Recently released and long-awaited final rules on hybrid defined benefit plans will free up the retirement community to embrace more innovative kinds of retirement plans, but this plan design may take a while to catch on, practitioners told Bloomberg BNA.
The final rules open up a new world for employers wanting to offer retirement plans to their employees and could eventually slow the migration from defined benefit plans to defined contribution plans, Robert Newman and Richard C. Shea of Covington & Burling LLP said Sept. 19.
“These regs are really, really important because they create a new opportunity that hasn't existed before,” Shea said.
On Sept. 18, the Internal Revenue Service and Treasury Department came out with final rules (T.D. 9693, RIN 1545-BI16) on hybrid plans that answered lingering questions about the acceptable market rate of return, as well as proposed rules (REG-111839-13, RIN 1545-BL62) giving transition relief for employers that need to reduce their market rate of return to comply with the new final rules.
were very important for plan sponsors already offering hybrid plans, Kathryn L.
Ricard, senior vice president for retirement policy at the ERISA Industry
Committee in Washington, said Sept. 22. “We needed the rules for a road map. We
were just kind of desperately hanging out there without the rules. Part of it
is just getting the rules out there and having a road map, having a sense of
where the lines are in terms of some of these technicalities,” she said.
guidance also helps employers that may have been hesitant in the past to offer
hybrid plans, she said.
have the plans were desperately wanting to know what the rules were and ones
who were actually looking to put one into place have actually been sitting on
the sidelines, afraid to put their toe in that water because you don't know if
you would be going the right way or wrong way,” Ricard said.
prevalence of hybrid plans has declined significantly among the nation's
biggest companies in recent years, falling 22 percent since 2003, according to
a recent Towers Watson analysis of Fortune 500 companies.
Glickstein, senior retirement consultant at Towers Watson, said Sept. 22 that
the biggest issue the final rules resolved was the market rate of return, but
some hybrid plans will still need to take advantage of the transition relief
included in the proposed rules.
market rate of return in the final rules doesn't solve the problem for every
plan, but “at least moved in a direction that both gave clarity to all plan
sponsors and put a lot more plan sponsors in the category of we're OK, versus
we're not OK,” he said.
Glickstein said there are two big outstanding issues to deal with: how the
transition relief offered in the proposed rules will be finalized and what
happens to plans that were operating between 2008 and the applicability date of
the final rules, which is Jan. 1, 2016.
regulations don't say much of anything about that period from 2008 until 2015,
which is a pretty long period,” Glickstein said.
proposed rules offer transition relief going forward, the final rules don't
explain where plans “stood with respect to the past,” he said.
concern would be all the concerns that existed to a much greater degree before
we had any guidance about cash balance, which is when you don't know what the rules
are, different parties will have different opinions, and when people have
different opinions, disputes can arise, and when disputes arise, sometimes
they're settled in courts or in other ways,” he said.
Ricard also expressed concern about the lack of guidance on this issue. She noted that the preamble to the final rules state that the “regulations should not be construed to create any inference concerning the applicable law prior to the effective dates of sections 411(a)(13) and 411(b)(5),” and that she takes that to mean that plans reasonably complying with the rule “should be fine.”
Excerpted from a story that ran in Pension & Benefits Daily (9/23/2014).
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