AAA comment letter on backloading FINAL

Internal Revenue Service September 24, 2008 CC:PA:LPD:PR (REG-100464-08), Room 5203 P.O. Box 7604 Ben Franklin Station Washington, DC 20044 Re: Proposed Regulations (REG-100464-08) Providing Guidance on the Section 411(b) Accrual Rules To Whom It May Concern: 1On behalf of the American Academy of Actuaries Pension Committee, I respectfully request your consideration of its comments regarding the proposed regulations providing guidance on the application of the accrual rule for defined benefit plans under section 411(b)(1)(B) of the Internal Revenue Code in cases where plan benefits are determined on the basis of the greatest of two or more separate formulas. The proposed regulations represent a positive step forward in addressing a design issue critical to many defined benefit plans. Background The accrual rules under Code section 411(b) are designed to prevent the “backloading” of benefits; otherwise, the vesting rules could be effectively circumvented. Three tests are available: the 3 percent method, the 133 1/3 percent rule, and the fractional rule. Frequently when pension plans are changed, various grandfathering techniques are employed; often, employees nearing retirement are granted the greater of the old and new formulas. However, such multiple-formula situations have created confusion in terms of satisfaction of the accrual rules. 1 The American Academy of Actuaries is ...