January 9, 2015
- Council Testifies at IRS Hearing on Proposed Hybrid Plan Amendments
- CORRECTION: Cost of House 40-Hour Work Week Bill $53.2 Billion Over Ten Years
Council Testifies at IRS Hearing on Proposed Hybrid Plan Amendments
In a January 9 hearing, the Internal Revenue Service (IRS), along with representatives from the U.S. Department of the Treasury, heard testimony from members of the retirement plan community, including testimony provided on the Council’s behalf, on the proposed transitional amendments for hybrid defined benefit plans to satisfy the market rate of return rules.
Hybrid retirement plans, such as cash balance plans and pension equity plans, are technically defined benefit plans but also contain features that resemble defined contribution plans. The proposed amendments were released by the IRS on September 19, along with the final regulations addressing market rate of return for hybrid plans under the Pension Protection Act of 2006. The proposal is intended to provide transitional guidance for hybrid plans that are not yet in compliance with the final rules (see the September 18 Benefits Byte).
Kent Mason, partner, Davis & Harman LLP, testified on behalf of the Council as well as the Coalition to Preserve the Defined Benefit System. His testimony followed the comments in the Council’s December 18 letter on the proposed amendments (see the December 18, 2014 Benefits Byte), in which we said:
- Regulations should provide greater flexibility and avoid a single-solution approach.
- IRS and Treasury should consider permitting noncompliant rates to be capped at the third segment rate (subject to the exceptions noted in our letter) or changed to the third segment rate.
- Any new approach with respect to pension equity plan (PEP) matters should not be applied retroactively, through either guidance or enforcement.
- The status of participant-directed plans needs to be resolved before such plans are required to make amendments.
- The effective date should provide at least a year after final regulations are published for employers to allow for implementation of new regulations.
- The final regulations included two new restrictive rules related to whipsaw and early retirement subsidies that were never included in any prior or proposed guidance and should be withdrawn (or, at a minimum, proposed in a future set of proposed hybrid plan regulations) to ensure a fair and open process.
- Employers need guidance and a sufficient transition period for participant-directed plans.
Other witnesses, including Council member Michael Pollack from Towers Watson, also commented on the need for flexibility and for a later effective date, as well as the importance that guidance and enforcement not be applied retroactively.
CORRECTION: Cost of House 40-Hour Work Week Bill $53.2 Billion Over Ten Years
In the January 8 Benefits Byte, we reported on the U.S. House of Representatives approval of The Save American Workers Act (H.R. 30), a measure that would establish 40 hours as the benchmark for “full time” work under the Patient Protection and Affordable Care Act (PPACA).
We erroneously reported that the latest Congressional Budget Office budget score estimated the cost of the bill as $18.1 billion over the next ten years. In fact, the measure will cost $53.2 billion over the next ten years. $18.1 billion is the cost of the bill over the next five years.
We regret the error. For more information, contact Katy Spangler, senior vice president, health policy, at (202) 289-6700.