TAX NEWS - DECEMber 2009

Notice Requirements for Pension Plans That Reduce Benefit Accruals

IRS issued new regulations under Code §4980F on November 24, 2009. The new regulations update the existing regulations for changes made by the Pension Protection Act of 2006 (PPA) with respect to ERISA §402(h) notices. A §204(h) notice is required when a plan is amended to allow a reduction in benefit accruals before the applicable amendment date (204(h) amendment).

When a pension plan is amended to significantly reduce the rate of future benefit accruals, including the elimination or reduction of an early retirement benefit or a retirement-type subsidy, it must notify all applicable participants, beneficiaries and contributing employers (in a multiemployer plan). The §204(h) notice must provide sufficient information for the recipient to understand the benefit reduction. When the plan administrator does not give timely notice, Code §4980F
imposes an excise tax.

The plan administrator must give the 204(h) notice within a "reasonable time" before a plan amendment's effective date. A
plan will be considered to have met the reasonable time requirement if it provides a §204(h) notice at least 45 days prior
to the effective date of any 204(h) amendment, with the following exceptions:
- 15 days for small and multiemployer plans;
- 15 days for plans maintained by an employer that is a commercial passenger airline or the whose principal business is providing catering services to a commercial passenger airline for their amendments to comply with PPA §402; and
- 30 days for statutory hybrid plans prior to their amendment's effective date, adopted before December 31, 2008.

These new regulations also retain various rules in the 2008 proposed regulations, including:
- A §204(h) notice is not required for a defined benefit plan being amended for the applicable interest or mortality
assumptions changes under Code §417(e)(3), as amended by PPA; and
- An amended plan that must provide a §204(h) notice along with certain other statutory notices, including an ERISA §101(j) notice, may comply with the §204(h) notice requirements by meeting the requirements of the other statutory notice.