Pension Protection Act Blog

On Friday, the IRS issued Revenue Ruling 2008-7, discussing the backloading rules for pension plans and Code section 411(b)(1). In 21 pages, the IRS provides an analysis of a traditional pension plan which converted into a cash balance pension plan prior to the effective date of the new conversion requirements under the Pension Protection Act. The issue in this revenue ruling is stated as:

Does the defined benefit plan described below that was converted from a traditional benefit formula to a lump sum-based benefit formula satisfy the accrual rules of section 411(b)(1)(A), (B), and (C) of the Internal Revenue Code for the 2002 plan year?

The revenue ruling provides a very thorough discussion, almost a tutorial, on the three accrual rules of Code section 411(b)(1)(A), (B), and (C), which a defined benefit plan must satisfy with respect to benefits accruing under the plan. Code section 411(b)(1)(A) is the 3% method. Code section 411(b)(1)(B) is the 133 1/3% rule. Code section 411(b)(1)(C) is the fractional rule. Several pages of discussion, including examples, are provided to each of the three accrual rules.

The amendment converting the traditional defined benefit plan to the cash balance plan was effective for plan year beginning on or after January 1, 2002, and the IRS limited the holding in this revenue ruling specifically to the 2002 plan year.

Technorati Tags: Pension Protection Act, ppa, 411(b)(1), Rev. Rul. 2008-7, fractional rule, 133 1/3% rule, cash balance plan, defined benefit, ERISA