One pension consultant is warning that new regulations by the Internal Revenue Service (IRS) regarding hybrid pension plans, also called cash balance plans, may prevent full pension distributions to retirees and other employees.
Under the new law, says Brett Goldstein, a Plainview, N.Y.-based pension administrator and president of The Pension Department, Inc., “employees may only get a partial pension, while the remaining pension money may have to stay in the plan.”
While the new IRS regulation is designed to minimize the number of underfunded plans, it also “allows companies to use the actual rate of return of the plan when calculating pension benefits,” Goldstein says. “If the cash balance plan makes money, the employees will make money. If the cash balance plan loses money, the employees may also lose money.”
Unfortunately, Goldstein continues, the new IRS rule conflicts with The Pension Protection Act (PPA) of 2006 rules, which limits how much money can be paid out from a pension plan.