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The Internal Revenue Service has completed regulations that could help employers prune early-retirement benefits and optional, “noncore” forms of benefits.[@@]

The IRS also has started the process of developing regulations that could help employers determine how the rules in Section 411(d)(6) of the Internal Revenue Code, which limit cutbacks in “protected” benefits, interact with IRC Section 411(a), which sets nonforfeiture rules for the benefits that employees and other plan participants already have earned.

While developing the guidance about the interactions of sections 411(a) and 411(d)(6), the IRS will come up with a test that employers can use to eliminate obscure, unpopular forms of retirement and early-retirement benefits, the IRS says.

The new final regulation, Section 411(d)(6) Protected Benefits, appears today in the Federal Register and takes effect today.

The regulation gives IRS guidance on efforts to clean up complicated benefit plans that are littered with out-of-date benefits, unused benefits or duplicate benefits acquired as a result of employer mergers and acquisitions.

The IRS continues to follow the rule that sponsors can eliminate benefits only if the elimination does not hurt the rights of any participant in a more than “de minimis” manner, according to the preamble to the final regulation, which was developed by Mark Matthews, an IRS official, and Eric Solomon, acting deputy assistant secretary at the U.S. Treasury Department, the parent department of the IRS.

The guidance permits employers to eliminate benefit form options if employers will offer a designated set of core retirement plan benefit form options before and after changing the plan. Core benefit form options include a straight life annuity, a 75% joint and contingent annuity, a 10-year term certain and life annuity, and the most valuable option for a participant with a short life expectancy.

An employer also may be able to eliminate a benefit if the actuarial present value of the cutback is no more than “2% of the present value of the retirement-type subsidy under the eliminated optional form of benefit…or 1% of the participant’s compensation for the prior plan year,” Matthews and Solomon write in the guidance preamble.

In a separate notice discussing the proposed regulations, the IRS says it will prohibit plans from imposing new restrictions on early-retirement benefits that plan participants already are collecting.

The IRS also says it wants to create a utilization test that will let a plan with at least 100 participants eliminate a protected benefit form if no participant has used that benefit form in at least 2 years.

Links to the notices about the final rule and efforts to develop the new retirement plan amendment regulations are on the Web at http://a257.g.akamaitech.net/7/257/2422/01jan20051800/edocket.access.gpo.gov/2005/pdf/05-15958.pdf and http://a257.g.akamaitech.net/7/257/2422/01jan20051800/edocket.access.gpo.gov/2005/pdf/05-15960.pdf