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December 27, 2006
IRS to Resume Processing Applications for Cash-Balance-Plan Conversions

The Internal Revenue Service is lifting a moratorium on determination letter applications for conversions from traditional defined benefit pension plans to so-called cash balance plans.

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In Notice 2007-6, the IRS also provides interim guidance on provisions of the Pension Protection Act of 2006 involving cash balance plans, and the agency is requesting public comments on several issues addressed in the notice. The notice will appear in Internal Revenue Bulletin 2007-3, dated January 16, 2007.

In 1999, the IRS announced a suspension of the processing of determination letter applications by employers seeking to convert their existing defined benefit plans to cash balance plans. The IRS said it was doing so, pending study on issues raised in such conversions, including the impact on older employees. With the passage of the Pension Protection Act and the latest notice, the IRS says it can now resume processing the backlog of approximately 1,200 cases subject to the moratorium. The IRS says it hopes to resolve a significant majority of these cases by the end of 2007.

The IRS is seeking public comment on a number of rules which were included in the Pension Protection Act of 2006 for the first time. Many of these involve safe harbor provisions for all cash balance plans. But the notice says the IRS will not review any of the pending cases for age discrimination issues. The IRS said this is consistent with its past practice and with the Pension Protection Act, which did not address the issue of age discrimination on pre-June 30, 2005, conversions.

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