<nobr>Oct 2, 2009</nobr>

ERIC Letter Identifies Key Transition and Process Issues on Upcoming Hybrid Plan Guidance

Washington, D.C. -- The ERISA Industry Committee (ERIC), in conjunction with the Coalition to Preserve the Defined Benefit System and the American Benefits Council, on October 1 submitted a letter to the Internal Revenue Service and the Department of Treasury identifying key transitional and procedural issues related to upcoming proposed regulations on hybrid plans.

It is the organizations' understanding that Treasury and IRS may soon issue final regulations on substantially all of the hybrid plan amendments contained in the Pension Protection Act, and that the (1) requirement that a hybrid plan's interest crediting rate not exceed a market rate of return and (2) the rules regarding pension equity plans (PEPs) may be addressed separately in proposed regulations. The letter says that the organizations strongly support this three-part approach to hybrid plan guidance.

Noting that the organizations have already submitted substantive comments, the letter asks Treasury and IRS to further consider the following:

• Issuing the market rate of return and PEP guidance in proposed, not final, form, and doing so as soon as practicable.



• In light of the timing of the market rate of return regulations, extending the applicable anti-cutback relief at least through the end of the 2010 plan year.



• Applying a "reasonable interpretation of the statute" standard prior to the effective date of the final regulations, with respect to all upcoming hybrid plan guidance. Without such a standard, compliance is almost impossible.



• Making the upcoming final hybrid plan regulations effective no earlier than for plan years beginning at least 12 months after the issuance of the regulations.



• In the proposed market rate of return regulations, addressing the interaction of the interest crediting rules and the backloading rules, so that new requirements are imposed through the regulatory process rather than through the determination letter process.

With respect to the need for a reasonable interpretation standard for determining whether a plan was in compliance with the new PPA rules in earlier years, the letter says it is "quite troubling" Treasury and IRS have declined to confirm this, especially considering they have expressly applied the reasonable interpretation standard in other areas, such as funding and benefit restrictions.

The letter explains that if the reasonable interpretation of the statute standard is not available for past years, then the only permissible approach in prior years was compliance with the proposed regulations. "That would mean that the proposed regulations would effectively be functioning as temporary regulations. This would be inappropriate," the letter says.

"The absence of a reasonable interpretation standard does not protect participants' rights. On the contrary, such absence simply ensures non-compliance with the law . . . and undermines respect for the legal system. We urge you to remedy this by confirming that a reasonable interpretation standard is applicable prior to the effective date of the final hybrid plan regulations," the organizations wrote.

A link to the letter appears 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

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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.

Letter to IRS and Treasury

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