Section 348 of the SECURE Act 2.0 (SECURE 2.0) clarifies certain interest crediting rules applicable to cash balance plans.
Cash balance plans are a form of defined benefit plan under which benefits are described in terms of lump sum balances, and typically provide more generous benefits for older and longer-tenure employees than for younger employees.
This practice, known as “backloading,” must comply with tests that limit how much greater the benefit can be for older employees than for younger employees.
Section 348 clarifies that, for purposes of the applicable backloading tests, cash balance plans can apply a “reasonable projection” of actual projected returns, subject to a maximum of 6 percent.
This provision clarifies uncertainty surrounding the application of the backloading tests, and the maximum rate of 6 percent is expected to allow more cash balance plans to offer higher benefit rates to older, longer tenure employees.
This change to the cash balance rules is effective immediately.
If you have any questions about SECURE 2.0, please contact a member of the Schneider Downs Retirement Solutions team at [email protected].
This article is part of a series highlighting the impact of the SECURE 2.0 on retirement plan sponsors, participants and retirees. You can view our full catalog of SECURE 2.0 articles here or download our comprehensive SECURE 2.0 eBook here.
About SECURE 2.0
SECURE 2.0 was signed into law by President Biden on Dec. 29, 2022, as part of a $1.7 trillion omnibus spending bill.
This massive piece of legislation builds on the foundation that was laid by the 2019 Setting Every Community Up for Retirement Enhancement (SECURE) Act to further improve upon the success of the private employer-based retirement system by making it easier for businesses to offer retirement plans and for individuals to save for retirement.
Schneider Downs Retirement Solutions has experience in all facets of qualified and non-qualified plan delivery, which allows us to be flexible to the needs and direction of our clients. Our specialized team of advisers and consultants provide objective advice and expertise to help plan sponsors govern their retirement plans appropriately, mitigate risk, improve participant outcomes and support efficient and compliant plan operations.
Schneider Downs Wealth Management Advisors, LP (SDWMA) is a registered investment adviser with the U.S. Securities and Exchange Commission (SEC). SDWMA provides fee-based investment management services and financial planning services, along with fee-based retirement advisory and consulting services. Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice. Registration with the SEC does not imply any level of skill or training.
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Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.