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An Internal Revenue Service ruling on an adjustable pension plan (APP) model negotiated by the New York Times Co. and the Newspaper Guild of New York will benefit both the plan sponsor and its employees, according to the parties.
The letter ruling, dated June 18, 2014, was welcomed by the Newspaper Guild, which represents journalists as well as advertising, circulation and other news professionals. The ruling resolves an uncertainty with respect to a particular design formula that can be used to customize the APP—also known as a variable defined benefit (VDB) plan—to meet the needs of plan sponsors.
The Newspaper Guild and the Times Co. reached an agreement in 2012 to terminate their traditional defined benefit plan in favor of an APP model. The IRS approval enables them to move forward without concerns about the legal status of the new plan. The IRS has already ruled favorably on other questions about the APP’s compatibility with the Employee Retirement Income Security Act (ERISA).
“We are pleased that the IRS has again supported efforts by plan sponsors to find a middle ground between traditional pensions and defined contribution plans, such as 401(k) plans,” said Gene Kalwarski, CEO and a principal consulting actuary with Cheiron, a national actuarial firm that co-developed the APP model, in a separate statement. “We believe the risk-sharing structure of the APP provides a win/win for defined benefit plan sponsors and employees.”
The IRS pronouncement represents “a major step in allowing employers to consider the APP as a potential alternative to defined contribution plans,” Kalwarski added.
The APP’s central feature is a balancing of risk between the employer and plan participants that does not exist with traditional pensions, according to Cheiron. That high risk exposure for employers under the traditional pension design has been the driver of the steady decline in pension sponsorship, particularly in the single-employer private-sector realm.
“The risk-sharing structure of the APP gives employers that take interest in their employees’ retirement income security a way to stop short of delegating retirement funding responsibility to their employees—many of whom are ill-equipped for the task,” said Rich Hudson, a principal consulting actuary at Cheiron.
Stephen Miller, CEBS, is an online editor/manager for SHRM. Follow him on Twitter @SHRMsmiller.
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