On October 31, 2011, the Pension Benefit Guaranty Corporation (PBGC) released proposed regulations implementing provisions of the PPA that change the rules for determining benefits upon the termination of a statutory hybrid plan, such as a cash balance plan.
The PPA provides that if the hybrid plan uses a variable rate of interest (e.g., a rate that changes based on changes to an underlying index), when such a plan terminates, the rate used under the plan to determine accrued benefits must be the average of the rates of interest used under the plan during the five-year period ending on the termination date. This same rule applies if a variable interest rate is used to determine the amount payable as an annuity at normal retirement age. For a plan terminated and trusteed by the PBGC, the proposed rule amends the PBGCʼs regulations to conform the rules for determining the allocation of assets and the amount of benefits payable under ERISA to the PPA changes in the benefit determination rules for statutory hybrid plans. The proposed rule also implements a PPA change for determining the present value of the accrued benefit under a statutory hybrid plan. Finally, the proposed rule provides guidance on benefits payable under a statutory hybrid plan that terminates in a standard termination. Comments must be submitted on or before December 30, 2011.