Defined Benefit Pension Plans; Solicitation for Comments

DEPARTMENT OF THE TREASURY

Internal Revenue Service

Defined Benefit Pension Plans; Solicitation for Comments

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Solicitation for comments.

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SUMMARY: The IRS and the Department of the Treasury are seeking public

comments regarding potential issues arising under their jurisdiction

with respect to retirement plans known as cash balance pension plans

(``cash balance plans''), particularly with respect to conversions of

other types of defined benefit pension plans into cash balance plans.

The purpose of these comments is to provide the IRS and Treasury with

information that may be taken into account in their analysis of these

issues.

DATES: Comments are requested on or before January 19, 2000.

ADDRESSES: Send written comments to: Internal Revenue Service, Attn:

CC:DOM:CORP:R (Cash Balance Plans and Conversions), Room 5226, P.O. Box

7604, Ben Franklin Station, Washington,

[[Page 56579]]

DC 20044. Written comments may be hand delivered Monday through Friday

between the hours of 8 a.m. and 5 p.m. to: Internal Revenue Service,

Courier's Desk, Attn: CC:DOM:CORP:R (Cash Balance Plans and

Conversions), 1111 Constitution Avenue, NW, Washington, DC 20224.

Alternatively, written comments may be submitted electronically via the

Internet by selecting the ``Tax Regs'' option on the IRS Home Page, or

by submitting them directly to the IRS Internet site at: http:

//www.irs.gov/tax__regs/regslist.html.

FOR FURTHER INFORMATION CONTACT: Mr. Kenneth M. Griffin, (202) 622-4604

(not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

A cash balance plan is a defined benefit pension plan that

typically defines an employee's retirement benefit by reference to the

amount of a hypothetical account balance. In a typical cash balance

plan, this account is credited with hypothetical allocations and

interest that are determined under a formula set forth in the plan. The

crediting of hypothetical allocations and hypothetical interest has

been described as resembling the allocation of actual contributions and

actual earnings to an employee's account under a defined contribution

plan, such as a profit-sharing plan.

In recent years, existing defined benefit plans covering a

significant number of employees have been changed into cash balance

plans. This change, made by amending the existing plan, is commonly

referred to as a conversion. In a conversion, the new cash balance

benefit formula generally applies to new employees and may also apply

to employees who had already earned benefits under the plan before the

conversion. The law protects benefits earned before the conversion by

prohibiting a plan amendment that reduces those benefits.

In some conversions, however, employees who had already earned

benefits may not earn additional retirement benefits for varying

periods of time after the conversion. This effect, often referred to as

a ``wear-away'' or ``benefit plateau,'' continues until an employee's

benefit under the ongoing cash balance formula ``catches up'' with the

employee's protected benefit.

Comments

The IRS and Treasury invite public comments regarding potential

issues under their jurisdiction with respect to cash balance plans,

conversions of traditional defined benefit plans to cash balance plans,

and associated wear-away or benefit plateau effects. All comments

submitted will be made available for public inspection and copying,

although the comments will not be individually acknowledged. Therefore,

commentators should refrain from including personal tax information or

other information that they believe should not be publicly disclosed.

The IRS and Treasury would like to receive comments from the full

range of parties with interests in cash balance and similar plans,

including employees, employers, and their representatives. The review

of the legal issues relating to cash balance and similar plans is being

coordinated with the agencies that have concurrent or overlapping

jurisdiction over other Federal laws (such as the Age Discrimination in

Employment Act (ADEA) and Employee Retirement Income Security Act

(ERISA)). Accordingly, copies of comments received that relate to those

laws will be provided to the appropriate agencies.

Dated: October 13, 1999.

Nancy J. Marks,

Acting Associate Chief Counsel, Employee Benefits and Exempt

Organizations, Internal Revenue Service.

[FR Doc. 99-27148 Filed 10-19-99; 8:45 am]

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