Restatements and Protected Benefits

[Gadgetfreak]

As we are now in the DC restatement cycle, I use this as an opportunity to formally review Plan provisions with my clients to see what is working for them and what might want to be changed (I discuss things with them every year but this is more formal).

Taking aside the issue with changing safe-harbor plans mid-year, I know there are certain provisions that cannot be changed if it makes it worse for participants. Retirement benefits is the first that comes to mind.

Typically, I could use a logical rule that says if it is going to "take away" a benefit from existing participants, then it is not allowed to be removed. Is that a rule set in stone?

What if a client is sick of handling loan repayments? Could they remove a loan provision going forward? I could argue that existing participants only deferred in the past because they knew they would have access to the money. But is that stretching it?

Besides the above, is there any list of specific provisions that can NOT be removed or made more strict when doing these restatements?

Thanks in advance.

[Lou S.]

See code section 411. I believe (d)(6) is the relevant sub section but I could be off.

In short some benefits are protected, things like vesting, retirement age, certain distribution options and timing.

Other benefits are not, things like - eligibility, loan availability, insurance, the right to direct investments.

[ETA Consulting LLC]

Keep in mind that a "Restatement" of the plan to a new document is not necessarily an "Amendment" of the plan's provisions. Typically, all you are doing is documenting the plan's current language (including the provisions on the Good Faith Amendments) into a new document that now contains those previously Good-faith provisions within the Basic Plan Document (and received an opinion letter).

Of course, I'm speaking of the pre-approved plans.

Just a thought for those wondering if you can restate a safe harbor plan in mid-year; as the question is bound to arise :-)

Good Luck!

[Gadgetfreak]

But why can't you use this as an opportunity to change eligibility provisions or the Trustee for that matter (instead of doing separate amendments)?

[Lou S.]

On safe harbor, I've seen most advice saying make amendment effective 1st day of the next plan year.

RPG, I see no reason not to make those types of changes in the restatement process.

[Kevin C]

For more detail on what is protected and what is not, see 1.411(d)-3 and 1.411(d)-4.

A loan provision can be removed prospectively.

1.411(d)-4, Q&A 1 (d) Benefits that are not section 411(d)(6) protected benefits. The following benefits are examples of items that are not section 411(d)(6) protected benefits: (1) ancillary life insurance protection; (2) accident or health insurance benefits; (3) social security supplements described in section 411(a)(9), except qualified social security supplements as defined in §1.401(a)(4)-12; (4) the availability of loans (other than the distribution of an employee's accrued benefit upon default under a loan); (5) the right to make after-tax employee contributions or elective deferrals described in section 402(g)(3); (6) the right to direct investments; (7) the right to a particular form of investment (e.g., investment in employer stock or securities or investment in certain types of securities, commercial paper, or other investment media); (8) the allocation dates for contributions, forfeitures, and earnings, the time for making contributions (but not the conditions for receiving an allocation of contributions or forfeitures for a plan year after such conditions have been satisfied), and the valuation dates for account balances; (9) administrative procedures for distributing benefits, such as provisions relating to the particular dates on which notices are given and by which elections must be made; and (10) rights that derive from administrative and operational provisions, such as mechanical procedures for allocating investment experience among accounts in defined contribution plans.

I've ranted a number of times about the "advice" some are giving about mid-year amendments to safe harbor plans and timing of restatement of safe harbor plans.

http://benefitslink.com/boards/index.php?/topic/55219-the-irs-continues-to-behave-badly/?p=240680

That was a fairly long thread and I'm sure a search will turn up several others.

[david rigby]

But why can't you use this as an opportunity to change eligibility provisions or the Trustee for that matter (instead of doing separate amendments)?

You can make changes at the same time as restatement. Keep in mind that is an amendment that is incorporated into the restatement. (Likely, you've seen a phrase such as "as amended and restated effective January 1, xxxx.")

IRS Regs covering section 411(d)(6) can be accessed thru this link.

http://www.ecfr.gov/cgi-bin/text-idx?&c=ecfr&tpl=/ecfrbrowse/Title26/26tab_02.tpl

[Gadgetfreak]

Good info. Here is another question: Is a loan removal or other change to loan provisions restricted from being changed mid-year if the Plan is a safe-harbor? Since whether loans are allowed or not is an actual selection on an adoption agreement, I would agree that you cannot add or remove loans during the year. On the other hand, individual loan provisions (maximum #, interest rate, etc,) or part of administrative loan policies and perhaps they CAN be changed in the middle of the year for SH plan.

Anyone have thoughts on this? Thx.

[Lou S.]

I've heard different opinions on changing loans mid-year on SH Plans. It is not one of the limited items that has the IRS blessing as far as I know but since it generally doesn't have an impact on what is in the SH notice that some folks thing changing this is OK, and other think because it is not on the pre-set list changing it is not.