On November 10, 2009, the Internal Revenue Service issued Announcement 2009-82 (the "Announcement") which gives sponsors of hybrid pension plans, such as cash balance plans, until the end of the 2010 plan year to bring their plans into compliance with pending regulations. The Pension Protection Act of 2006 ("PPA") requires that cash balance plans using an above market interest crediting rate reduce that rate to a market rate by December 31, 2009, to avoid violating PPA's accrued benefit rules. According to the Announcement, the regulations, which are expected to provide guidance regarding this requirement, are not expected to go into effect before the first day of the plan year that begins on or after January 1, 2011.
The IRS has indicated that the regulations will be issued in the near future. By extending the compliance deadline from December 31, 2009 to December 31, 2010, the IRS will have additional time to provide guidance on above market rates of return and sponsors will not be required to adopt contingent amendments in order to address the uncertainty that existed without final regulations.
Plan Amendments
The Announcement indicates that after the final regulations are issued, the IRS is expected to issue additional guidance that would allow hybrid plan sponsors to amend their plans without violating the anti-cutback rules under Section 411(d)(6) of the Internal Revenue Code of 1986, as amended, provided the amendments (1) reduce the future interest crediting rate on participants' account balances only to the extent necessary to be a permissible rate under the final regulations, and (2) are adopted before the effective date of the final regulations (January 1, 2011 for calendar year plans).
Timing Of 204(h) Notices
It is possible that the regulations may still be issued before the end of 2009. If a plan sponsor amends its hybrid plan this year, the Announcement provides additional time to send required notices describing reductions in future benefits due to the interest crediting rate change as required by Section 204(h) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). These sponsors will have up to 30 days after the effective date of the amendment to provide ERISA Section 204(h) notices, as opposed to the usual 45-day advance notice requirement. This ERISA Section 204(h) relief applies only with respect to amendments adopted after November 10, 2009, but during the 2009 plan year, with an effective date of the first day of the 2010 plan year.
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