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CCH® PENSION AND BENEFITS — 4/1/08

Proposed IRS regs amend notice requirements for benefit accrual reductions

The IRS has issued proposed regulations which would amend the requirements for providing notice to certain affected persons when a plan significantly reduces benefit accruals. The proposed regulations set forth timing rules for ERISA 204(h) notices for plan amendments reducing benefit accruals which are permitted to be effective before the applicable amendment date, and reflect other changes to notice requirements made by the Pension Protection Act of 2006 (PPA; P.L. 109-280).

Current notice rules for retroactive or future reductions in benefit accruals

ERISA 204(h) imposes an excise tax when a plan administrator fails to provide, within a reasonable time before the effective date, notice of a plan amendment which provides for a significant reduction in the rate of future benefit accrual, including the elimination or reduction of an early retirement benefit or retirement-type subsidy.

Rev. Proc. 94-42 (CCH Pension Plan Guide 17,299N-14) sets forth procedures under which a plan sponsor may obtain approval from the Secretary of the Treasury for a retroactive amendment which reduces accrued benefits.

Code Sec. 436, added by the PPA, permits single-employer plans with certain funding shortfalls to limit benefits and benefit accruals. When such an amendment is adopted, written notice must be given to plan participants and beneficiaries within 30 days after the plan becomes subject to this benefit limitation.

Code Sec. 432, also added by the PPA, permits multiemployer plans under certain circumstances to reduce previously accrued benefits. In such cases, notice of the plan amendment must be provided at least 30 days before the effective date of the reduction. Similarly, under ERISA 4244A, a multiemployer plan in reorganization is permitted to adopt a plan amendment which reduces or eliminates certain accrued benefits attributable to employer contributions. In such cases, notice must be provided at least 6 months before the first day of the plan year in which the amendment reducing benefits is adopted.

Under ERISA 4245 , insolvent multiemployer plans (those whose benefit payments for the year exceed the resource benefit level for the plan year) must suspend benefits to the extent necessary to reduce such payments to the greater of the resource benefit level or the level of basic benefits, and must provide notice to plan participants and beneficiaries of the suspension. Under ERISA 4281, certain multiemployer terminated plans, with nonforfeitable benefits exceeding the value of the plan assets, must amend the plan to reduce benefits in excess of nonforfeitable benefits arising from increases adopted within the prior 5 years, and must provide notice to the Pension Benefit Guaranty Corporation (PBGC) and plan participants and beneficiaries within 45 days after the amendment reducing benefits is adopted or the date of the first reduced benefit payment.

Clarifications added by proposed regulations

The proposed regulations:

Interaction with other notice requirements

In recognition that a variety of notice requirements exist for plan amendments which reduce or eliminate accrued benefits, and to eliminate the need for a plan to provide multiple notices with substantially the same function and information to affected persons, the proposed regulations would provide that if a plan provides one of these notices in accordance with the applicable standards for such notices, the plan will be treated as having complied with the 204(h) notice requirement.

Comments requested by June 19

Comments on the proposed regulations must be received by June 19, 2008, and should be directed to CC:PA:LPD:PR (REG–110136–07), Room 5203, Internal Revenue Service, PO Box 7604, Ben Franklin Station, Washington DC, 20044, or sent via the Federal eRulemaking Portal at http://www.regulations.gov (IRS REG– 110136–07).