<nobr>Apr 16, 2008</nobr>

ERIC Urges Mind-Set Change in Treasury's Proposed Hybrid Retirement Plan Regulations

Washington, D.C. -- The ERISA Industry Committee's (ERIC) comments to the Department of Treasury and Internal Revenue Service on proposed regulations relating to hybrid pension plans urged the agencies to make significant changes in the regulations and the philosophy with which Treasury and IRS are pursuing. The Pension Protection Act of 2006, in which Congress effectively "blessed" the development of cash balance and other hybrid plans, largely took effect on January 1, 2008, but plan sponsors have been left waiting for final regulations from Treasury and IRS to flesh out the details.

While acknowledging the significant effort by Treasury and IRS staff, ERIC comments reflect a deep concern that the proposed regulations would not effectuate Congress's intent to provide a predictable legal environment in which employers can safely offer retirement benefits to their employees through cash balance and pension equity plans. The comments also express concern that the proposed regulations call into question other defined benefit plans that provide participants guaranteed indexing of their benefits.

ERIC believes that many of the problems with the proposed regulations, taken together, would make it difficult for many sponsors -- and impossible for others -- to effectively operate a hybrid plan. "If the proposed regulations are finalized without significant modification, they are likely to drown these plans in a regulatory morass and breed litigation and controversy for decades to come," ERIC told regulators.

ERIC's comments address many specific concerns with the regulations, among them:

• The IRS's inappropriate use of the determination letter and audit programs to make major interpretations of the law governing hybrid plans;


• An extremely limited interpretation of the market rate of return requirement that would prohibit plan sponsors from offering generous interest crediting rates to participants;


• An overly broad definition of interest credits that could disallow many required and permissible credits for imputed service or for periods of disability and maternity leave;


• A inappropriate application of the special vesting rules to benefits determined under non-hybrid plan formulas resulting in faster vesting; and


• The exclusion limited applicability of the PPA's indexing rule that would disallow cash balance and pension equity plans from complying with the age discrimination test by meeting its requirements.

ERIC urged the Treasury and the IRS "to adopt final regulations that are fully consistent with Congress's intent to foster the creation of the plans and answer the previously outstanding questions regarding their legality."

"ERIC's comments reflect the extraordinary dismay of plan sponsors that the regulations appear more to fabricate roadblocks to new hybrid plans than to meet Congress's objectives of a path forward under existing law," according to Mark Ugoretz, ERIC's president.

"Additional regulatory obstacles imposed on hybrid plans combined with other statements from the Treasury and the IRS indicating that these plans might have difficulty satisfying the tax-qualification rules send a strong message to employers that there is substantial uncertainty about these plans -- and it is therefore not worthwhile to dedicate hundreds of millions or even billions of dollars to provide benefits to their employees under hybrid plans," ERIC concluded.

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For more information:
Ted Godbout
Manager, Communications
The ERISA Industry Committee
1400 L Street, NW, Suite 350
Washington, DC 20005
Phone: (202) 789-1400;
Fax: (202) 789-1120
tgodbout@eric.org
www.eric.org

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The ERISA Industry Committee (ERIC) is a non-profit association committed to representing the advancement of the employee retirement, health, and compensation plans of America's largest employers. ERIC's members provide benchmark retirement, health care coverage, compensation, and other economic security benefits directly to tens of millions of active and retired workers and their families. ERIC has a strong interest in proposals affecting its members' ability to deliver those benefits, their cost and their effectiveness, as well as the role of those benefits in the American economy.

ERIC Comments on Proposed Hybrid Regulations

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