On October 19, 2010, the IRS released final regulations providing guidance for statutory hybrid plans, including cash balance plans. This belated guidance addresses many of the requirements imposed on cash balance plans by the Pension Protection Act of 2006. The final regulations incorporate the previously issued transitional guidance in Notice 2007-6, which interpreted the Pension Protection Act provisions relating to hybrid plans as well as the proposed regulations published in 2007 (the 2007 proposed regulations). The final regulations are consistent with the previously issued guidance and generally apply to plan years that begin on or after January 1, 2011. The regulations setting forth the exclusive list of interest crediting rates that satisfy the market rate of return requirement, however, apply to plan years beginning on or after January 1, 2012. Plan sponsors may rely on the final regulations for periods prior to the effective date.

In addition to the final regulations, the IRS released new proposed regulations (the 2010 proposed regulations) to provide guidance with respect to certain issues not addressed in the final regulations. More specifically, the 2010 proposed regulations provide additional guidance on the following issues:

  • The scope of relief from the Code's minimum vesting rule provided under Code section 411(a)(13) and the final regulations  
  • Application of the 133-1/3% accrual rule to statutory hybrid plans  
  • Alternative method for satisfying the conversion protection requirements  
  • Additional permitted interest crediting rates  

The 2010 proposed regulations generally would take effect for plan years that begin on or after January 1, 2012. Nevertheless, plan sponsors may rely on the 2010 proposed regulations for periods prior to that date.  

Notice 2009-97, issued by the IRS in late 2009, extended the deadline for adopting any amendments to comply with the market rate of return requirement to the last day of the first plan year beginning on or after January 1, 2010, which would be December 31, 2010, for a calendar year plan. In the 2010 proposed regulations, the IRS further modified this extension. When the 2010 proposed regulations are published in final form, the IRS expects that they will grant Code section 411(d)(6) relief for an amendment adopted before those final regulations apply to the plan, but only to the extent that the amendment reduces or eliminates a 411(d)(6) protected amendment as necessary to meet the requirements of Code section 411(b)(5). The IRS explicitly states that this effective date supersedes the requirement in Notice 2009-97 that would have required that the amendment be adopted by the end of the 2010 plan year.