Human Resources
Thought Leadership

IRS Issues Final and Proposed Hybrid Plan Regulations


On October 18, 2010, the Internal Revenue Service (IRS) released final and proposed regulations regarding hybrid defined benefit pension plans, such as cash balance and pension equity plans.

These regulations provide guidance on certain hybrid plan provisions included in the Pension Protection Act of 2006 (PPA) (P.L. 109-280), as amended by the Worker, Retiree, and Employer Recovery Act of 2008 (WRERA) (P.L. 110-458).

The final regulations deal primarily with issues that were initially covered in proposed regulations published in the Federal Register on December 28, 2007, including:

  • Safe harbor rules for the age discrimination requirements contained in Internal Revenue Code (IRC) section 411(b)(1)(H);
  • Rules regarding amendments converting a traditional defined benefit formula to a statutory hybrid formula;
  • Limited guidance regarding market rate of return requirements for plan interest crediting rates; and
  • Three-year vesting requirement for plans with statutory hybrid benefit formulas.

The proposed regulations deal with additional issues that were not covered in the 2007 proposed regulations, such as:

  • Acceptable equity-based interest crediting rates;
  • Acceptable minimum and fixed interest crediting rates;
  • Interaction of equity-based interest crediting rates with the 133-1/3% accrual rule contained in IRC section 411(b)(1)(B);
  • Rules regarding changes in interest crediting basis; and
  • Requirements for converting lump sum-based benefits to other forms of payment.

The Aon Hewitt bulletin linked to below provides a summary of some of the key provisions of the final and proposed regulations.

IRS Issues Final and Proposed Hybrid Plan Regulations