Amend to remove lump sum option of benefit payment

[rodin111]

Employer sponsors a generous DB plan. Terminated employee received the lump sum actuarial benefit. It amounted at about 2 years of salary and happily informed her former coworkers about the Employer generosity.

Guess what happened next?

Several other employees promptly submitted their resignation!

Employer would like to amend the plan and remove the optional lump sum form of distribution.

QUESTION: If such amendment is effective - let's say- January 01, 2016, would it apply for all employees that terminate employment after that date? Or only for those hired after the effective date of the amendment? ( like in the case of vesting schedule amendment)

Thank you for your help.

[Effen]

Such an amendment would not be possible at all. A lump sum is a protected right and feature of the accrued benefit and cannot be removed.

The best you can do is remove the lump sum option for future accruals, but you can't take it away from benefits already earned. Therefore, it would be effective for benefits earned after the effective date of the amendment.

[david rigby]

Hmmm. In addition to its poor communication of the DB plan, this ER has a much larger employee relations problem.

[rodin111]

Thank you very much for your help.

[My 2 cents]

Hmmm. In addition to its poor communication of the DB plan, this ER has a much larger employee relations problem.

Or, maybe, the employer is not paying the employees enough for them to be willing to continue working. There is also a lack of communication (concerning the ongoing availability of the lump sum in the future).

Or is this one of those I-won-$50,000-in-the-lottery-so-I-don't-have-to-work-any-more situations?

Just wondering what the people who resigned are going to do in a year or so when to lump sum is exhausted. It seems obvious that they are not doing this in order to roll the proceeds into an IRA!

And the 20% mandatory withholding is probably not going to cover the taxes. Have fun next spring!

[rodin111]

These employees are pharmacy technicians:will have no problem finding another job next day, if they so choose. Te salary they get is quite competitive in the industry. The irony is that he employer has no problem paying their lump sum benefits. But did not expect some employees to resign in order to get "their lottery winnings". Even after they pay full taxes and penalty, it will still amount to more than a year of after tax take home.

You also menton that there was a "poor communication of theDB plan" to the employees. I don t really see it. Would really appreciate your input. It is a small company, with about 15 participants