57. Pre-termination restrictions

Statement of Requirement: Treas. Reg. 1.401(a)(4)-5(b); Rev. Rul. 92-76

Document Provision: _____

Sample Plan Language:

In the event of plan termination, the benefit of any highly compensated active or former employee is limited to a benefit that is nondiscriminatory under IRC 401(a)(4).

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Benefits distributed to any of the 25 most highly compensated active and highly compensated former employees with the greatest compensation in the current or any prior year are restricted such that the annual payments are no greater than an amount equal to the payment that would be made on behalf of the employee under a straight life annuity that is the actuarial equivalent of the sum of the employee's accrued benefit, the employee's other benefits under the plan (other than a social security supplement, within the meaning of Treas. Reg. 1.411(a)-7(c)(4)(ii)), and the amount the employee is entitled to receive under a Social Security supplement.

The preceding paragraph shall not apply if: (select Option A or B)

A. (1) after payment of the benefit to an employee described in the preceding paragraph,

the value of plan assets equals or exceeds 110% of the value of current liabilities, formerly defined in IRC 412(l)(7), (2) the value of the benefits for an employee described above is less than 1% of the value of current liabilities before distribution, or (3) the value of the benefits payable under the plan to an employee described above does not exceed $5,000.

(Note to reviewer: For purposes of the preceding paragraph, any reasonable and consistent method may be used for determining the value of current liabilities and the value of plan assets. See Treas. Reg. 1.401(a)(4)-5(b)(3)(v).)

B. (1) after payment of the benefit to an employee described in the preceding paragraph,

the value of plan assets equals or exceeds 110% of the Plan’s funding target (as defined in IRC 430(d)(1)), (2) the value of the benefits for an employee described above is less than 1% of the Plan’s funding target before distribution, or (3) the value of the benefits payable under the plan to an employee described above does not exceed $5,000.

(Note to reviewer: If the plan uses the funding target, it should not reference “any reasonable and consistent method for determining the value of current liabilities and the value of plan assets” as outlined in Option A, including the Note to reviewer for Option A.)

For purposes of this section, benefit includes loans in excess of the amount set forth in IRC 72(p)(2)(A), any periodic income, any withdrawal values payable to a living employee, and any death benefits not provided for by insurance on the employee's life.

(Note to reviewer: The following sample plan language contains optional provisions that allow distribution of restricted amounts to the 25 most highly compensated active and most highly compensated former employees.)

Sample Plan Language:

An employee's otherwise restricted benefit may be distributed in full to the affected employee if prior to receipt of the restricted amount, the employee enters into a written agreement with the plan administrator to secure repayment to the plan of the restricted amount. The restricted amount is the excess of the amounts distributed to the employee (accumulated with reasonable interest) over the amounts that could have been distributed to the employee under the straight life annuity described in section ____ of the plan (accumulated with reasonable interest). The employee may secure repayment of the restricted amount upon distribution by: (1) entering into an agreement for promptly depositing in escrow with an acceptable depository property having a fair market value equal to at least 125% of the restricted amount, (2) providing a bank letter of

135 | Defined Benefit Plan LRM Package 06/2026

credit in an amount equal to at least 100% of the restricted amount, or (3) posting a bond equal to at least 100% of the restricted amount. If the employee elects to post bond, the bond will be furnished by an insurance company, bonding company or other surety for federal bonds.

(Note to reviewer: The blank should be filled in with the plan section number corresponding to this LRM #57.)

The escrow arrangement may provide that an employee may withdraw amounts in excess of 125% of the restricted amount. If the market value of the property in an escrow account falls below 110% of the remaining restricted amount, the employee must deposit additional property to bring the value of the property held by the depository up to 125% of the restricted amount. The escrow arrangement may provide that employee may have the right to receive any income from the property placed in escrow, subject to the employee's obligation to deposit additional property, as set forth in the preceding sentence.

A surety or bank may release any liability on a bond or letter of credit in excess of 100% of the restricted amount.

If the plan administrator certifies to the depository, surety or bank that the employee (or the employee's estate) is no longer obligated to repay any restricted amount, a depository may redeliver to the employee any property held under an escrow agreement, and a surety or bank may release any liability on an employee's bond or letter of credit.