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| Issue: |
Your company is considering making changes to its pension plan in an effort to cut costs. May your company amend its plan if the amendment results in a reduction in accrued benefits? |
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Answer: |
No. The accrued benefits of plan participants generally may not be eliminated or decreased by plan amendments (known as the "anti-cutback rule"). A plan amendment that has the effect of eliminating or reducing an early retirement benefit or a retirement-type subsidy, or eliminating an optional form of benefit with respect to benefits attributable to service before the plan amendment, is treated as reducing accrued benefits.
A plan may be amended to eliminate or reduce protected benefits that have not accrued as of the date the amendment is adopted or made effective. In addition, a plan amendment may eliminate or reduce protected benefits that have already accrued, if:
- the amendment is adopted to enable the plan to comply with a change in law affecting plan qualification;
- the reduction or elimination of an accrued benefit is necessary to enable the plan to retain tax qualified status; and
- the Commissioner of the IRS authorizes relief under Code Sec. 7805(b).
Benefits that may be reduced. Some other types of benefits are not protected from reduction or elimination. A qualified plan may be amended to reduce or eliminate:
- ancillary life insurance protection;
- accident or health insurance benefits;
- certain Social Security supplements;
- the availability of loans (other than the distribution of an employee's accrued benefit upon loan default);
- the right to make after-tax employee contributions or elective deferrals;
- the right to direct investments;
- the right to a form of investment (such as employer stock or securities);
- the right to allocation dates for contributions, forfeitures and earnings, the time for making contributions, and the valuation date for account balances;
- the right to receive hardship distributions; and
- rights relating to the administration and operation of the plan.
Source: CCH U.S. Master Pension Guide |
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