The Treasury Department and the IRS finalized regulations for hybrid retirement plans such as cash balance plans that have been pending since 2010.
The rules address permissible market rates of return for cash balance plans and increase the maximum permitted fixed interest credit to 6% from 5%. The rules, which also address vesting, age discrimination and conversions, apply to plan years beginning on or after Jan. 1, 2016.
While plan sponsors and their advocates are still working through the 29 pages of regulations issued Thursday, “the initial impression is, it looks very thoughtful. There are some things that will make it easier for cash balance sponsors to comply with the rules,” said Judy Miller, director of retirement policy for the American Society of Pension Professionals & Actuaries.
Richard Shea, chairman of law firm Covington & Burling’s employee benefits and executive compensation practice, said regulators “listened carefully” to cash balance plan sponsors’ need for more flexibility and guidance. One example, said Covington & Burling partner Robert Newman, is the final regulations allow a plan to credit a rate of return based on a subset of plan assets, “and even to credit different rates for different groups of participants based on different subaccounts.”