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IRS Ruling on Hybrid Pension Plan Is Favorable to Employers and Workers, States Consultant Cheiron

Risk-Sharing Structure Guarantees Minimum Benefit for Employees, Limits Financial Risk for Defined Benefit Plan Sponsors

WASHINGTON, DC -- (Marketwired) -- 06/24/14 -- The recent ruling on the Adjustable Pension Plan (APP) model by the Internal Revenue Service will benefit both plan sponsors and employees, according to Cheiron, a co-developer of the APP model. The ruling resolves an uncertainty with respect to a particular design formula that can be used to customize the APP (AKA Variable Defined Benefit (VDB) Plan) to meet the needs of plan sponsors. Cheiron is a national actuarial consulting firm.

The specific ruling was in response to an approval request from the Newspaper Guild of New York and The New York Times. The two entities reached an agreement in 2012 to terminate their traditional defined benefit plan in favor of an APP model Cheiron helped to design. 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 ERISA, the federal law governing retirement and welfare plans.

"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, the national actuarial consulting firm. "We believe the risk-sharing structure of the APP provides a win/win for defined benefit plan sponsors and employees," he added.

The first APP was developed by Cheiron executives working with David Blitzstein, special assistant for multiemployer funds at the United Food and Commercial Workers International Union; Skip Halpern of Gallagher Fiduciary Advisors LLC; and Barry Slevin, president of law firm Slevin & Hart PC.

Cheiron has already assisted several clients in adopting it. The APP can work for private corporations, labor union-based multi-employer plans as well as public employers. The latest ruling may have greatest appeal to companies that are the sole sponsor of their pension plan and offers a unique solution for some defined benefit plan sponsors who are struggling with their current programs.

The IRS pronouncement is a major step in allowing employers to consider the APP as a potential alternative to defined contribution plans.

The APP's central feature is a balancing of risk between the employer and plan participants that does not exist with traditional pensions. 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 who focuses on helping clients take advantage of the APP's flexibility.

Delegating that responsibility is what occurs when employers terminate pensions, and offer only a defined contribution plan to replace the pension.

About Cheiron
Cheiron is an employee-owned, full-service actuarial and financial consultancy advising a national client base of public employers, Taft-Hartley plans, non-profits and corporations primarily in the areas of pension and health benefits. Cheiron consultants, with an average of 22 years of experience, help clients identify, measure, monitor and address financial risks. Founded in November 2002, Cheiron maintains offices in nine locations across the U.S. Additional information may be found at www.cheiron.us.

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