Benefits & ERISA Law

Benefits, Rights, and Features, Treas. Reg. 1.401(a)(4)-1(b)(3) and Regulation Friday

By Suzanne Wynn

Most weeks are so packed with new information and guidance coming from the IRS, DOL, PBGC and SEC that existing guidance sometimes gets lost in the shuffle. For this reason, I think Fridays are a good time to take a step back from everything that is new, and focus on some of the existing guidance, otherwise known as the oldies but goodies. The benefits, rights, and features requirement is one of those oldies but goodies.

First, a good place to start with any discussion of benefits, rights and features is the reminder provided by Treas. Reg. 1.401(a)(4)-1(a), which states:

“(a) In general. Section 401(a)(4) provides that a plan is a qualified plan only if the contributions or the benefits provided under the plan do not discriminate in favor of HCEs. Whether a plan satisfies this requirement depends on the form of the plan and on its effect in operation. In making this determination, intent is irrelevant. This section sets forth the exclusive rules for determining whether a plan stisfies section 401(a)(4). A plan that complies in form and operation with the rules in this section therefore satisfies section 401(a)(4).”

The specifics on how to satisfy Internal Revenue Code 401(a)(4) start with Treas. Reg. 1.401(a)(4)-1(b)(1), which says that in order to satisfy Code section 401(a)(4), a plan must each of the 3 requirements in Treas. Reg. 1.401(a)(4)-1(b). Those requirements are:

1. Nondiscriminatory amount of contribution or benefits (Treas. Reg. 1.401(a)(4)-1(b)(2));

2. Nondiscriminatory amount of benefits, rights and features (Treas. Reg. 1.401(a)(4)-1(b)(3)); and

3. Nondiscriminatory effect of plan amendments and terminations (Treas. Reg. 1.401(a)(4)-1(b)(4).

The Benefits, rights, and features requirement, as stated by Treas. Reg. 1.401(a)(4)-1(b)(3), is:

?(3) Nondiscriminatory availability of benefits, rights, and features. All benefits, rights, and features provided under the plan must be made available in the plan in a nondiscriminatory manner. Rules for determining whether this requirement is satisfied are set forth in section 1.401(a)(4)-4.?

Treas. Reg. 1.401(a)(4)-4 is long, includes numerous examples, and is available on the web courtesy of the federal government.

The introduction of Treas. Reg. 1.401(a)(4)-4 provides the road map to this regulation. It states:

?(a) Introduction. This section provides rules for determining whether the benefits, rights, and features provided under a plan (i.e., all optional forms of benefit, ancillary benefits, and other rights and features available to any employee under the plan) are made available in a nondiscriminatory manner. Benefits, rights, and features provided under a plan are made available to employees in a nondiscriminatory manner only if each benefit, right, or feature satisfies the current available requirement of paragraph (b) of this section and the effective availability requirement of paragraph (c) of this section. Paragraph (d) of this section provides special rules for applying these requirements. Paragraph (e) of this section defines optional forms of benefits, ancillary benefit, and other right or feature.?

Treas. Reg. 1.401(a)(4)-4 then takes 8 pages (in double-column format) to define and explain what is meant by current availability, what is meant by effective availability, and the special rules that apply.

Full post as published by Pension Protection Act Blog on March 11, 2011 (boomark / email).