IRS extends temporary nondiscrimination relief for closed DB plans


The IRS has extended for an additional year the temporary relief provided in IRS Notice 2014-5 for certain closed defined benefit (DB) pension plans (i.e., plans that are closed to new entrants as of a specified date, but continue to provide ongoing accruals for existing participants). Closing a DB plan can often coincide with an amendment that provides new or greater contributions under a defined contribution (DC) plan that is intended to replace accruals under the DB plan for new hires or other employees to whom the DB plan is closed.

In Notice 2014-5, the IRS provides that, while possible regulatory changes to the nondiscrimination rules are considered, the IRS will permit certain employers that sponsor a closed DB plan and a DC plan to demonstrate that the aggregated plans comply with the nondiscrimination requirements of Code Sec. 401(a)(4) on the basis of equivalent benefits, even if the aggregated plans do not satisfy the current conditions for testing on that basis, if certain conditions are met. Specifically, for plan years beginning before 2016, Notice 2014-5 permits a DB/DC plan that includes a closed DB plan that was closed before December 13, 2013 and that satisfies certain conditions, to demonstrate satisfaction of the nondiscrimination-in-amount requirement of IRS Reg. §1.401(a)(4)-1(b)(2) on the basis of equivalent benefits, even if the plan does not meet any of the existing eligibility conditions for testing on that basis under Reg. §1.401(a)(4)-9(b)(2)(b).

The new notice extends the temporary nondiscrimination relief for an additional year by applying that relief to plan years beginning before 2017, if the conditions of Notice 2014-5 are satisfied. During the period that this extension applies, the remaining provisions of the nondiscrimination regulations under Code Sec. 401(a)(4) continue to apply. The IRS explains that it anticipates issuing proposed amendments to the Code Sec. 401(a)(4) regulations that would be finalized and applicable after the relief provided in Notice 2014-5 and the new notice expires.

Source: IRS Notice 2015-28.

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