15-Day Notice Regs Issued

[Dave Baker]

The Internal Revenue Service has finalized its regulations on the 15-day advance notice requirement of ERISA 204(h), which affects sponsors of pension plans (but not profit sharing, stock bonus or ESOP plans) who wish to lower, freeze or terminate the continued accrual of benefits for covered participants.

The regulations are online at:

http://www.benefitslink.com/taxregs/1.411d-6.shtml

The regulations basically restate the proposed version issued in 1995, but a few new items are significant:

* First-class mailing of a notice is sufficient, and the date of mailing is considered to be the date on which the notice is provided to that employee

* An example has been added to show how a defined benefit plan sponsor can run into trouble if the plan is subject to PBGC termination procedures but the PBGC rejects the proposed termination date. The standard PBGC-required notice of intent to terminate does not provide enough information to be a 204(h) notice if the PBGC rejects the termination date, but it is sufficient if the PBGC approves the proposed termination date. Lesson: adopt a special amendment freezing benefits as of the proposed termination date, and separately describe that amendment in the notice to interested parties.

* The notice can be given by the end of the 15th day before the effective date of an accrual freeze or reduction. For an amendment reducing accruals effective as of December 1, notice could be delivered by making a first-class mailing on November 16, which is the 15th day before December 1. Hence it appears that an amendment that is effective December 31, 1998, such an amendment that reduces or eliminates the plan's promised benefit for 1998 under a calendar year money purchase plan, would need to be provided on or before December 16, 1998 (tomorrow). (Some practitioners believe such an amendment is permitted, if the plan contains a last-day employment requirement, such that no protected right to a benefit accrual would arise until the end of the day on December 31.)

[This message has been edited by Dave Baker (edited 12-15-98).]