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IRS To Update Retirement Plan Change Rules

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NU Online News Service, March 25, 2004, 2:05 p.m. EST – The Internal Revenue Service is trying to update the rules for changing employer-sponsored retirement plans.[@@]

The IRS assumes in a proposed rule that sponsors of plans that qualify for special tax breaks want to protect the plans’ qualified status.

In most cases, sponsors of qualified plans that want to reduce early-retirement benefits, eliminate “retirement-type” subsidies” or eliminate optional benefit forms could make changes that would hurt participants in a very small, “de minimis manner,” according to a summary of the proposed rule that appeared Wednesday in the Federal Register.

Sponsors would have to make sure that plan benefits remained actuarially equivalent after the change, and they would have to protect the interests of plan members with unusually long and unusually short life expectancies, the IRS says.

But plan administrators could, for example, increase the survivorship payment adjustment factor used in joint-and-survivor annuity calculations to 91%, from 90%, without running afoul of the restrictions on reducing or eliminating benefits, the IRS says.

Some employers and trade groups have asked the IRS for automatic permission to eliminate little-used benefit options.

The IRS “did not include a utilization test in the proposed regulations because of, among other reasons, the difficulty in applying a utilization standard in situations where there are few retirements,” the IRS says.

Employers also would have to put off the effective date of any changes with a “de minimis effect” to keep the changes from hurting plan participants who were close to retirement.

The IRS has posted the notice of proposed rulemaking on the Web at