Proposed regs provide transition rules for satisfying market rate of return requirements for hybrid plans

The IRS has issued proposed regulations providing transition rules for satisfying the market rate of return requirement for hybrid plans included in the 2014 final hybrid plan regulations.

Adoption of plan amendments

Prior to the first day of the first plan year that begins on or after January 1, 2016, a plan that uses an interest crediting rate that is not permitted under the final hybrid plan regulations must be amended to change to an interest crediting rate that is permitted under those regulations. Although a plan is permitted to be amended to change the interest crediting rate with respect to benefits that have not yet accrued, an amendment that reduces the interest crediting rate with respect to benefits that have already accrued would ordinarily be impermissible under the anti-cutback rules of Code Sec. 411(d)(6).

In order to resolve this conflict between the market rate of return rules of Code Sec. 411(b)(5)(B)(i) and the anti-cutback rules of Code Sec. 411(d)(6), the proposed regulations would permit a plan with a noncompliant interest crediting rate to be amended with respect to benefits that have already accrued so that its interest crediting rate complies with the market rate of return rules. If the applicable requirements of these regulations are satisfied, an amendment is permitted with respect to benefits that have already accrued, but only with respect to interest credits that are credited for interest crediting periods that begin on or after the later of the effective date of the amendment or the date the amendment is adopted. To qualify for this treatment, the amendment would have to be adopted prior to and effective no later than the first day of the first plan year that begins on or after January 1, 2016.

The proposed regulations set forth amendments that would be eligible for this treatment by providing a specific correction for each noncompliant feature of a noncompliant interest crediting rate. If the noncompliant interest crediting rate has more than one noncompliant feature, then each noncompliant feature must be addressed separately in the prescribed manner. Examples are included to illustrate the application of these rules.

Public hearing scheduled

A public hearing on the 2014 proposed regulations is scheduled for January 9, 2015, beginning at 10 a.m. in the Auditorium, Internal Revenue Service, 1111 Constitution Avenue, NW., Washington, DC. Before these proposed regulations are adopted as final regulations, consideration will be given to any written or electronic comments that are submitted timely to the IRS. Written or electronic comments must be received by December 18, 2014.

Source: 79 FR 56305, September 19, 2014.
Visit our News Library to read more news stories.