The IRS recently issued final regulations regarding interest crediting for “hybrid” plans that may affect certain Cash Balance Plans. If you have created Cash Balance plans for your clients, you should be aware that some of your plan sponsor clients may need to amend their plans by the close of the 2016 plan year, if the plan does not comply with the final regulations for interest crediting which describes market-based rates of return and permitted interest crediting rates.
Which plans could be affected?
A Cash Balance plan that uses an interest crediting rate that is not permitted under the final hybrid plan regulations must be amended to change to an interest crediting rate that is permitted under those regulations. This is more of a plan operational issue than a plan language one.
Although a plan can be amended to change the interest crediting rate for benefits that have not yet accrued, an amendment that reduces the interest crediting rate for benefits that have already accrued would ordinarily not be permissible under section 411(d)(6). To resolve this conflict between the market-rate-of-return rules and the anti-cutback rules, these new regulations permit a plan with a non-compliant interest crediting rate to be amended for benefits that have already accrued, so that its interest crediting rate complies with the market rate of return rules for interest crediting periods that begin on or after the later of the effective date of the amendment or the date the amendment is adopted. For detailed information on these regulations, view the official regulations.
What would we need to do and by when?
Your clients should consult with their actuaries and/or counsel to review their plan operation related to interest crediting rates to assure compliance with the new regulations. To qualify for the favorable treatment described above, any required amendment must be adopted prior to and effective no later than the applicability date of the regulatory market rate of return rules, which is generally the first day of the first plan year that begins on or after January 1, 2017 (with a delayed applicability date for collectively bargained plans).
Does AccuDraft have any sample language?
A generic, sample amendment is available on our website in the "Pension Resources" section under "Amendments". To access it click here. This is provided solely as a sample to be customized with specific language related to a plan sponsor's own circumstances.
If would like to have an amendment created that reflects the specific circumstances of a particular client, our ERISA partner firm, Plan Document Systems, is available to draft these types of amendments based on the specifications provided by your client. Please contact our support staff at email@example.com for more information on creating client-specific amendments.