Recent Developments

by | Jan 27, 2015 | Institutional Services

Cash balance features added to prototype plans

Until recently, cash balance defined benefit (DB) plans have been available only as individually designed plans. On January 23, 2014, the Internal Revenue Service (IRS) announced that a preapproved DB plan program with cash balance features will be developed. Under Announcement 2014-4, preapproved DB cash balance plans will be available for the next six-year remedial amendment cycle, which is expected to occur sometime between early 2017 and a date two years later in 2019. The next six-year remedial amendment cycle incorporates changes enacted by the Pension Protection Act of 2006 (PPA).

Plan sponsors currently using individually designed cash balance plan documents may want to consider switching to the new preapproved PPA documents when the next preapproved DB plan amendment cycle begins. Although the next six-year amendment cycle may seem far away, current sponsors of individually designed cash balance plans can benefit from these changes sooner. The IRS will permit plan sponsors to stay on their existing documents until the PPA restatement cycle begins.

To do so, a cash balance plan sponsor may complete an IRS Form 8905, Certificate of Intent to Adopt a Pre-approved Plan. Form 8905 must be completed before the deadline for the next individually designed restatement cycle has passed.

Cycle C cash balance plans, which were originally required to submit a determination letter request prior to January 31, 2014, received an extension until March 31, 2014. The deadline for Cycle D plans is January 31, 2015, and the Cycle E plan deadline is January 31, 2016.

Announcement 2014-4 also extended the submission deadline for preapproved PPA DB plan documents from January 31, 2014, to February 2, 2015.

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