The IRS issued final (T.D. 9693) and proposed (REG-111839-13) regulations on Sept. 19 concerning hybrid qualified retirement plans, including cash balance plans. A hybrid plan, or "applicable defined benefit plan," as referred to in the regulations, is a defined benefit plan that uses a lump-sum-based benefit formula and an interest crediting rate to calculate benefits.
The final regulations update proposed regulations issued by the IRS in 2010 and address what is considered a permissible interest crediting rate for cash balance plans, and also increase the maximum permitted fixed interest credit rate from 5% to 6%. The regulations include special rules for variable interest crediting rates and age discrimination and apply to plan years beginning on or after Jan. 1, 2014.
The proposed regulations provide a way for a hybrid plan that does not comply with the permissible crediting rate to become compliant. A hybrid plan can accomplish this by adopting the interest crediting rate that is permitted under the final regulations without violating the anti-cutback rules of Section 411(d)(6). The proposed regulations generally permit amendments that bring the plan into compliance by changing the specific feature that causes the plan's interest crediting rate to be noncompliant, while not changing other features of the existing rate.
To qualify for the anti-cutback relief under the proposed regulations, the plan amendments must be adopted prior to and effective no later than the first day of the first plan year that begins on or after Jan. 1, 2016.
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