The regulations allow an additional exception to the anti-cutback rules to allow a defined benefit (DB) plan sponsor to amend its single-employer defined benefit plan covered under section 4021 of the Employee Retirement Income Security Act (ERISA) to eliminate a lump-sum distribution option (or other optional form of benefit providing for accelerated payments) after bankruptcy if certain conditions are satisfied (see “IRS Proposed Anti-Cutback Relief for DB Sponsors in Bankruptcy”).
This is effective for a plan amendment that is both adopted and effective after November 8, 2012. If these conditions are satisfied, a single-sum distribution option or other optional form of benefit that includes a prohibited payment (generally a payment that is in excess of the monthly amounts payable under a single life annuity) would not currently be available and would not be available in the future. The plan would not be permitted to pay that optional form of benefit because section 436(d)(2) (which imposes restrictions on prohibited payments while the plan sponsor is in bankruptcy) bars it under these conditions. Furthermore, the bankruptcy court and the Pension Benefit Guaranty Corporation (PBGC) would each have issued a determination that the plan would be terminated in a distress or involuntary termination unless that optional form of benefit were eliminated. In addition, the PBGC would have determined that the plan is not sufficient for guaranteed benefits.
If a plan sponsor eliminates a single-sum distribution option (or other optional form of benefit that includes a prohibited payment) under these regulations for a plan that does not offer other options with substantial survivor benefits, then the sponsor can add other options to provide these benefits as part of the same amendment that eliminates the single-sum distribution option. All provisions of this amendment would be considered together to determine whether the amendment would be permitted to take effect in accordance with the rules of section 436(c).
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