Cash Balance Plan - Cutback Issue

[Guest pcohen]

A cash balance plan defines the Interest Credit as the rate determined under Code section 417(e)(3). It has always been the plan's intent that the rate be the 30-year Treasury but the language was drafted by reference to Code section 417(e)(3). Now that the 417(e)(3) rate will change effective 1/1/2008 to a segmented rate, would a pre-1/1/2008 amendment changing the Interest Credit definition under the plan to the 30-year Treasury be a cutback? Would the relief provided by Notice 2007-6, while not directly on point, be applicable since the amendment is being made as a result of the change made under PPA section 701, and therefore the requirements of PPA Section 1107 are met?

[J. Bringhurst]

A cash balance plan defines the Interest Credit as the rate determined under Code section 417(e)(3). It has always been the plan's intent that the rate be the 30-year Treasury but the language was drafted by reference to Code section 417(e)(3). Now that the 417(e)(3) rate will change effective 1/1/2008 to a segmented rate, would a pre-1/1/2008 amendment changing the Interest Credit definition under the plan to the 30-year Treasury be a cutback? Would the relief provided by Notice 2007-6, while not directly on point, be applicable since the amendment is being made as a result of the change made under PPA section 701, and therefore the requirements of PPA Section 1107 are met?

A recent Mercer GRIST article dated 12/14/07 slogs through this issue. The article is titled "Should hybrid plans use PPA lump sum rates for interest credits, annuity conversions?" and it analyzes the answer depending on how the plan defines the interest rate.