Distributions - Protected Benefits

[Stephanie]

I have a plan that currently allows profit sharing contributions to be taken from the plan after the assets have been allocated for 2 years and requires that they participate for at least 5 years. The client wants to take this distribution option away. I am not sure if this is considered a protected benefit of the plan. I have been researching this for awhile and still can't find anything to really confirm whether it is or not. I have read some conflicting information. Has anyone come across this before?

[Mike Preston]

It is protected as to the benefits accrued.

[Larry Starr]

7 hours ago, Stephanie said:

I have a plan that currently allows profit sharing contributions to be taken from the plan after the assets have been allocated for 2 years and requires that they participate for at least 5 years. The client wants to take this distribution option away. I am not sure if this is considered a protected benefit of the plan. I have been researching this for awhile and still can't find anything to really confirm whether it is or not. I have read some conflicting information. Has anyone come across this before?

What surprises me is that you found "conflicting" information.  Distribution options are clearly a 411(d)(6) protected benefit as it relates to funds already accrued.  You can change it for future, but you have to protect the option for already accrued funds; you can't just eliminate it totally.  Mike's answer is absolutely correct.

 

[Mike Preston]

I need to walk this back a tiny bit.  Don't have time to research this today, but there are SOME in-service distribution options that CAN be eliminated even with respect to already existing account balances.  I think it is contingent on what other in-service options remain.  On the theory that the OP posits a world where the only in-service distribution option is being eliminated I stick to my original statement.

[Belgarath]

Yes, I think the one that we see most commonly (at least I do) is the ability to remove installment payment options in a profit sharing plan, as long as a lump-sum option is available. I can't recall with certainty, but I believe it was EGTRRA that changed the law to allow this. But as Mike says, you couldn't use this to eliminate the in-service withdrawal option altogether for accrued benefits.

[ACK]

The answer is that you cannot remove this distribution option with respect to accrued benefits.  Forms of benefit payments can be eliminated from a plan (for example, you can eliminate annuities and installments).  Hardship withdrawals can be eliminated.  But what you cannot eliminate is the timing of the payment.  In this case, the timing is the ability to take a withdrawal from money that is at least 2 years old or once the participant has been in the plan for at least 5 years.  Those distribution options are protected.