Employers Still Await Final Rules on Interest Crediting Rates, Watson Wyatt Says WASHINGTON, Nov. 18 /PRNewswire-FirstCall/ -- Sponsors of hybrid pension plans can take some comfort in the relief issued by the Internal Revenue Service (IRS) last week, which provides some employers with a one-year reprieve to comply with forthcoming interest rate rules. A survey by Watson Wyatt, a leading global consulting firm, found that a majority of hybrid plan sponsors say clarifying what defines a permissible rate of interest is a top priority for them. Hybrid plans are defined benefit (DB) plans in which benefits, which accrue under a predetermined formula as in traditional DB plans, are defined as a lump-sum account balance rather than a monthly benefit. Cash balance plans are the most common type of hybrid plan. Although the Pension Protection Act of 2006 (PPA) requires that, effective 2008, interest credited to cash balance accounts not exceed a "market rate of return," final regulations defining that market rate have yet to be issued. The IRS announcement said it expects to issue additional proposed and final regulations in the near future on the market rate of interest. It also said employers will have until the first day of the 2011 plan year to comply with the new regulations. If the regulations require a reduction in the interest rate, that plan change will be granted relief from rules that otherwise prohibit a reduction in the value of accrued benefits. Under the PPA, this relief was to expire as soon as the end of 2009. "This is good news and comes as welcome relief for many employers," said Alan Glickstein, senior retirement consultant at Watson Wyatt. "While this relief provides some breathing room for employers, they remain anxious to see what the final regulations say and how compliance from 2008 through 2010 will be handled." A Watson Wyatt survey of 76 companies that sponsor hybrid plans, conducted from February through June 2009, found that clarifying the market rate of return standard is the highest priority for sponsors, with 62 percent finding it somewhat or very important. Next in importance is a clarification of a reasonable, good-faith standard for PPA requirements for periods prior to the effective date of regulatory guidance. "Many companies find hybrid plans appealing because their funding is more predictable and they are easier to explain to employees than traditional DB plans," said Kevin Wagner, senior retirement consultant at Watson Wyatt. "Given the exposed weaknesses of 401(k) plans, employers would be more likely to adopt hybrid plans if they were supported by clearly defined regulatory guidance around their implementation. The promise of the hybrid plan support in the PPA will be realized only when final regulations are published." Read more: http://www.watsonwyatt.com/hybridplanrelief. About Watson Wyatt Watson Wyatt (NYSE:WWNASDAQ:WW) is the trusted business partner to the world's leading organizations on people and financial issues. The firm's global services include: managing the cost and effectiveness of employee benefit programs; developing attraction, retention and reward strategies; advising pension plan sponsors and other institutions on optimal investment strategies; providing strategic and financial advice to insurance and financial services companies; and delivering related technology, outsourcing and data services. Watson Wyatt has 7,500 associates in 33 countries and is located on the Web at http://www.watsonwyatt.com/. DATASOURCE: Watson Wyatt CONTACT: Steve Arnoff of Watson Wyatt, +1-703-258-7634, , or Ed Emerman for Watson Wyatt, +1-609-275-5162, Web Site: http://www.watsonwyatt.com/

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