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June 18, 2008 at 01:50 PM
The Internal Revenue Service has drafted a new rule for defined benefit pension plans that are using 2 or more benefit formulas.
The proposed rule would create a mechanism for sponsors to show that each formula separately satisfies the “133 1/3% rule,” IRS officials write in a notice of proposed rulemaking that appears today in the Federal Register.
The 133 1/3% rule helps prevent employers from giving workers who are close to retirement far more benefits than younger workers get.
The rule prohibits defined benefit pension plans from letting plan participants accrue 33 1/3% more in benefits in a given year than they accrued in any earlier year.
Under the current rules, sponsors must aggregate the benefits under formulas to see if the benefits meet the 133 1/3% rule, or the “fractional rule,” another rule that can be used to test for benefits “backloading.”
