Employee Benefits-IRS Announces Amendments To The Final And Proposed Regulations Applying To Cash Balance And Other Statutory Hybrid Plans

In Notice 2011-85, the Internal Revenue Service (the “IRS”) announced its intention to amend the final and proposed regulations under sections 411(a)(13) and 411(b)(5) of the Internal Revenue Code (the “Code”), which contain rules for cash balance and other statutory hybrid plans, and which were issued on October 19, 2010.

The Notice indicates that:

–the proposed regulations, when finalized, will apply for plan years that begin on and after a date specified in the regulations, which will not be earlier than January 1, 2013.

–the amendments will postpone, until the date on which the finalized proposed regulations become effective, the effective and applicability date of those provisions of section 1.411(b)(5)-1(d) of the final regulations which interpret section 411(b)(5)(B)(i) of the Code and limit the plan’s interest crediting rate to a market rate of return. It appears that the IRS is still reviewing how to apply this limit.

— the amendments will postpone, until the last day of the plan year before the first plan year in which the finalized proposed regulations apply, the deadline for adopting an interim or discretionary plan amendment under Code section 411(a)(13) (other than section 411(a)(13)(A)) or 411(b)(5).

— when the proposed regulations are finalized, relief from the anti-cutback requirements of Code section 411(d)(6) will apply for a plan amendment that eliminates or reduces a section 411(d)(6) protected benefit, so long as the amendment is adopted by the final day of the plan year starting before the first plan year in which the finalized proposed regulations will apply, and the elimination or reduction is made only to the extent needed to comply with Code section 411(b)(5).

–the IRS’s review of an application for a determination letter for a cash balance or other statutory hybrid plan, submitted to the IRS between February 1, 2011, and January 31, 2012, will not consider the final regulations (other than with respect to Code section 411(a)(13)(A)), except to the extent that those regulations are effective for plan years that begin after December 31, 2010, and the plan has been amended to satisfy those regulations.

The Notice also contains a special timing rule for providing a 204(h) notice. But this rule applies only to an amendment adopted after November 10, 2009, and by the final day of the plan year starting after 2008.