Until these dates, plan administrators must make a reasonable, good faith effort to comply with the statutory requirements. However, notice is not required if: future benefit obligations are reduced by an action outside of a plan amendment, such as the reassignment of an employee to a different benefit formula.
Additionally, the final regulations differ from rules proposed last year by adding two defining rules clarifying what constitutes an amendment: changing a document to which a plan refers in defining benefit amounts, such as a collective bargaining agreement, is considered a plan amendment that requires notice any conversion of a money purchase plan to a profit sharing plan, even if employer contributions are expected to stay at the same level.
Delivery Timetable Generally, the notice must be delivered 45 days before the effective amendment date. Delivery of the notices can only be made via: first-class mail hand delivery approved electronic means. Deals and People. The disclosure must describe in detail the old formula and the new formula so that an employee can determine the impact of the amendment on his or her future benefits. If the failure to make the disclosure, or any inadequacy in the disclosure, is "egregious," then employees are entitled to enhanced benefits as though the plan had never been amended and the old formula continued to apply.
Solvay sought summary judgment on plaintiffs' six claims, and the U. District Court for the District of Wyoming granted Solvay's motion.
Despite the notice's deficiency, the Tenth Circuit noted that whether plaintiffs are entitled to benefits under the old formula depends on whether there was an "egregious failure" in Solvay's notice. See 29 U. The Tenth Circuit therefore remanded the case back to the district court to determine whether Solvay's failure was "egregious.
Plaintiffs then appealed that decision to the Tenth Circuit. On appeal, plaintiffs argued that to recover the benefits promised under the old plan, they must show only that Solvay intentionally included the language describing or failing to describe the benefits in the old and new formulas and that those disclosures failed to satisfy the requirements of the statute.
In rejecting plaintiffs' argument, the Tenth Circuit clarified the standard that plaintiffs must meet, and it appears that the Tenth Circuit is the first to do so. The Tenth Circuit found that even under the "intentional" definition the plaintiffs proposed, Solvay "wanted to make all disclosures the law required, that the company's omission was accidental , no more than an oversight in the process of drafting a complex statutorily mandated notice.
They explained that they were under no instruction to hide anything from employees, and that they did not receive any pushback from Solvay executives concerning their recommended text for the h notice. The court clarified that "we know that plaintiffs who seek the remedy of estoppel must demonstrate that the defendant's statements in truth, influenced the conduct of the plaintiff, causing prejudice" internal citations omitted. Accordingly, the court reasoned that "[i]n light of all this, we know at the very least that the employees in our case cannot obtain an estoppel remedy.
The district court found that Solvay's deficiency did not influence their conduct because they already knew they were losing benefits under the new plan. In doing so, employers should direct the lawyers charged with preparing disclosures to comply with the law fully, and should be cautious about removing accurate disclosures from drafts, given the consequences that could result in the event the disclosures are later found to be incomplete.
A Requirement generally. Illustrative examples are in any event required to be provided for any change from a traditional defined benefit formula to a cash balance formula or a change that results in a period of time during which there are no accruals or minimal accruals with regard to normal retirement benefits or an early retirement subsidy a wear-away period.
B Examples must bound the range of reductions. Where an amendment results in reductions that vary either among participants, as would occur for an amendment converting a traditional defined benefit formula to a cash balance formula, or over time as to any individual participant , as would occur for an amendment that results in a wear-away period , the illustrative example s provided in accordance with this paragraph a 4 ii must show the approximate range of the reductions.
However, any reductions that are likely to occur in only a de minimis number of cases are not required to be taken into account in determining the range of the reductions if a narrative statement is included to that effect and examples are provided that show the approximate range of the reductions in other cases. Amendments for which the maximum reduction occurs under identifiable circumstances, with proportionately smaller reductions in other cases, may be illustrated by one example illustrating the maximum reduction, with a statement that smaller reductions also occur.
Further, assuming that the reduction varies from small to large depending on service or other factors , two illustrative examples may be provided showing the smallest likely reduction and the largest likely reduction.
C Assumptions used in examples. The examples provided under this paragraph a 4 ii are not required to be based on any particular form of payment such as a life annuity or a single sum , but may be based on whatever form appropriately illustrates the reduction.
The examples generally may be based on any reasonable assumptions for example , assumptions relating to the representative participant 's age, years of service, and compensation, along with any interest rate and mortality table used in the illustrations, as well as salary scale assumptions used in the illustrations for amendments that alter the compensation taken into account under the plan , but the section h notice must identify those assumptions.
However, if a plan's benefit provisions include a factor that varies over time such as a variable interest rate , the determination of whether an amendment is reasonably expected to result in a wear-away period must be based on the value of the factor applicable under the plan at a time that is reasonably close to the date section h notice is provided, and any wear-away period that is solely a result of a future change in the variable factor may be disregarded.
For example , to determine whether a wear-away occurs as a result of a section h amendment that converts a defined benefit plan to a cash balance pension plan that will credit interest based on a variable interest factor specified in the plan, the future interest credits must be projected based on the interest rate applicable under the variable factor at the time section h notice is provided.
D Individual statements. A section h notice may not include materially false or misleading information or omit information so as to cause the information provided to be misleading. If an amendment by its terms affects different classes of participants differently e.
In addition, the notice must include sufficient information to enable an applicable individual who is a participant to understand which class he or she is a member of. If a section h amendment affects different classes of applicable individuals differently, the plan administrator may provide to differently affected classes of applicable individuals a section h notice appropriate to those individuals.
Such section h notice may omit information that does not apply to the applicable individuals to whom it is furnished, but must identify the class or classes of applicable individuals to whom it is provided. The examples are as follows:. B Plan D is amended, effective July 1, , to change the formula for all future accruals to a cash balance formula under which the opening account balance for each participant on July 1, , is zero, hypothetical pay credits equal to 5 percent of pay are credited to the account thereafter, and hypothetical interest is credited monthly based on the applicable interest rate under section e 3 of the Internal Revenue Code at the beginning of the quarter.
Any participant who terminates employment with vested benefits can receive an actuarially equivalent annuity based on the same reasonable actuarial assumptions that are specified in Plan D commencing at any time after termination of employment and before the plan's normal retirement age of The benefit resulting from the hypothetical account balance is in addition to the benefit accrued before July 1, taking into account only service and highest 3-year pay before July 1, , so that it is reasonably expected that no wear-away period will result from the amendment.
The plan administrator expects that, as a general rule , depending on future pay increases and future interest rates, the rate of future benefit accrual after the conversion is higher for participants who accrue benefits before approximately age 50 and after approximately age 70, but is lower for participants who accrue benefits between approximately age 50 and age C The plan administrator of Plan D announces the conversion to a cash balance formula on May 16, The announcement is delivered to all participants and includes a written notice that describes the old formula, the new formula, and the effective date.
D In addition, the notice states that the Plan D formula before the conversion provided a normal retirement benefit equal to the product of a participant 's number of years of service multiplied by 1. The notice includes an example showing the normal retirement benefit that will be accrued after June 30, for a participant who is age 49 with 10 years of service at the time of the conversion.
The plan administrator reasonably believes that such a participant is representative of the participants whose rate of future benefit accrual will be reduced as a result of the amendment. The notice also includes two other examples with similar information, one of which is intended to show the circumstances in which a small reduction may occur and the other of which shows the largest reduction that the plan administrator thinks is likely to occur. The notice states that the estimates are based on the assumption that pay increases annually after June 30, , at a 4 percent rate.
The notice also specifies that the applicable interest rate under section e for hypothetical interest credits after June 30, is assumed to be 6 percent, which is the section e of the Internal Revenue Code applicable interest rate under the plan for What special rules apply if participants can choose between the old and new benefit formulas? The information sufficient to enable the individual to make an informed choice must be provided within a period that is reasonably contemporaneous with the date by which the individual is required to make his or her choice and that allows sufficient advance notice to enable the individual to understand and consider the additional information before making that choice.
A plan administrator including a person acting on behalf of the plan administrator, such as the employer or plan trustee must provide section h notice through a method that results in actual receipt of the notice or the plan administrator must take appropriate and necessary measures reasonably calculated to ensure that the method for providing section h notice results in actual receipt of the notice. First class mail to the last known address of the party is an acceptable delivery method.
Likewise, hand delivery is acceptable. However, the posting of notice is not considered provision of section h notice. Section h notice may be enclosed with or combined with other notice provided by the employer or plan administrator for example , a notice of intent to terminate under title IV of ERISA.
When notice is delivered by first class mail, the notice is considered provided as of the date of the United States postmark stamped on the cover in which the document is mailed.
A section h notice may be provided to an applicable individual through an electronic method other than an oral communication or a recording of an oral communication , provided that all of the following requirements are satisfied:.
In these examples , it is assumed that the notice satisfies the requirements in paragraphs c 1 ii of this section. Because access to the system is an integral part of B's duties, O has taken appropriate and necessary measures reasonably calculated to ensure that the method for providing section h notice results in actual receipt of the notice. Section h 6 A of ERISA provides that, in the case of any egregious failure to meet the notice requirements with respect to any plan amendment, the plan provisions are applied so that all applicable individuals are entitled to the greater of the benefit to which they would have been entitled without regard to the amendment, or the benefit under the plan with regard to the amendment.
For this purpose, an intentional failure includes any failure to promptly provide the required notice or information after the plan administrator discovers an unintentional failure to meet the requirements.
The following example illustrates the provisions of this paragraph a :. The failure to provide section h notice is egregious. Accordingly, for the period from January 1, through June 30, which is the date that is 45 days after May 16, , all participants and alternate payees are entitled to the greater of the benefit to which they would have been entitled under Plan A as in effect before the amendment or the benefit under the plan as amended.
If an egregious failure has not occurred, the amendment with respect to which section h notice is required may become effective with respect to all applicable individuals. Thus, where there is a failure, whether or not egregious, to provide section h notice in accordance with this section, individuals may have recourse under section of ERISA. In the case of a plan other than a multiemployer plan, the employer is responsible for reporting and paying the excise tax.
In the case of a multiemployer plan, the plan is responsible for reporting and paying the excise tax. Under section F c 1 of the Internal Revenue Code , no excise tax is imposed on a failure for any period during which it is established to the satisfaction of the Commissioner that the employer or other person responsible for the tax exercised reasonable diligence, but did not know that the failure existed.
Under section F c 2 of the Internal Revenue Code , no excise tax applies to a failure to provide section h notice if the employer or other person responsible for the tax exercised reasonable diligence and corrects the failure within 30 days after the employer or other person responsible for the tax first knew, or exercising reasonable diligence would have known, that such failure existed. For purposes of section F c 1 of the Internal Revenue Code , a person has exercised reasonable diligence, but did not know that the failure existed if and only if -.
Because the employer exercised reasonable diligence, but did not know that a failure existed, no excise tax applies, assuming that participants at the worksite receive section h notice within 30 days after the employer first knew, or exercising reasonable diligence would have known, that the failure occurred.
Whether section h notice is required in connection with the sale of a business depends on whether a plan amendment is adopted that significantly reduces the rate of future benefit accrual or significantly reduces an early retirement benefit or retirement-type subsidy.
No section h notice is required because no plan amendment was adopted that reduced the rate of future benefit accrual. The employees of Division M who become employees of Corporation R ceased to accrue benefits under Plan A because their employment with Corporation Q terminated. Section h notice is required to be provided because Subsidiary Y adopted a plan amendment that significantly reduced the rate of future benefit accrual in Plan C.
Section h notice is required. Section h notice is required for any participants or beneficiaries for whom the reduction in the retirement-type subsidy is significant and for any employee organization representing such participants. No section h notice is required because no plan amendment was adopted that reduces the rate of future benefit accrual or eliminates or significantly reduces an early retirement benefit or retirement-type subsidy.
Under the terms of Plan F as in effect prior to the merger, employees of Division P cease to accrue any further benefits including benefits with respect to early retirement benefits and any retirement-type subsidy under Plan F after the date of the sale because their employment with Corporation V terminated. How are amendments to cease accruals and terminate a plan treated under section F and section h? An amendment providing for the cessation of benefit accruals on a specified future date and for the termination of a plan is subject to section F and section h.
Nonetheless, because section h notice was given stating that the plan was amended to cease accruals on December 31, , section h does not prevent the amendment to cease accruals from being effective on December 31, See 29 CFR A plan that is terminated in accordance with title IV of ERISA is deemed to have satisfied section F and section h not later than the termination date or date of termination, as applicable established under section of ERISA.
Accordingly, neither section F nor section h would in any event require that any additional benefits accrue after the effective date of the termination. To the extent that an amendment providing for a significant reduction in the rate of future benefit accrual or a significant reduction in an early retirement benefit or retirement-type subsidy has an effective date that is earlier than the termination date or date of termination, as applicable established under section of ERISA , that amendment is subject to section F and section h.
Accordingly, the plan administrator must provide section h notice either separately, with, or as part of the notice of intent to terminate with respect to such an amendment. The requirements of section F and section h , as amended by EGTRRA, do not apply to any plan amendment that takes effect on or after June 7, if, before April 25, , notice was provided to participants and beneficiaries adversely affected by the plan amendment and their representatives which was reasonably expected to notify them of the nature and effective date of the plan amendment.
Section of PPA '06 applies to section h amendments adopted in plan years ending after August 17, Section c of PPA '06, which amended section F e 1 of the Internal Revenue Code , applies to section h amendments adopted in plan years beginning after December 31, For such an amendment that is effective not later than December 31, , section h notice does not fail to be timely if the notice is provided at least 30 days, rather than 45 days, before the date that the amendment is first effective.
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