New Cash-Balance Plan Approvals ?

[Guest RSNOW]

In the Forbes article on benefitslink e-mail today (8/7/03) titled "Pension Plans Wade in Murky Water", it stated the IRS had place a moratorium on approving new plans until it could be determined if they are discriminatory. Is this true ? Did they mean just new conversion ? or is this moratorium new since the IBM case and applicable to even start up cash balance plans ?

[MGB]

There is no new moratorium. Note, too, that it is not a moratorium on "allowing a cash balance plan," it is just a moratorium on providing a determination letter (which is never required). It was also not supposed to only apply to conversions. However, district reviewers varied as to whether they would give a determination letter or not, dependent on the facts of the situation. There are even conversions that could have received letters at the district level, as long as there is no possibility of wear-away or any other greater-of situation. Once any district person decided to send a letter request to the national office, whether it was a conversion or new, they were added to the pile and not acted on whatsoever (note that most of them did go through the complete determination letter process on the rest of the plan at the district level, but just came to a stop when the only thing that was left was cash balance issues).

Also, the reference to the IRS being worried about their discrimination status isn't necessarily true either. They were as concerned with other issues (and actually less concerned about discrimination, as shown in their recent proposed regulations), particularly 411 accrual rules when there is a wearaway. That is something that still needs to be addressed through regulation.

[mbozek]

I thought the IRS had opened the determinaton letter process for plans that were not conversions from final average pay plans (although I am not sure whether any determination letters have been issued). Part of the problem for CB plans today results from the failure of the IRS to clarify how the interest component is taken into account under the benfit accrual and backloading rules.