Notice of Intent to Terminate ever required for a DC plan termination?

[John A]

Is a Notice of Intent to Terminate ever required for a money purchase or other defined contribution plan, or is it strictly a defined benefit plan requirement?

[Guest FredReilly]

No. This is strictly a PBGC (Title IV) requirement.

I always do an amendment to take contribution formula to 0% and do an ERISA 204(h) notice as a matter of prudence should the termination blow up for a technical or other reason. This is even more advisable for a DB plan.

[KJohnson]

I agree. I think that the termination of a dc plan would trigger a 204(h) notice obligation. The 204(h) notice would appear to be a specific regulatory obligation rather than just a question of prudenc.

1.411(d)-6 Q&A 16 states that "An amendment providing for the cessation of benefit accruals on a specified future date and for the termination of a plan is subject to section 204(h)"

Of course, this would only apply to a money purchase pension plan and not a profit sharing plan.

[Guest FredReilly]

I would agree with KJohnson that a termination would be a curtailment of future accruals, however I have had many practitioners advise me that a termination is not a plan amendment (that is, it is just a resolution to terminate under the terms of the plan as it exists) and therefore is not subject to 204(h). My experience is that a 204(h) notice is rarely done in a DC termination context. As a practical matter, in sixteen years of practice I have never had an IRS auditor or 5310 reviewer request or indicate that a 204(h) notice was necessary.

If anyone has a cite that gives authority to the necessity of a 204(h) notice where only a resolution to terminate has been executed, or has had IRS or PWBA auditor request one, I would appreciate the info. Does anyone know of a participant lawsuit in such an instance?

[KJohnson]

I think that the preamble to the proposed regulations supports your position. This preamble stated that if a plan was not amended to significantly reduce the rate of future benefit accruals prior to termination, a 204(h) notice was not required.

However, the final regs contain the provision cited in my prior post and the preamble to the final regs is silent on this issue. Because of this language, I have always given a 204(h) notice with a termination of a money purchase plan. However, like you I also always have a plan amendment ceasing all contributions and accruals at the date of termination and therefore I think the 204(h) notice would be required without regard to whether the termination was contained in a corporate resolution/minutes as opposed to a plan amendment.

[John A]

Thank you both. I always do a 204(h) notice for both DB plans and money purchase plans prior to terminating the plan.

However, it appeared that someone in our office may have done the Notice of Intent to Terminate for money purchase plans in the past. I did not think that was required and I appreciate having it confirmed.

[Guest 1950]

I agree with all of that. The closest thing that I've found is in Notice 2000-3 which requires, among other things, 30 days advance notice if a safe-harbor 401(k) plan intends to abandon the mandatory match during the plan year. It doesn't cite any authority, of course.

[Guest T C Farnam]

Please excuse the late addition - been out of the office, but would like to add a couple of thoughts:

1. Agree that 202(h) only applies to DB & MP plans as specified in sub-section (2).

2. Suggest better practice is to send "204(h) type" notice whenever terminating plan. Easy way to protect plan sponsor et. al. against participant claims of failure to properly advise cessation of accruals will be occuring.

3. Could it be argued that PS Plan failure to advise of cessation of accruals means employer must make contribution? Especially if plan does not have "last day" or "year of service" requirements? Believe IRS has taken the position that lack of those may make contribution a requirement!

TCF

[Guest FredReilly]

If a profit sharing plan has a discretionry contribution, I don't see the issue. I have only had one plan that had a fixed profit sharing formula, and that was a union plan. The formula was determined pursuant to the collective bargaining agreement. There were a lot of issues there concerning other notices and contracts. I think you need to worry more about what the terms of the plan would have done prior to termination date. Certainly if there was an unconditioned match you would be on the hook for that at least through the termination date.

TC, have you had any experience with non-ERISA actions in state court over benefit "promises" in this sort of circumstance?

[KJohnson]

Fred, my thoughts were the same as yours. The only time I have seen anything other than a discretionary formula is in the collectively bargained context.

However, bargaining issues aside, it would seem that even in that case the only possible statutory notice requirement would be a duty to provide an SMM within 210 days after the Plan Year. It would seem to me that the "serious consideration" early retirement window disclosure cases would be inapplicable where there is no "choice" to be made by the Participant. Also, it would seem that any attempted state court action could not survive preemption.