The IRS issued final regulations providing a limited exception to the anti-cutback rules under Code section 411(d)(6) for a plan sponsor that is a debtor in a bankruptcy proceeding. The anti-cutback rules generally prohibit amendments to qualified retirement plans that reduce or eliminate accrued benefits, early retirement benefits, retirement-type subsidies or optional forms of benefits. The final regulations would allow a plan sponsor who is a debtor in bankruptcy to amend its plan to eliminate a lump sum distribution option or other optional form of benefit providing for accelerated payments if certain requirements are satisfied.
The final regulations permit amendments to eliminate an optional form of benefit that includes a prohibited payment described under Code section 436(d)(5) if the following four conditions are satisfied on the later of the date the amendment is adopted or effective: (1) the plan's enrolled actuary certifies that the plan's adjusted funding target attainment percentage is less than 100%, (2) the plan is not permitted to make prohibited payments because the plan sponsor is a debtor in a bankruptcy case, (3) the bankruptcy court (after a notice to each affected party and hearing) issues an order that the amendment is necessary to avoid a distress or involuntary plan termination, and (4) the PBGC has issued a determination that the amendment is necessary to avoid a distress or involuntary plan termination and that the plan is not sufficient to guaranty benefits. The final regulations apply to plan amendments that are adopted and effective after November 8, 2012.