rates, I would think all participants (not just HCE's) potentially benefit.

For example, suppose they decided to terminate this plan and distribute benefits in early 2016. Also, suppose inflation started to heat up and the Fed created a higher interest rate environment that led to much higher 417(e) rates. Since most/all participants would elect lump sums, all would benefit from the lower rates.