Loopholes in the rules or how the IRS learned to love Cash Balance Plans

I was at a 401(k) Rekon last week in Bridgewater, New Jersey, speaking in front of 50+ advisors. When my good friend, Carlos Tariche of Kravitz gave a speech on Cash Balance Plans and how they started in 1985 and were only finally approved in the Pension Protection Act of 2006, I got a chuckle.

I got a chuckle because as an ERISA attorney, working with clients and third party administrators (TPA), you always read the rules of the Internal Revenue code and try to abide by them. What we fail to remember is that so many of the changes that have happened to retirement plans were not because of legislation, but because of an interpretation of the rules by someone who fought to have their interpretation approved. For so long, the word on the street is that the Internal Revenue Service was against cash balance plans and conversions of defined benefit plans to cash balance. For years, the IRS had no process to approve cash balance plans.

The same was true of new comparability/cross tested allocation. I remember when I first started work in the industry in 1998 and looking at a plan with a cross tested allocation. The language in the plan amendment was pure gibberish.  Thank G-d for the ne comparability regulations and the minimum gateway which simplified the allocation formula language in a plan that offers it.

Automatic enrollment is a euphemism for negative election which the Internal Revenue Service only accepted in a 1998 Revenue Ruling and finally codified in the Pension Protection Act of 2006.

So forget about legislation, much of the changes in the laws regarding retirement plans have resulted from someone taking an interpretation of the Code and fighting the Internal Revenue Service until the IRS finally learned to love it. So before you dismiss a new way of thinking with retirement plans, it might be setting the rules tomorrow.