The US Treasury Department and Internal Revenue Service (IRS) issued final hybrid plan regulations (or “new regulations”) on November 13, 2015 to address the conflict that plans face when transitioning impermissible interest crediting rates to those that are permitted by existing final hybrid plan regulations—a move that, on its face, would violate the anticutback restrictions of ERISA and the Internal Revenue Code (Code).
The Code and final regulations issued in 2014 prohibit an interest crediting rate greater than a market rate of return and provide an exclusive description of interest crediting rates that satisfy this requirement. Plans with interest crediting rates that may exceed these permissible rates must be amended to reduce their current rates, which would ordinarily violate anticutback restrictions. The final hybrid plan regulations provide relief from this conundrum.
The new regulations do not change or expand permissible interest crediting rates. The prescribed transitional corrections are specifically tailored to a particular compliance failure of a plan's current interest crediting rate. Generally two or more alternatives are offered for each category of compliance failure, and the new regulations expressly allow rounding of annual and less frequently determined interest rates, within prescribed parameters.