On November 6, 2007, the Internal Revenue Service addressed (through a posting on its website) whether an ERISA section 204(h) notice is required in 2007 for certain defined benefit plan amendments required by the Pension Protection Act of 2006. The Service also issued a revenue ruling providing guidance on the calculation of 2008 lump-sum distributions from defined benefit plans.

Section 204(h) Notice. Under ERISA section 204(h) and Internal Revenue Code section 4980F, advance notice to participants of 45 days (or 15 days in the case of a multiemployer plan) is generally required when a plan is amended to significantly reduce the rate of future benefit accruals. The Service announced that regulations soon to be proposed under those provisions will provide as follows:

  • Benefit restrictions under Section 436. The notice required under ERISA section 101(j) for amendments restricting benefits in accordance with Code section 436 (benefit restrictions for defined benefit plans in at-risk status under the PPA funding rules) will satisfy both the timing and content requirements for a section 204(h) notice.
  • Single-sum reductions. A reduced single-sum benefit, resulting from an amendment to a traditional defined benefit plan to substitute the PPA-prescribed actuarial assumptions under Code section 417(e)(3) for the pre-PPA actuarial assumptions under section 417(e)(3), does not require a section 204(h) notice.

Click here for a copy of the announcement.

Defined Benefit Plan Lump Sums in 2008. In Revenue Ruling 2007-67 (click here for a copy), the Service specified the mortality table that defined benefit plans must use to calculate minimum lump-sum distributions during plan years beginning in 2008. The present value of a participant’s accrued benefit that may be paid in a lump sum, following the termination of employment, is to be determined under the “2008 Applicable Mortality Table” prescribed in the ruling. That table is a nongenerational blend of 50% male/50% female mortality rates and is based on the optional, combined static mortality table that small plans may use (with fewer than 500 active and inactive participants combined) under the Service’s May 29, 2007, proposed rule. The ruling also provides that:

  • Lookback months and stability periods established under the existing Code section 417(e) regulations continue to apply for plan years beginning after 2007;
  • Plans may incorporate by reference the 2008 mortality table, as well as the tables to be published in the future for subsequent years;
  • Conforming plan amendments are not required until the last day of the first plan year beginning on or after January 1, 2009 (January 1, 2011, in the case of government plans); and
  • Plan amendments adopting the mortality table prescribed in the revenue ruling will not violate the anti-cutback rules of Code section 411(d)(6), even if the use of the new mortality table results in a smaller distribution, so long as the reduction in the accrued benefit is caused by the substitution of the new table for the previously applicable table.