Cash Balance Plan Product Seeks Flexibility

A cash balance plan offering from Kravitz strives to deliver greater flexibility in the wake of key regulatory changes.

Kravitz has launched a new product that “can offer diverse investment options within a single cash balance plan.”

Traditional cash balance plans are pooled and invested collectively to meet a single targeted interest crediting rate (ICR), explains Dan Kravitz, president of the retirement plan administration firm Kravitz, but recent regulatory changes allow for a new approach. Kravitz says the Internal Revenue Service’s (IRS) approval of “actual rate of return” interest crediting rates for cash balance plans “gave plan sponsors greater flexibility and removed some funding challenges.”

For more stories like this, sign up for the PLANADVISERdash daily newsletter.

Taking advantage of the regulatory changes, the new Kravitz plan design “allows participants to be grouped into different strategies designed to meet diverse goals and risk tolerances.”

“This new cash balance approach is extremely compelling for our larger medical groups and law firm clients,” Kravitz notes. “When you have hundreds of participants with diverging retirement goals and very different lengths of service, you really want to be able to provide more options.”

One Kravitz client, a large law firm, adopted the new design and has cash balance plan assets grouped into three pools. These include a moderate strategy suitable for shorter service participants and those with higher risk tolerance; a conservative strategy for mid-career participants and those with lower risk tolerance; and an ultra-conservative strategy, for longer service employees and retirees.

All three strategies follow the regulatory guidelines governing market rates of return and risk, and are managed with close attention to IRS compliance testing and preservation of capital rules, according to the firm.

“The option to allow participant direction in cash balance plans is still under study by the IRS, so plan sponsors decide how to group participants,” Kravitz notes. “Even so, the capacity to include multiple strategies within a single plan makes cash balance an even more compelling option for many employers.”

To help educate plan sponsors and clarify the complex issues involved in choosing an appropriate interest crediting rate strategy, Kravitz has published an ICR Guide. More information is also at http://cashbalancedesign.com/

PBGC Proposes Changes to Reporting Requirements

The agency says funding relief prevents it from getting all information it needs to help plans.

The Pension Benefit Guaranty Corporation (PBGC) is proposing to amend its regulation on Annual Financial and Actuarial Information Reporting to codify provisions of the Moving Ahead for Progress in the 21st Century Act (MAP-21) and the Highway and Transportation and Funding Act of 2014 (HATFA).

The proposed changes would codify guidance that affect reporting under Employee Retirement Income Security Act (ERISA) section 4010 provided in Technical Updates 12-2 and 14-2, and would make some technical changes. The proposal would also add reporting waivers for certain plans.

Want the latest retirement plan adviser news and insights? Sign up for PLANADVISER newsletters.

In its proposal, the PBGC says the current regulation does not allow it to access important available information about plans that present substantial risk and exposure to the pension insurance system. The agency is not receiving data in 4010 filings that it would otherwise receive because plans that were never intended to qualify for a regulatory waiver are, in fact, qualifying as a result of MAP-21 and HATFA funding relief.

Current regulations provide a waiver from reporting if the aggregate underfunding of pension plans in a controlled group does not exceed $15 million. PBGC says it is not receiving information from approximately 200 controlled groups for which 4010 reporting was required before MAP-21 and HATFA.

The agency is proposing to limit the availability of the $15 million aggregate underfunding waiver to controlled groups for which the aggregate number of participants in all defined benefit plans maintained by the controlled group is fewer than 500.

PBGC says this threshold would be similar to an exemption under section 4010.8(c) for plans with fewer than 500 participants from providing section 4010.11 actuarial information in a 4010 report. 

The agency is specifically requesting public comment about whether using a different participant count threshold or tying the $15 million aggregate underfunding waiver directly to non-stabilized rates would be more appropriate.

Text of the proposed rule is here.

«