<nobr>Feb 2, 2004</nobr>

Administration Proposes Legislation for Hybrid / Cash Balance Plans

Washington, DC -The Department of Treasury today issued the contents of the Administration's cash balance legislative proposal in the Administration's FY 2005 Budget revenue proposal.

The proposal would: (1) Require certain transaction rules for "older and longer service" workers in conversions of traditional plans to hybrid plans; (2) Clarify the legal status of cash balance/hybrid plans under age discrimination rules; and (3) Override the "whipsaw" requirement of Notice 96-8.

The entire proposal is prospective in application based on date of enactment, with no inference as to any of the three areas addressed prior to enactment. In that regard, the proposal does not lift the current moratorium on determination letters.

In its initial analysis, ERIC supports provisions in the proposed legislation that affirm recognition that cash balance plans are not age discriminatory and that disavow the notion that two interest rates must be used to compute a cash balance benefit (i.e. the whipsaw theory). ERIC urges immediate passage of these provisions.

Recognizing that new rules proposed regarding plan conversions are likely to be controversial, ERIC urges all sides to seek workable rules since further instability with regard to hybrid plans may cause employers to terminate defined benefit arrangements and move to a 401(k) plan.


Text Files:

Click here to view the cash balance proposal (as listed in the President's budget)
Websites:

Click here to view the Treasury's announcement

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