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CCH® PENSION — 6/19/08

ASPPA Calls For Clarifications In IRS’s Regs On Cash Balance, Other Hybrid Retirement Plans

From Spencer's Benefits Reports: Testifying at a June 6 hearing on the Internal Revenue Service’s proposed regulations governing cash balance plans and other hybrid retirement plans, the American Society of Pension Professionals & Actuaries (ASPPA) called for certain clarifications in the final regulations. The IRS issued the proposed regulations on Dec. 28, 2007.

IRC Sec. 411(b)(1)(H)(i) provides that a defined benefit plan (including a cash balance plan) fails to comply with the accrual requirements of Sec. 411(b) if, under the plan, an employee’s benefit accrual stops, or the employee’s rate of benefit accrual is reduced, because of the attainment of any age. That provision of the Tax Code had generated several court cases asserting that cash balance plans are inherently age-discriminatory. However, Sec. 411(b)(5)(A), as added by the Pension Protection Act of 2006, generally provides that a plan will not be treated as failing to meet the requirements of Sec. 411(b)(1)(H)(i) if a participant’s benefit accrued to date, as determined as of any date under the terms of the plan, would be equal to or greater than that of any similarly situated, younger individual who is or could be a participant.

Sec. 411(b)(5)(B) imposes certain requirements on a hybrid plan such as a cash balance plan as a condition of satisfying Sec. 411(b)(1)(H). In Notice 2007-6, I.R.B. 2007-3, 272, the IRS provided transitional guidance with respect to rules in Secs. 411(a)(13) and 411(b)(5) that relate to hybrid plans and the conversion of a defined benefit plan into a hybrid plan. The IRS’s 2007 proposed regulations would incorporate the transitional guidance contained in Notice 2007-6. The regulations also would provide additional guidance with respect to Secs. 411(a)(13) and 411(b)(5), taking into account comments received in response to Notice 2007-6.

ASPPA’s Testimony

ASPPA’s testimony included the following recommendations:

Interest Crediting Issues

 

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

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