Anybody getting favorable IRS determination letters on new cash balance plans?

[Guest RSNOW]

Even with the combination of the IBM court decision (which is being appealed) and the House bill to prevent Treasury dept. from issuing any proposed regs blessing cash-balance plans/conversions, is there really any reason to hold back on implementing a new cash-balance plan that meet existing regs?

Practically speaking, are people still getting IRS determination letters on new plans ?

I'm curious what people are telling new clients interested in starting up one of these plans in 2003 and would appreciate any comments.

[Guest mikeak]

The vote to which you refer is quite limited and may not go into effect (the following from a CCH news article):

House proposes to limit Treasury's involvement in cash balance appeal The House of Representatives, on September 9, 2003, approved an amendment to a Treasury appropriations bill (H.R. 2989) that would prohibit the Treasury from using funds to assist in the overturning of a recent federal court decision rejecting IBM's cash balance plan as violative of ERISA's age discrimination rules. The amendment, which was sponsored by Rep. Bernie Sanders (I-VT), was approved by a vote of 258-160.

The Transportation, Treasury, and Independent Agencies Appropriations Act for Fiscal Year 2004 was passed by a vote of 380 to 39 and now needs to be reconciled with an appropriations bill that is moving through the Senate (S. 1589). However, the Senate bill does not contain an amendment similar to the Sanders' proposal.

[Blinky the 3-eyed Fish]

I got a cash balance determination letter 2 weeks ago. Of course it was submitted 2/28/2002. Nothing like a year-and-a-half wait.

[Guest RSNOW]

Wow.....that might have set a new record for waiting time on an IRS letter, but it's good to know it still was issued.

[Blinky the 3-eyed Fish]

No, the record will be set by the letter we are still waiting for.

[Guest Harry O]

Blink -

Was the cash balance plan a conversion of a traditional DB or a brand new plan?

[mbozek]

An IRS determination letter wil not protect the plan sponsor from a lawsuit or judgment that the plan violates ERISA because it provides a smaller benefit accrual to older emplyees (See IBM case). why take a risk by adopting a CB plan?

[MGB]

Note, too, that a cash balance plan can have an age-weighted formula that would even pass the scrutiny of the court in the IBM case.

[Guest Harry O]

Most age and service graded cash balance plans would fail the IBM test since most of these plans have "plateaus" in the formula/points. A good formula would seem to be too complicated (negating a major advantage of CB plans).

Why would any sane employer risk an expensive lawsuit? Unfortunately, it makes more sense these days to hunker down and offer simple DC plans (or even age-weighted DC plans) rather than mess around with cash balance and pension equity plans. And this is a shame . . .

[mbozek]

Under the IBM case all age or service weighted formuals used in DB plans have be tested to determine if benefit accruals are reduced on account of age under ERISA against any employee, not just employees 40 and older.