Employee Benefits-IRS Extends Deadline to Adopt Certain Amendments For Cash Balance And Other Defined Benefit Plans

In Notice 2010-77 (the “Notice”), the Internal Revenue Service (the “IRS”) extends the deadline for amending cash balance and other defined benefit plans to meet certain requirements of the Internal Revenue Code (the “Code”), as revised by the Pension Protection Act of 2006 (the “PPA”), the Worker, Retiree, and Employer Recovery Act of 2008 and the Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010. Under the Notice, this deadline is extended to the last day of the first plan year that begins after 2010. This extension applies to:

1. The deadline for amending single-employer defined benefit plans to meet the requirements of Code Sections 401(a)(29) and 436, relating to funding-based limits on benefits and benefit accruals; and
2. The deadline for amending cash balance and other “applicable defined benefit plans”,
within the meaning of Code Section 411(a)(13)(C), to meet the requirements of Code Section 411(a)(13) (other than Section 411(a)(13)(A)) and Code Section 411(b)(5), relating to 3-year vesting and rules for meeting the “no reduction of benefit accrual rates on account of age” rule of Code Section 411(b)(1)(H).

This extension applies to interim (required) and discretionary amendments pertaining to those Code Sections. For this extension to be available for an interim amendment, in accordance with Section 1107 of the PPA, the amendment must be effective as of the effective date of the underlying Code Section, and the plan must be operated in accordance with the amendment as of its effective date.

The Notice also provides relief from the anti-cutback rule of Code Section 411(d)(6). It states that an interim plan amendment, which eliminates or reduces a Section 411(d)(6) protected benefit, will not cause the plan to fail to meet the requirements of Code Section 411(d)(6) if the amendment is adopted by the last day of the first plan year that begins after 2010, and the elimination or reduction is made only to the extent necessary to enable the plan to meet the requirements of Code Sections 401(a)(29) and 436. Similarly, the Notice indicates that when the regulations under Code Sections 411(a)(13) and 411(b)(5) (proposed on October 19, 2010) are finalized, it is expected that relief from the requirements of Code Section 411(d)(6) will be granted for a plan amendment that eliminates or reduces a Section 411(d)(6) protected benefit, so long as the amendment is adopted by the last day of the first plan year that begins after 2010, and the elimination or reduction is made only to the extent necessary to enable the plan to meet the requirements of Code Section 411(b)(5).