IRS Issues Cash Balance Plan Guidance

The Internal Revenue Service (the "IRS") recently issued both final and proposed regulations for hybrid retirement plans (the "Final Regulations" and the "Proposed Regulations," respectively). As explained below, hybrid retirement plans include cash balance plans and pension equity plans (commonly referred to as "PEPs").

During the 1990s, the popularity of hybrid retirement plans began to grow rapidly as many employers converted their traditional defined benefit plans to hybrid retirement plans. Some participants in these new plans began to file lawsuits based upon a variety of legal theories. These lawsuits generally focused on discrimination against older workers, controversial "wear away" provisions which delayed the accrual of additional benefits for certain participants, and the calculation of lump sum benefits. In 1999, the IRS temporarily suspended the processing of determination letters for certain hybrid retirement plans.