IRS Gives Cash Balance, Other Hybrid Plans More Time to Fix Interest Rates


Hybrid pension retirement plans, such as cash balance plans, will have another year to amend their plans to make sure they comply with market rate-of-return rules, under newly issued Internal Revenue Service final rules.

Issued Nov. 13, the final transitional rules (T.D. 9743, RIN 1545-BL62) give these plan sponsors until 2017 to amend their plans without violating tax code regulations prohibiting benefit reductions.

These final regulations pertain to final regulations issued in September 2014 that specify hybrid plans cannot provide for interest credits, or equivalent amounts, at an effective rate that is greater than a market rate of return.

Some plans will need to make such changes to come into compliance with those final rules.

Under the September 2014 rules, the maximum permitted fixed interest credit for plan years beginning on or after Jan. 1, 2016, is 6 percent, and the fixed rate permitted in combination with government-bond-based rates is 5 percent. Interest rates higher than those specifically described in the final rules will be viewed under the rules as exceeding a previous hitmarket rate.

Proposed rules containing the conditions for transition relief from the final regulations, issued at the same time as the 2014 final rules, included specific corrections for each feature of a plan with a noncompliant interest crediting rate. Plans had until Jan. 1, 2016, to adopt conforming amendments under those proposed rules.

Under the final 2015 transitional rules, plan amendments will qualify for relief if they were made on or after Sept. 18, 2014, until the first day of the first plan year that begins on or after Jan. 1, 2017.

See related story IRS Issues Transition Relief for Hybrid Plans.

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