Tax News

CCH (cch.taxgroup.com) reports:

The IRS has released proposed regulations implementing the provisions of Code Sec. 411(a)(13) and (b)(5)
relating to cash balance and other hybrid defined benefit plans. The provisions, which were enacted as part of the Pension Protection Act of 2006 (P.L. 109-280), include rules under which cash balance and pension equity plans will be deemed not to violate age discrimination requirements and impose limits on the calculation of hypothetical account balances in such plans. The proposed regulations generally incorporate and expand on the provisions of Notice 2007-6, I.R.B. 2007-3, 272.
The proposed regulations generally apply to defined benefit plans under which any or all of a participant's accrued benefit is based on the balance of a hypothetical account maintained for the participant or an accumulated percentage of the participant's final average compensation (applicable defined benefit plans). They describe a safe harbor protecting such plans from liability for age discrimination in the calculation of accumulated benefits. If each individual's accumulated benefits can never be less than that of a similarly situated, younger participant, the safe harbor is satisfied.
The proposals also would implement the requirement that participants whose benefits are affected by the conversion of a traditional defined benefit plan into such a plan must be provided a benefit equal to at least the sum of the benefit accrued through the date of the conversion and the benefits earned after the conversion, with no "wearaway" or other interaction between the amounts. In addition, they would implement the requirement that the rate at which interest is credited to participants' hypothetical accounts under such plans cannot exceed a market rate of interest.
The regulations are proposed to be effective for plan years beginning on or after January 1, 2009 (later for some collectively bargained plans). Plans may rely on the proposed regulations for earlier periods. Written or electronic public comments will be considered, and the IRS and the Treasury Department specifically request comments both on the clarity of the proposed regulations and on a number of specific issues, including some beyond the scope of these provisions.
Proposed Regulations, NPRM REG-104946-07, 2008FED ¶49,781
Other References:
Code Sec. 411
CCH Reference - 2007FED ¶19,064C
CCH Reference - 2007FED ¶19,066E
Tax Research Consultant
CCH Reference - TRC RETIRE: 39,058