Human Resources
New Final and Proposed Regs on Cash Balance and Other Hybrid Plans

New Final and Proposed Regs on Cash Balance and Other Hybrid Plans


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The Pension Protection Act of 2006 (PPA) added several important provisions to the Internal Revenue Code (Code), the Employee Retirement Income Security Act (ERISA), and the Age Discrimination in Employment Act (ADEA) aimed specifically at cash balance and other hybrid defined benefit pension plans. PPA was subsequently amended by the Worker, Retiree, and Employer Recovery Act of 2008 (WRERA) in certain respects applicable to hybrid defined benefit pension plans.

On September 19, 2014, final and proposed regulations regarding hybrid defined benefit plans were published in the Federal Register.These new regulations modify and expand on prior final and proposed regulations that were published in the Federal Registeron October 18, 2010. The 2010 final regulations dealt primarily with age discrimination issues, including rules applicable to conversions of traditional defined benefit pension plans to hybrid plans. The 2010 proposed regulations dealt primarily with interest crediting rates not exceeding a market rate of return.

The 2014 final regulations are largely consistent with the 2010 final and proposed regulations, but include a number of clarifications and other modifications relating to:

  • Payment of the account balance as a lump sum (i.e., “whipsaw relief”);
  • Definitions of lump-sum based benefit formulas, formulas with an effect similar to a lump-sum based formula, and variable annuity formulas;
  • Age discrimination safe harbor (i.e., the “similarly situated” test);
  • Conversion of a traditional defined benefit plan to a cash balance or other hybrid defined benefit plan; and
  • Market rate of return limitation on interest crediting rates.

The 2014 proposed regulations deal primarily with guidance to transition impermissible interest crediting rates to satisfy the requirements not to exceed a market rate of return, as provided in the 2014 final regulations.

This Aon Hewitt report discusses the proposed and final regulations.

Download New Final and Proposed Regs on Cash Balance and Other Hybrid Plans