comment letter 411 d 6 2 2

Jhammersla

Informations

• Publié par: Nushig
• Nombre de lectures: 30
• Langue: English

Extrait

November 9, 2005

Via Electronic Filing

CC:PA:LPD:PR (REG-156518-04)

Courier’s Desk

Internal Revenue Service

1111 Constitution Avenue, NW

Washington, DC 20044

Re:

Proposed 411(d)(6) Regulations

Dear Sir or Madam:

The American Benefits Council (Council) appreciates the opportunity to

comment on the proposed 411(d)(6) regulations.

The Council is a public policy

organization representing principally Fortune 500 companies and other

organizations that assist employers of all sizes in providing benefits to

employees.

Collectively, the Council’s members either sponsor directly or

provide services to retirement and health plans that cover more than 100 million

Americans.

The Council commends the Department of Treasury and Internal Revenue

Service (collectively referred to as the “IRS”) for its efforts to help employers

simplify defined benefit plans by issuing final and proposed regulations

primarily designed to allow elimination of redundant or infrequently used

distribution options.

The Council also appreciates that the IRS needs to address

the analysis adopted by the Supreme Court in

Central Laborers’ Pension Fund v.

Heinz

, 541 U.S. 739 (2004) (hereafter

Heinz

), a case that held that a plan cannot

expand the categories of post-normal retirement age employment resulting in

suspension of benefit payments for benefits already earned.

However, the

Council would urge the IRS to reconsider whether to apply the

Heinz

analysis in

the manner adopted by the proposed regulations.

The Council believes the

regulatory interpretation contradicts other statutory and regulatory sections.

2

In

Heinz

, the Supreme Court held that

[a] participant’s benefits cannot be understood without reference to the

conditions imposed on receiving those benefits, and an amendment

placing materially greater restrictions on the receipt of the benefit

“reduces” the benefit just as surely as a decrease in the size of the monthly

benefit.

Heinz, at 744, quoting

Heinz v. Central Laborers’ Pension Fund

, 303 F.3d 802 (7

th

Cir.

2002).

The proposed regulations take the

Heinz

analysis to their logical conclusion,

extending the protection of the anti-cutback rule to all aspects of the vesting

rules, and effectively prohibiting any change in any of a plan’s vesting provisions

that would adversely affect a participant’s ability to commence distribution of

benefits.

The proposed regulations provide three examples of amendments that

would violate the new application of the anti-cutback rule.

In addition to an

example that replicates the fact pattern in the

Heinz

case, the proposed

regulations indicate that a change to a plan’s rule of parity forfeiture provision

and a change in the plan’s vesting schedule as it applies to benefits earned to

date will both be considered a violation of the anti-cutback rule under the

Heinz

analysis.

While these examples are logical extensions of the

Heinz

analysis, they

demonstrate the pitfalls with that analysis.

The example that changing a plan’s

vesting schedule violates the anti-cutback rule indicates that this interpretation of

§411(d)(6) essentially renders §411(a)(10) meaningless.

That section requires

plans to offer participants with at least three years of service the election to

remain under the prior vesting schedule.

Changing the vesting schedule for any

participant, including ones who have elected to vest under the new schedule

pursuant to an election offered under §411(a)(10), would violate the anti-cutback

rule.

In essence, the

Heinz

analysis interprets §411(d)(6) so as to delete

§411(a)(10) from the Code.

Other examples of regulatory or statutory contradictions can be readily found.

Under the proposed regulations, it would appear that a plan could not change

how it credits vesting service, such as switching from a method that counts hours

of service to elapsed time, or vice versa, if it would delay the vesting of benefits

earned to date for any participant.

This is contrary to reg. 1.410(a)-7(f) and (g).

It

is not clear whether a plan could change its vesting computation period for

determining vesting service, even though such practice is permitted subject to

specified restrictions established in DOL reg. 2530.203-2(c)(1).

It is also not clear

whether a plan with five-year cliff vesting and no forfeiture provision or the rule

3

of parity could be amended to add a deemed cash-out provision.

Under the

proposed regulations, any change to the plan’s forfeiture provisions could be

viewed as an impermissible cutback of the plan’s vesting provisions, even

though any participant who forfeits a benefit under a deemed cash-out provision

will have that benefit restored upon rehire in covered employment under a

deemed buy-back provision.

These examples demonstrate the extraordinary administrative burden the

proposed regulations will impose on qualified plans.

Merged plans seldom have

complete agreement concerning vesting provisions, and the proposed

regulations would preclude any change to the vesting rules for benefits earned

prior to the merger.

It is easily conceivable that plans will eventually be

crediting vesting service for different groups of participants under a method that

counts hours, the elapsed-time method, and one or more equivalencies method,

as well as applying different suspension of benefit service rules, different vesting

schedules, and different forfeiture provisions.

Simply put, the administrative

requirements to comply with this application of the anti-cutback rule will be

among the most onerous requirements under ERISA or the Code.

However, the Council believes that the IRS is not forced to apply the

Heinz

analysis in this manner, or even at all.

Note that the concurring opinion in

Heinz

indicates four justices agreed with the decision

on the assumption that it does not foreclose a reading of the Employee

Retirement Income Security Act of 1974 that allows the Secretary of Labor,

or the Secretary of the Treasury, to issue regulations explicitly allowing

plan amendments to enlarge the scope of disqualifying employment with

respect to benefits attributable to already-performed services.

Even with a concurring opinion expressly indicating that the IRS has authority to

issue regulations explicitly allowing plan amendments changing a plan’s

suspension of benefit provisions, it is understandable that the IRS chose not to

adopt that position in the proposed regulations.

Interpretations of statutory

requirements by the Supreme Court are considered controlling when applying

the applicable statute by government agencies.

But the recent Supreme Court decision in

National Cable and Telecommunications

Assoc. v. Brand X Internet Services

, 125 S.Ct. 2688, Nos. 04-277 and 04-281 2005 U.S.

LEXIS 5018 (2005) (hereafter

Brand X

), released after proposed regulations were

published in the Federal Register, expands the standard for determining the

deference due regulatory guidance under

Chevron USA Inc. v. Natural Resources

Defense Council

, 467 U.S. 837 (1984) (hereafter

Chevron

), and specifically notes that

4

deference may be due agency guidance that is contrary to a prior judicial

interpretation.

In essence,

Brand X

states that the only court decision that forecloses a later,

contrary interpretation of a statute by an agency is a decision that determines the

only permissible reading of the statute, not merely the best or preferable reading

of several alternatives.

(See also

AARP v. EEOC

, No. 05-CV-509, 2005 U.S. Dist.

LEXIS 21495 (E.D. Penn, Sept. 27, 2005)).

Using that standard, it is clear the

Heinz

decision is not the only permissible reading of the statute:

The statute, admittedly, is not as helpful as it might in answering this

question; it does not explicitly define “early retirement benefit,” and it

rather circularly defines “accrued benefit. . .”

Brand X

grants this authority to agency interpretations in order to permit the

continuing evolution of the law as it is enforced by the appropriate government

agency.

Preventing agency interpretation of statutory requirements, even after

judicial interpretation, would result in “the ossification of large portions of our

statutory law.”

Brand X

,

at 2700,

quoting

U.S. v. Mead Corp.

, 533 U.S. 218, at 247

(2001).

That the

Heinz

decision is based, in part, on the Supreme Court’s interpretation

of existing IRS regulations does not preclude the issuance of new guidance.

Brand X

makes clear that future guidance that otherwise satisfies the criteria for

Chevron

deference is still entitled to that deference even though the guidance is

contrary to or reverses prior agency guidance or practices.

“Agency

inconsistency is not a basis for declining to analyze the agency’s interpretations

under the

Chevron

framework.”

Brand X

, at 2699.

In fact, if the

Heinz

decision were by any other court than the Supreme Court, a

straightforward application of the

Brand X

decision would permit the IRS to

propose and finalize regulations “explicitly allowing plan amendments to

enlarge the scope of disqualifying employment with respect to benefits

attributable to already-performed services.”

Heinz

, at 751. The fact that the prior

judicial decision is a Supreme Court decision does not exclude application of the

Brand X

analysis or preclude the IRS from issuing guidance contrary to the

Heinz

decision.

A crucial purpose in permitting agency guidance contrary to existing

judicial authority is to permit the clarification or revision of “unwise judicial

constructions of ambiguous statutes.”

Brand X

, at 2701.

In conclusion, the Council requests that the IRS reconsider the proposed

regulation and, at the very least, narrow the regulatory interpretation of the

5

Heinz

decision so that it is limited to the type of fact pattern involved in

Heinz

.

This action will eliminate apparent contradictions with other regulatory and

statutory provisions and ease plan administration.

Again, we appreciate the opportunity to comment on the proposed 411(d)(6)

regulations.

The American Benefits Council offers an important and unique

perspective of the employer sponsors of retirement plans and we would be

pleased to make this perspective and additional information available to the IRS.

If this would be helpful, please call me at 202-289-6700.

S

i

n

c

e

r

e

l

y

,

J

a

n

M

.

J

a

c

o

b

s

o

n

Director, Retirement Policy

American Benefits Council