determination letter caveat

[Guest Laura]

I thought I read somewhere that, pending resolution of cash balance conversion issues, determination letters for all types of plans will include a caveat that the letter cannot be relied upon with respect to cash balance plan issues. Can anyone confirm this? What exactly does the caveat say? Has anyone received a determination letter (on any kind of plan) that includes this caveat?

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[Dowist]

Actually, I believe that all cash balance determination letter requests are automatically sent to the IRS National Office for technical advice, and that since this policy was announced (last September I think) there have been no determination letters issued (IRS is still struggling with the issues).

[Dowist]

I didn't really respond to your question before. Actually I haven't seen a determination letter lately, but it is my understanding that the determination letter program isn't yet open for the 2000 legal changes, so if you got a letter now, I think it would have a caveat for changes that take effect in 2000 and thereafter. The IRS is supposed to open up the determination letter program for 2000 changes soon.

[Guest Laura]

I am aware that cash balance plans are being referred to the national office. My understanding was that some plans that were filed haven't been properly identified as cash balance or something, and the local offices were ruling on them contrary to the field directive. As a result, my understanding is that all determination letters, including 401(k) determination letters, will include a caveat to foreclose the possiblity of a local office ruling on a cash balance plan that hasn't been properly identified as such.

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[Guest Jim Hunzelman]

I received a determination letter on the termination of a defined benefit plan. The letter was dated April 17, 2000. One paragraph read:

"Issues arising from the amendment of a defined benefit plan's benefit formula to convert that formula into a cash balance type benefit formula are under study, and this determination letter does not express an opinion on any of these issues. A cash balance type formula generally defines a benefit for each employee by reference to a single-sum formula, such as 10 percent of final average pay times years of service, or the amount of the employee's hypothetical account balance."

This was a determination letter on the termination of a one man defined benefit plan with no cash balance aspects involved. I guess the IRS is putting this language in all determination letters just to be sure they don't accidentally approve a cash balance plan.

[Guest Laura]

Thanks Jim! That's just what I needed...

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