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Guidance on the Anti-Cutback Rules of Section 411(d)(6)

In general, the anti-cutback rules protect a participant’s accrued benefits, early retirement benefits, retirement type subsidies, and other forms of optional benefit offered under qualified retirement plans. Section 411(d)(6) generally provides that the accrued benefit of a participant may not be decreased by an amendment to the plan. Section 411(d)(6)(B) provides that 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, is treated as impermissibly reducing accrued benefits.

EGTRRA changes to anti-cutback rules

Section 645(b) of the Economic Growth and Tax Relief Reconciliation Act of 2001, Pub. L. 107-16 (EGTRRA) amended IRC Section 411(d)(6)(B) and directed the Secretary of the Treasury to issue regulations to provide that Section 411(d)(6)(B) does not apply to plan amendments that reduce or eliminate benefits or subsidies that create significant burdens or complexities. 

Final and proposed regulations regarding the anti-cutback rules of IRC Section 411(d)(6) were published in 2005. The final regulations provide guidance on the circumstances under which a qualified retirement plan can be amended to eliminate or reduce early retirement benefits, retirement-type subsidies, or optional forms of benefits. Specifically, the final regulations provide rules under which a plan may be amended to eliminate benefits that are burdensome to the plan and participants and have minimal value to plan participants. The final regulations also respond to judicial decisions interpreting Section 411(d)(6). 

Final regulations effective date - With the exception of a special effective date for the rule pertaining to contingent event benefits, the effective date of the final regulations is generally August 12, 2005. Individually designed plans submitting applications for determination letters beginning on or after February 1, 2006, must reflect the changes provided in the final regulations. Pre-approved defined benefit plans must reflect the final regulations for applications beginning on or after February 1, 2007.

Proposed regulations - The proposed regulations add a utilization test as a method for eliminating optional forms of benefit, early retirement benefits, and retirement-type subsidies that are rarely used. Under this rule, a benefit may be eliminated if it was available to at least 100 participants during a relevant time period and no participant elected that optional benefit form during the period. The proposed regulations also address the interaction between the anti-cutback rules of section 411(d)(6) and the vesting rules of section 411(a) in light of the Supreme Court decision in Central Laborers’ Pension Fund v. Heinz. (See our example on the Heinz case.) Under the proposed regulations, plan amendments that add restrictions or conditions on the receipt of accrued benefits violate section 411(d)(6). Such amendments are, however, permissible to the extent the amendments apply with respect to benefits accruing after the amendment. 

The Heinz decision was also addressed in Revenue Procedure 2005-23. Revenue Procedure 2005-23 limited the retroactive application of the Heinz decision and provides relief to plans in certain situations.

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