23. Fresh-start rules

Statement of Requirement: Treas. Reg. § 1.401(a)(4)-13(c)

Document Provision: _____

Sample Adoption Agreement Language:

The formula with wear-away and formula with extended wear-away fresh-start rules below take into account an employee’s past service in determining the employee’s benefit accruals under the plan; either of these rules may cause the plan to fail to satisfy the safe harbor for past service in Treas. Reg. § 1.401(a)(4)-5(a)(3). In the case of a plan that is exempt from Code § IRC 412 pursuant to Code § IRC 412(e)(3) (“section 412(e)(3) plan”), the words “projected benefit” and “frozen projected benefit” will be substituted for “accrued benefit” and “frozen accrued benefit” respectively, wherever they appear in this section. The projected benefit is the participant’s normal (or late, if the participant has previously attained normal retirement age) retirement

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benefit determined on the basis of current average annual compensation and all years of credited service plus years of credited service projected through the later of the plan year in which the participant attains normal retirement age or the current plan year.

The accrued benefit of each participant in the fresh-start group will be equal to:

9. ( ) Formula with wear-away – the greater of:

(a) the participant’s frozen accrued benefit, if any, and

(b) the participant’s accrued benefit determined with respect to the current benefit formula as applied to the participant’s total years of credited service under the plan.

10. ( ) Formula without wear-away – the sum of:

(a) the participant’s frozen accrued benefit, if any, and

(b) the participant’s accrued benefit determined with respect to the current benefit formula as applied to the participant’s years of credited service beginning after the fresh-start date.

If, however, the participant’s benefit under the plan is accrued under the fractional accrual rule in section ____ of the plan or the 3% accrual rule in section ____ of the plan, or if this plan satisfies the safe harbor for insurance contract plans in Treas. Reg. § 1.401(a)(4)3(b)(5), this formula without wear-away will not apply, and the participant’s accrued benefit will be determined in accordance with the formula with wear-away above.

(Note to reviewer: The first blank above should be filled in with the plan section that corresponds to the fractional accrual rule in LRM #31. The second blank above should be filled in with the plan section that corresponds to the 3% accrual rule in LRM #31.)

11. ( ) Formula with extended wear-away – the greater of the accrued benefit determined for the participant under the formula with wear-away or the formula without wear-away above.

If, however, the participant’s benefit under the plan is accrued under the 3% accrual rule in section ____ of the plan, or if this plan satisfies the safe harbor for insurance contract plans in Treas. Reg. § 1.401(a)(4)3(b)(5), the formula with extended wearaway will not apply, and the participant’s accrued benefit will be determined in accordance with the formula with wear-away above.

(Note to reviewer: The blank above should be filled in with the plan section that corresponds to the 3% accrual rule in LRM #31.)

Definition of fresh-start group. The fresh-start group consists of all participants who have accrued benefits as of the fresh-start date and have at least one hour of service with the employer after that date. However, if designated below, the fresh-start group shall be limited to:

1. ( ) Code § IRC 401(a)(17) participants (may be elected only with respect to a Tax Reform Act of 1986 (TRA ‘86) fresh-start date and with respect to an Omnibus Budget Reconciliation Act of 1993 (OBRA ‘93) fresh-start date). A TRA ‘86

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fresh-start date means a fresh-start date that is not earlier than the last day of the last plan year beginning before the first plan year beginning on or after January 1, 1989 (the statutory effective date), and not later than the last day of the last plan year beginning before the first plan year beginning on or after January 1, 1994 (the regulatory effective date). An OBRA ‘93 fresh-start date means the last day of the last plan year beginning before the first plan year beginning on or after January 1, 1994.

2. ( ) Members of an acquired group of employees.

An acquired group of employees means employees of a prior employer who become employed by the employer in a transaction between the employer and the prior employer that is a stock or asset acquisition, merger, or other similar transaction involving a change in the employer of the employees of the trade or business on or before ____________ (enter a date no later than the end of the transaction period defined in Code § IRC 410(b)(6)(C)(ii), if the date selected is after February 10, 1993). The date in the preceding sentence will be the fresh-start date with respect to members of the acquired group described below.

The acquired group consists of:

Employees with a frozen accrued benefit that is attributable to assets and liabilities transferred to the plan as of a fresh-start date in connection with the transfer, and for whom the current formula is different from the formula used to determine frozen accrued benefit.

The fresh-start date in connection with the transfer is: _____________ (must be the date as of which the employees begin accruing benefits under the plan).

The group of employees with a frozen accrued benefit that is attributable to assets and liabilities transferred to the plan is:____________________

Definition of fresh-start date. Fresh-start date generally means the last day of a plan year preceding a plan year for which any amendment of the plan that directly or indirectly affects the amount of a participant’s benefit determined under the current benefit formula (such as an amendment to the definition of compensation used in the current benefit formula or a change in the normal retirement age of the plan) is made effective. However, if under this adoption agreement the fresh-start group is limited to an acquired group of employees, or a group of employees with a frozen accrued benefit attributable to assets and liabilities transferred to the plan, the fresh-start date will be the date designated above.