IRS Issues Final Cash Balance Plan Regulations
The IRS finalized regulations pertaining to cash balance and other hybrid pension plans, which it had proposed in 2010. The final regulations also include proposed transitional relief for plans that do not currently comply with the final regulations.
The most important change in the final regulations is an expansion of the interest crediting rate options that are available to cash balance and hybrid plans. For example, under the final regulations, the maximum interest crediting rate was increased from 5% to 6%. The final regulations take effect for plan years beginning on or after January 1, 2016. The proposed transitional relief provides protection to plans that currently use non-compliant interest crediting rates. The relief includes guidance on reconciling conflicts between the final regulations and the anti-cutback rules of Code § 411(d)(6), in the event that a plan is required to adopt a lower crediting rate in order to comply with the final regulations.
Any amendments to bring plans into compliance with the final regulations must be adopted by January 1, 2016.