Final IRS regulations on hybrid pension plans give plan sponsors another year to bring interest-crediting rates down to market value.

Employers now have until the start of the 2017 plan year to lower above-market interest-crediting rates in cash balance, pension equity and other hybrid plans to market value, according to IRS regulations released late last week. The original deadline was the start of the 2016 plan year.

For example, in a cash balance plan, employers contribute a percentage of an employee’s annual salary to an account in the form of credits, and interest is earned in based on a fixed rate set by the employer, a variable rate tied to a 30-year Treasury bond or other index, or a market rate tied to the overall plan’s performance.

Following the IRS’ final regulations, employers with a cash balance plan with a fixed interest rate of 7% — considered above-market by the IRS — must lower the rate to 6%.

The IRS included in its regulations several other acceptable market-value rates for different types of hybrid plans.

“It’s a big deal, because a pretty basic part of pension law is once you’ve earned something you can’t cut it back,” said Alan Glickstein, Dallas-based senior retirement consultant with Towers Watson & Co.

This is a “rare exception” where employers are allowed, or rather required, to lower rates without violating anti-cutback rules, he said.

While it sounds like a simple fix, depending on the structure of a company’s cash balance plan, it will be tricky for some to comply, and “plan sponsors aren’t going to love communicating these amendments” to plan participants, Mr. Glickstein said.

The idea driving the IRS regulations is that above-market interest-crediting rates could constitute age discrimination, sources said.

For example, a cash-balance plan with an above-market rate could be considered to give a financial advantage to a 25-year-old plan member as opposed to a 60-year-old in the same plan, because the older worker has less time to benefit from the plan before retirement, explained Bruce Cadenhead, New York-based chief actuary for Mercer L.L.C.’s U.S. retirement business.

“Once you take your money out of the plan, you can only earn market rates,” he said.

While the rules are important, they only apply to “a small subset of plans,” Mr. Glickstein added. “The majority of cash balance plans don’t fall into the scope of this regulation.”