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Remember Compliance with Final Hybrid Transition Rules

It may be worth considering a review of hybrid plans to make sure they are in compliance with the final rules the IRS issued late in 2015. The IRS issued the rules in November.

Towers Watson in its Feb. 19 Insider provides an early reminder that plans have until New Year’s Eve this year to make any changes they need to make in order to be in compliance, as the rules generally are effective for 2017 plan years.

Also effective for 2017 plan years, Towers Watson reminds, are the provisions in the 2014 final regulations it argues have evoked concern, including:

  • the requirement that an IRS-approved interest crediting rate under the market rate of return rules be used;
  • the need to eliminate whipsaw calculations in order for a formula to remain lump sum-based;
  • the requirement that in order to be a lump sum-based formula, conversions from accounts to annuities be based on reasonable actuarial equivalence; and
  • limits on early retirement subsidies that may be disregarded under the age discrimination safe harbor rules.
Towers Watson also points out that the final regulations do not address outstanding pension equity plan issues, nor comments submitted to the IRS on retirement subsidies and plans that perform whipsaw calculations. Not only that, says Towers Watson, it is possible that the IRS may issue further guidance to address unresolved issues.