<nobr>Aug 28, 2007</nobr>

ERIC and Other Trades Ask Treasury Secretary to Temporarily Suspend IRS Actions Relating to Backloading of Benefits Concerning Hybrid Plans

ERIC along with six other trade organizations, including AARP, the National Committee to Preserve Social Security and Medicare, and the Service Employees International Union, August 22 wrote to Secretary of the Treasury Henry Paulson asking for his assistance in directing the Internal Revenue Service to suspend temporarily any adverse actions relating to backloading of benefits resulting from grandfather provisions in hybrid pension plans.

The letter discusses how the Pension Protection Act (PPA) addressed key issues relating to hybrid defined benefit pension plans, but that it did not apply to hybrid plans or conversions before specified effective dates. In particular, the PPA did not explicitly address the interplay, following a conversion, of the accrual rules that restrict "backloading" of benefits with plan provisions that mitigate prospective benefit reductions in conversions by grandfathering (permanently or temporarily) participants in pre-conversion benefit formulas. It is believed that IRS is set to interpret the law regarding backloading to prohibit or restrict the use in conversions of such grandfather provisions, and that IRS may rule adversely on the qualification of plans because they include such provisions. The letter asks Paulson to cease temporarily any IRS actions in order to "give us the opportunity to have a full discussion of how to resolve these issues fairly for the many participants affected by conversions to hybrid plans as well as for employers."

ERIC has been actively engaged on this issue for more than five years, having first raised it in meetings with IRS officials in 2001. Recently, ERIC addressed the application of the backloading tests in a joint letter sent July 18 to Treasury Benefits Tax Counsel Thomas Reeder, a joint letter sent June 13 to key Senators, and in comments submitted May 18 in response to IRS Notice 2007-6 regarding cash balance and other hybrid defined benefit plans.

If you have any questions or comments on this issue, please contact Rosemary Becchi or Mike Chittenden.

Text Files:

Treasury Secretary Letter
Websites:

Treasury Benefits Tax Counsel Letter

ERIC Comments on IRS Notice 2007-6

Senate Letter

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