Treasury Regulation 1.411(d)-6, issued December, 1998, provides that when benefit accruals in a defined benefit plan are “significantly” reduced because of a plan amendment, or a plan amendment to a defined contribution pension plan “significantly” reduces future employer contributions, then a 15-day notice of a reduction in accrual/benefits must be issued before the amendment, or a plan termination, can become effective.

This final regulation requires actual notice to each participant and beneficiary, including “alternate payees” (ex-spouses or children with benefits under a qualified domestic relations order). If a small group of individuals does not get the notice, then the amendment/termination is not effective as to them, but it is effective to all others unless the employer intended to mislead participants, in which case the amendment is not effective.

Thus if some persons do not receive the notice, then the notice remains effective as long as the plan administrator made a good faith effort to comply with the notice requirements, has provided the notice to each employee organization that represents any participant, and has failed to provide the notice to no more than a de minimis percentage of participants and alternate payees, and provides the notice to those persons who did not receive it upon discovering the oversight.

The 15-day notice can be sent by first class mail, postage prepaid, and is considered given as of the date of the U.S. postmark. In addition, the notice can be hand delivered, in which case an acknowledgement of receipt should be obtained to prove delivery.

There is no requirement that the Section 204(h) notice be sent by itself, so it may be enclosed with or combined with other notices, such as (1) the notice of intent to terminate under Title IV of ERISA for a defined benefit plan, or (2) notice to interested parties of the application for a determination letter in connection with the amendment or termination of the plan. See Q&A 11 and 12.

A plan notice is not automatically required in the event of a sale of a business or plan merger. However, if benefit accruals or contributions will be reduced or cease, then it is required to be provided. In addition, where a plan is merged into a successor plan, if the successor plan provides for significant lower benefits/contributions, then a Section 204(h) notice will be required.

The effective date of this notice is for amendments adopted on or after December 12, 1998.

By Al Martin