3876 / What is the anti-cutback rule and to which benefits does it apply?

ERISA and the Code contain provisions that protect participants and beneficiaries. The anti-cutback rule prohibits a plan amendment that decreases, directly or indirectly, the accrued benefit of a participant.¹ An exception may be available in certain cases of substantial business hardship described below.

Except as otherwise provided below, a plan amendment that has the effect of eliminating or reducing an early retirement benefit or a retirement-type subsidy, or eliminating certain optional forms of benefit attributable to service before the amendment is treated as impermissibly reducing accrued benefits.² Regulations include a list of benefits that are not protected in Treasury Regulation Section 1.411(a)-4, A-1(d).

The anti-cutback rule does not prohibit any plan amendment that reduces or eliminates benefits or subsidies that create significant burdens or complexities for the plan and plan participants unless the amendment adversely affects the rights of any participant in a more than de minimis manner.³ If a series of plan amendments made at different times have the effect, when taken together, of reducing or eliminating a protected benefit in a more than de minimis manner, the amendment will violate IRC Section 411(d)(6).⁴

Employee stock ownership plans (“ESOPs”) ( Q 3820) will not be treated as failing to meet the anti-cutback requirement merely on account of modifying distribution options in a nondiscriminatory manner.⁵

Transfers between Plans

Benefits that are protected under IRC Section 411(d)(6) may not be eliminated by reason of a transfer or any transaction amending or having the effect of amending a plan to transfer benefits. A defined contribution “transferee” plan (e.g., in a merger, acquisition, consolidation, or similar transaction) will not be treated as failing the anti-cutback rule merely because the transferee plan does not provide some or all of the forms of distribution previously available under a transferor plan, if certain requirements are met.⁶

Elimination of a Form of Distribution

Except to the extent provided in regulations, a defined contribution plan will not be treated as failing the anti-cutback rule merely because of the elimination of a form of distribution previously available under the plan, provided that, with respect to any participant, a single sum payment is available to the participant at the same time or times as the form of distribution being eliminated and the single sum payment is based on the same or greater portion of the participant’s account as the form of distribution being eliminated.⁷