Benefits Rights and Features

What if a plan offers a BRF but only to employees who are participants as of a certain date,  but not to any new participants.  For example, participant loans.

Is BRF testing required?  I couldn't find anything specifically in the EOB.

WS62 - Benefits, Rights and Features Identifying, Testing and Amending.pdf

This if from the 2015  ASPPA Annual conf.  Look at slide 15.

DC Plan is amended as of November 1, 2015 to only permit new loans to those with account balances in the plan as of November 1, 2015

Plan passes current availability as of Nov. 1, 2015

Retention of loan feature does not need to be tested in future for current availability provided:

– Loans only based on account as of Nov. 1, 2015

– Not required to be adjusted for earnings (loans are not 411(d)(6) protected benefits)

I'm not sure participant loans are a good example for a discussion of limits on BRF.  I think you would have a problem with that limitation causing the loans to not be considered to be available to participants and beneficiaries on a reasonably equivalent basis under 2550.408b-1(b)(1). 

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(1)   Loans will not be considered to have been made available to participants and beneficiaries on a reasonably equivalent basis unless:

    (i)   Such loans are available to all plan participants and beneficiaries without regard to any individual's race, color, religion, sex, age or national origin;

    (ii)   In making such loans, consideration has been given only to those factors which would be considered in a normal commercial setting by an entity in the business of making similar types of loans. Such factors may include the applicant's creditworthiness and financial need; and

    (iii)   An evaluation of all relevant facts and circumstances indicates that, in actual practice, loans are not unreasonably withheld from any applicant.

 

Good point - how about in-service distributions?

I agree that the loan example is questionable, but the following section of the EOB seems to back up Robert Richter's example in the presentation attached above.  It would be an odd example to include for BRFs if is isn't doable because of 2550.408b-1(b)(1).

The last sentence of 5.b. suggests that you could limit loans if it is restricted to benefits accrued before elimination, and it satisfied the currently available test at the time it was eliminated.  

I think in-service distributions would be doable subject to the same limitations.  I don't think you  can allow a select group of participants to take an in-service of future benefits without BRF testing.

EOB Ch 9 - Section X -  Part B - 5 (current online edition)

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5. Prospective elimination of a BRF. If the plan is amended to eliminate a BRF with respect to benefits accrued after such amendment, but is retained with respect to already-accrued benefits, the BRF is deemed to be currently available on a nondiscriminatory basis, so long as it was satisfying this test at the time it was prospectively eliminated. See Treas. Reg. §1.401(a)(4)-4(b)(3). Note that IRC §411(d)(6) requires an optional form of benefit to be protected with respect to accrued benefits, but such protection does not cover ancillary benefits, rights and features.

5.a. Investment earnings under defined contribution plan. If the plan is a defined contribution plan, this special rule applies only if the BRF remains available with respect to the value of the account balance at the time of the prospective elimination of the BRF, adjusted for subsequent gains and losses. However, if the BRF is not protected by IRC §411(d)(6) (i.e., is not an optional form of benefit), adjustments for gains and losses need not be taken into account.

5.b. Prospective elimination of loans. If a loan feature is prospectively eliminated, that elimination may not result in the acceleration of payment of existing loans, unless the loan terms permit such acceleration. The participants with outstanding loans would continue to repay those loans in accordance with the loan terms. This is because the loan is a contract between the plan and the participant and cannot be unilaterally modified by the plan. However, no new loans would be permitted, except as allowed with respect to benefits accrued before the prospective elimination of the loan feature.