New rules from the Internal Revenue Service (IRS) should clear the path for more employers to renew their interest in cash balance and other types of hybrid pension plans, according to Towers Watson, a global professional services company.
According to the company, in 2006, the Pension Protection Act acknowledged the legitimacy of hybrid plans, and in October 2010, the IRS proposed rules that would provide more clarity on the plans. In particular, the proposed rules define the "market rate" that cash balance plan sponsors must use to credit interest to plan participants' account balances. The IRS also issued final rules that clarify requirements for an age discrimination safe harbor.
"Once finalized, these rules eliminate virtually all of the uncertainty that has surrounded cash balance plans the past few years," said Alan Glickstein, senior consultant at Towers Watson, in a statement. "Many employers have been waiting for these rules before adopting a new retirement plan design. With this clarification of legal requirements and the resolution of lingering ambiguities, more plan sponsors may be encouraged to convert their traditional defined pension plans to hybrid plans."
