is adding a minimum in-service distribution a problem?

We've administered this non-safe harbor 401k plan for years, and now they are moving to a new asset platform that insist on using their plan document, to which we grudgingly complied.  One of the provisions they say they need to have is a $500 minimum on in-service distributions and hardships... but there wasn't a minimum in the plan before.  That sounds like a cutback in available benefits to me.  Am I reading too far into this?

It's not a cutback. Those benefits aren't protected benefits. I think you could go as high as $1,000 (which I always recommend) or could eliminate them altogether.

Thanks, Bill!

Not sure if I entirely agree with Bill on this. The right to receive your distribution at a particular date (e.g. upon attainment of age 59-1/2) is a protected right. There is an exception written into the regs that says hardship distributions are not a protected right, so I agree you can limit those to >$500 or eliminate them entirely. But for other in-service distributions you may have an issue. There might be a de minimis clause somewhere that says you can eliminate the right to distributions of less than a certain amount, I don't know.

6 minutes ago, C. B. Zeller said:

Not sure if I entirely agree with Bill on this. The right to receive your distribution at a particular date (e.g. upon attainment of age 59-1/2) is a protected right. There is an exception written into the regs that says hardship distributions are not a protected right, so I agree you can limit those to >$500 or eliminate them entirely. But for other in-service distributions you may have an issue. There might be a de minimis clause somewhere that says you can eliminate the right to distributions of less than a certain amount, I don't know.

Dangit, you're right on the in-service as of a date. Probably should have focused on the amount. I still think that's accurate.

The conversion rep just keeps saying "that's our minimum, and we can't change it" every time I say "but it wasn't in the document up until now - is your legal team OK with it being added now?"  So either (a) he is totally going back and confirming this, or (b) they're just going with it and assuming no one will ever check.  I'm sure it's (a) and nothing bad will come out of it. 🙄

I think you need them to agree that a request for the remaining account balance would be honored where the balance is less than $500.   Otherwise, a participant with a tiny account loses the right he had yesterday to take a distribution.  That gets them out of the checking account business and let's them do a once and done -- may need to agree to add a once a year restriction.