<nobr>Sep 16, 2008</nobr>

ERIC Says Plan Sponsors Should Not be Penalized for Offering Employees Generous Benefits

Urges Treasury to Abandon Interpretation that "Greater of" Plans Violate Anti-Backloading Rules

Washington, D.C. -- The ERISA Industry Committee (ERIC) submitted comments today urging the Department of Treasury to abandon an administrative interpretation that the federal courts have uniformly rejected and that would prevent plan sponsors from offering generous pension benefits to employees.

The Department adopted the interpretation in Revenue Ruling 2008-7 and in proposed regulations issued earlier this year. The interpretation arises under the anti-backloading rules of the Internal Revenue Code and the Employee Retirement Income Security Act, and relates to plans that offer employees the greatest of the benefits provided under two or more pension benefit formulas. ERIC questions the technical and policy basis for the interpretation, and recommends an alternative approach that avoids the serious shortcomings in the Department's position.

ERIC President Mark Ugoretz said that, "Employers are being told that they cannot provide plan participants with the most generous pension plan benefits in situations where changes are made to the plan and employers want to help employees during this transition period. It doesn't make sense that the Treasury Department and IRS are limiting pension payments to employees in this way."

Ugoretz added that, "The IRS has approved plans with 'greater of' formulas since ERISA's enactment, and, most importantly, plan sponsors should not be penalized either for frontloading benefits for employees or for granting them the greater of the benefits under two or more formulas."

"Greater of" plans provide employees better benefits than they would receive if they were covered by only one of the formulas. Plan sponsors often adopt this approach to provide existing employees generous transition benefits when the sponsor changes a plan's benefit formula, such as converting from a traditional pension plan to a cash balance plan.

Under the proposed regulations, a defined benefit plan providing the greater of the benefits determined under two or more formulas would be deemed to satisfy the anti-backloading rules only if the plan meets conditions that very few plans are likely to satisfy and that have nothing to do with the potential backloading of benefits. ERIC believes Treasury's approach does not distinguish between the frontloading of benefits (which ERISA permits), and the backloading of benefits (which ERISA prohibits), and as a result, would continue to penalize plans merely because they frontload benefits. ERIC's approach would distinguish frontloading from backloading, and permit a plan to frontload benefits "without limit," as Congress intended.

"ERIC strongly believes that the IRS's interpretation is inconsistent with the statute and calls into question many long-established plan designs that are advantageous to plan participants by providing a benefit that is the greater of two formulas. Moreover, the federal courts, including the Ninth Circuit, have uniformly rejected the IRS's interpretation as flawed, recognizing that plans that adopt a 'greater of' transition are more generous to participants and do not conflict with the intent of ERISA's anti-backloading provisions," Ugoretz said.

ERIC's comment letter is below.

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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
_________________________________________________________

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.

Text Files:

ERIC Comment Letter

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