Part 7 · Chapter 2

Cash Balance and Hybrid Plan Design, and §417(e) Lump-Sum Assumptions

Law stated as of October 3, 2026 · Defined Benefit and Hybrid Plans

Scope and status

This chapter covers statutory hybrid plans (cash balance and pension equity designs) — the §411(b)(5) age-discrimination and market-rate-of-return rules, §411(a)(13) vesting/whipsaw relief, conversion protections, and the SECURE 2.0 §348 backloading fix — plus the §417(e) minimum-present-value assumptions, the §415(b) limit as applied to DB benefits, and the active actuarial-equivalence litigation. The §417(e) and §415 inputs are reissued or indexed annually, and the actuarial-equivalence case law is moving — verify before relying on them.

Citations are to primary authority (Code §§411(a)(13), 411(b), 415(b), 417(e); ERISA §§203(f), 204(b), 205; the hybrid-plan regulations (T.D. 9505, T.D. 9693, T.D. 9743); Treas. Reg. §1.417(e)-1; and annual IRS notices). For funding/§436, see this Part's funding chapter; annuity purchases to the pension risk transfer chapter; DB nondiscrimination testing (including cash-balance cross-testing and closed-plan relief) to Part 5 (Qualified Plan Testing, Eligibility, and Vesting); QJSA/QPSA election and spousal-consent mechanics to Part 6 (Distributions, Loans, Rollovers, and RMDs); and conversion amendments/§204(h) notices to Part 2 (Plan Documents, Amendments, Mergers, and Terminations).

Sections

The opening sections of Part A are shown in full. The other sections are listed by title; their text is available to subscribers.

Part A — Accrual Rules and Hybrid Design (§411(b), §411(b)(5), §411(a)(13))

A1.Anti-backloading baseline and the SECURE 2.0 §348 fix

Part 7, ch. 2, § A1

Every DB plan (hybrids included) must satisfy one of the three §411(b)(1) accrual rules — the 3% rule, the 133⅓% rule, or the fractional rule; cash balance plans almost always test under the 133⅓% rule (no year's accrual rate may exceed any prior year's by more than a third). Statute: Code §411(b)(1); ERISA §204(b)(1). Recent change a plan with age- or service-graded pay credits and a variable interest crediting rate historically risked failing 133⅓% if the variable rate fell near zero; SECURE 2.0 §348 now lets the plan test using a reasonable projection of the variable rate, capped at 6% — eliminating the need for a fixed minimum crediting floor. IRS Notice 2024-2 (Q&As) confirms the projection approach and grants §411(d)(6) anti-cutback relief for amendments "pursuant to" §348 (e.g., switching a graded-pay-credit plan from a fixed to a variable rate), provided the participant's accumulated benefit at the amendment date is not reduced. Statute: SECURE 2.0 §348; IRS Notice: Notice 2024-2. IRS Notice: Notice 2024-2.

A2.Age discrimination — §411(b)(1)(H) and the §411(b)(5) safe harbor

Part 7, ch. 2, § A2

A DB plan may not cease or reduce the rate of benefit accrual because of age. Pre-PPA, plaintiffs argued a cash balance plan's age-declining value of equal pay credits violated this; the Seventh Circuit rejected the theory, and the PPA resolved it prospectively: a plan satisfies the age rules if each participant's accumulated benefit (expressible as the hypothetical account balance) is at least that of any similarly situated, younger participant. Statute: Code §411(b)(1)(H), §411(b)(5)(A) (periods after June 29, 2005); Case law: Circuit — Cooper v. IBM Personal Pension Plan, 457 F.3d 636 (7th Cir. 2006); Final reg: Treas. Reg. §1.411(b)(5)-1 (T.D. 9505 (2010), T.D. 9693 (2014)).

A3.Market rate of return and preservation of capital

Part 7, ch. 2, § A3

A statutory hybrid plan's interest crediting rate may not exceed a market rate of return. The regulations are an exclusive list of permitted rates: the §430/§417(e) segment rates and yield-curve-based bond rates (with specified margins), Treasury-based rates, the actual rate of return on plan assets (if diversified), a RIC (mutual fund) rate that is not significantly more volatile than the broad market, a fixed rate up to 6%, and specified combinations — including an annual floor of up to 4% on the segment rates or 5% on the other bond-based rates, and a cumulative floor of up to 3%. Every hybrid plan must also satisfy preservation of capital: at annuity commencement the account may not be less than the sum of principal credits. Statute: Code §411(b)(5)(B)(i); Final reg: Treas. Reg. §1.411(b)(5)-1(d) (T.D. 9693). A plan crediting a noncompliant rate had to be amended to a compliant rate under the special transition relief treating the correction as not a §411(d)(6) cutback. Final reg: T.D. 9743 (2015).

A4Conversions — the A+B rule and legacy wear-away exposureSubscribers
A5Vesting and whipsaw relief — §411(a)(13)Subscribers
A6Pension equity and variable annuity designsSubscribers
A7Design-adjacent rules — NRA, in-service at 59½, and testing routesSubscribers

Part B — §417(e) Minimum Present Value

B1Scope and the floorSubscribers
B2Applicable interest rate — segment rates, stability period, lookbackSubscribers
B3Applicable mortality tableSubscribers
B4Bifurcation and partial lump sumsSubscribers
B5Actuarial-equivalence litigation — reasonableness of plan conversion factorsSubscribers
B6The restricted top-25 (high-25) ruleSubscribers

Part C — §415(b) Limits on DB Benefits

C1The dollar and compensation limits — 2026 figuresSubscribers
C2Form and age adjustmentsSubscribers

The first Part of each chapter is open to everyone. The remaining sections, with their authority and practice points, are available to subscribers and to clients of ERISA Benefits Law Group, PLLC whose engagement includes access.