BG5150 Posted October 7 Share Posted October 7 If we amend a plan to allow for Federal disaster relief distributions, is that semi-permanent? Can they remove that provision without a cutback of benefits? Like age 59 1/2 withdrawals? QKA, QPA, CPC, ERPATwo wrongs don't make a right, but three rights make a left. Link to comment Share on other sites More sharing options...
Belgarath Posted October 7 Share Posted October 7 Well, just off the cuff...I wouldn't see any problem with eliminating the special loan provisions, since participant loans are a "right or feature" that isn't a protected form of optional benefit. As to the actual distributions, I'd say that this could be eliminated prospectively, but would be a protected benefit as to the accrued benefit up to the effective date the option is removed. Haven't really given it any thought... Link to comment Share on other sites More sharing options...
Lois Baker Posted October 7 Share Posted October 7 I'll admit, I haven't kept up with all of the fine print in the IRS regs ... but would it be permissible for the amendment to name a specific disaster? or limit distributions to a specific time frame? That way it's self-limiting from the outset -- and if the employer later decides to be more generous (e.g., add another disaster, or remove that limitation entirely), there's no cutback issue. Not sure any of that would be possible in a prototype plan, though ... Peter Gulia 1 Link to comment Share on other sites More sharing options...
Paul I Posted October 7 Share Posted October 7 My understanding is QDRDs are optional but are protected in the same fashion as for hardships. In other words, funds in the plan while the QDRD is in place would remain available in the event of an QDRD, but contributions and related earnings on amount added to the plan after the QDRD is removed would not be subject to the QDRD rules. If the QDRDs truly are treated similarly to hardship, the plan should be able to specify limitations on the QDRD such as a geographic area, or disasters occurring within a specific time period, or contribution sources available for a QDRD.... QDRDs and several other new withdrawal features have the potential to cause major recordkeeping headaches to benefit a small subset of the participant population. But it is the law, and we soldier on. Link to comment Share on other sites More sharing options...
G8Rs Posted October 8 Share Posted October 8 There is no exception to the anti-cut back rules for QDRDs. There is an exception for hardships (and loans aren't protected so no need for an exception). We hope the Treasury will expand the regulations to cover QRDS and the other new distributable events in 2.0. But unless, or until, that happens, once you add it you can't eliminate the distribution component of the provision with respect to money in the plan at the time of the elimination. No one wants to have to track old money vs. new money or retain the provision for old participants vs. new participants (which then can result in some nondiscrimination issues down the road). I agree with Lois on limiting the provision to a specific disaster. That way you're not stuck with it for any other disasters. Pre-approved plans will hopefully allow this, but we won't know that for many years. Link to comment Share on other sites More sharing options...
Gruegen Posted October 8 Share Posted October 8 The October 7, 2024 comment letter sent to the IRS by SPARK (and posted on today's BenefitsLink news) asks the IRS to provide guidance on this issue. "Issue: Under Code section 411(d)(6), in general, a plan may not decrease a participant’s accrued benefits by a plan amendment, including by eliminating an optional form of benefit.3 In some cases, however, the Code explicitly provides that the termination of an optional benefit does not violate this anti-cutback rule. In the case of sections 115 and 314 of SECURE 2.0, the Code does not specify whether a plan that offers such distributions will violate the anti-cutback rule if the plan then eliminates those benefits. This is also the case for other types of in-service distributions created by the SECURE Act of 2019 (“SECURE 1.0”) and SECURE 2.0, including qualified disaster recovery distributions (SECURE 2.0 section 331), qualified long-term care distributions (SECURE 2.0 section 334), and qualified birth or adoption distributions (“QBADs”) (SECURE 1.0 section 113). Request: Reiterating a prior guidance request, the SPARK Institute requests guidance providing that any plan making available the in-service distribution rights for emergency personal expense distributions and domestic abuse victim distributions will not violate Code section 411(d)(6) by prospectively eliminating, modifying, or restricting such benefits. For consistency, we believe it would also be appropriate to extend this relief to all of the new in-service distribution rights created by SECURE 1.0 and SECURE 2.0, as described above." Link to comment Share on other sites More sharing options...
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