IRS Expands Temporary Nondiscrimination Relief for Some Plans

IRS Expands Temporary Nondiscrimination Relief for Some Plans

Internal Revenue Service

The IRS has issued guidance (Notice 2019-60) providing that if a closed defined benefit plan meets specified conditions it is considered to have satisfied some of the nondiscrimination requirements of <a href="/research/federal/usc26/401#cpmb-0000006" resolve="/lr/resolve//cpmb#cpmb-0000006">section 401(a)(4)</a> regarding benefits, rights, and features. <a href="/lr/resolve//1ftr9">Notice 2014-5</a> allows some employers that sponsor a closed defined benefit plan and a defined contribution plan to demonstrate that the aggregated plans comply with the nondiscrimination requirements of <a href="/research/federal/usc26/401#cpmb-0000006" resolve="/lr/resolve//cpmb#cpmb-0000006">section 401(a)(4)</a> on the basis of equivalent benefits, even if the aggregated plans do not meet the current eligibility conditions for testing on that basis. <a href="/lr/resolve//29w2q">Notice 2019-49</a> last extended the temporary nondiscrimination relief provided in Notice 2014-5 by applying that relief to plan years beginning before 2021 if the conditions of Notice 2014-5 are met. Proposed regulations (<a href="/lr/resolve//1r3f1">REG-125761-14</a>) published in January 2016 provide relief for closed plans under the <a href="/research/federal/usc26/401#cpmb-0000006" resolve="/lr/resolve//cpmb#cpmb-0000006">section 401(a)(4)</a> rules and include other proposed nondiscrimination rules. The regs provide that taxpayers can apply some of its provisions (including provisions that apply specifically to closed plans) for specified plan years beginning before the proposed applicability date. The IRS and Treasury anticipate that the final regs will include many significant changes in response to comments and will provide that the reliance granted in the preamble to the proposed regs may be applied for plan years beginning before 2021. When a defined benefit plan is closed to new entrants it may provide for benefits, rights, or features that are not available to participants in other plans of the employer. For such a plan, the proposed regs provide relief from nondiscrimination testing for a benefit, right, or feature that is made available to a grandfathered group of employees. The relief is provided only if the plan amendment restricting the availability of the benefit, right, or feature resulted in a significant change in the type of the defined benefit plan's formula. The relief also is conditioned on compliance with requirements for plan amendments that may have occurred before the proposed regs were issued. Commentators have noted the need for relief for benefits, rights, and features for a plan that is closed to new entrants but has not undergone a significant change in the type of the plan’s benefit formula along with relief for plan amendments that occurred before the proposed regs were issued. Accordingly, Notice 2019-60 provides a closed defined benefit plan that generally meets the eligibility conditions for the temporary relief under <a href="/lr/resolve//1ftr9">Notice 2014-5</a> (as extended) with additional temporary relief from the requirements of <a href="/research/federal/cfr26/1.401a4-4" resolve="/lr/resolve//ctwp">reg. section 1.401(a)(4)-4</a> regarding the nondiscriminatory availability benefits, rights, or features. The temporary relief applies to a defined benefit plan providing ongoing accruals that was modified by an amendment adopted before December 13, 2013, to provide that only employees who participated in the defined benefit plan on a specified date continue to accrue benefits under the plan. The temporary relief applies for plan years ending after November 13, 2019, and beginning before January 1, 2021. The relief applies only if no amendment adopted after January 29, 2016, expands or restricts the eligibility for the benefit, right, or feature. If such an amendment has been adopted, then the post-amendment ratio percentage of the group of employees eligible for the benefit, right, or feature must not be less than the ratio percentage before the amendment.

The IRS has issued guidance (Notice 2019-60) providing that if a closed defined benefit plan meets specified conditions it is considered to have satisfied some of the nondiscrimination requirements of section 401(a)(4) regarding benefits, rights, and features.

The IRS has issued guidance (Notice 2019-60) providing that if a closed defined benefit plan meets specified conditions it is considered to have satisfied some of the nondiscrimination requirements of section 401(a)(4) regarding benefits, rights, and features. Notice 2014-5 allows some employers that sponsor a closed defined benefit plan and a defined contribution plan to demonstrate that the aggregated plans comply with the nondiscrimination requirements of section 401(a)(4) on the basis of equivalent benefits, even if the aggregated plans do not meet the current eligibility conditions for testing on that basis. Notice 2019-49 last extended the temporary nondiscrimination relief provided in Notice 2014-5 by applying that relief to plan years beginning before 2021 if the conditions of Notice 2014-5 are met. Proposed regulations (REG-125761-14) published in January 2016 provide relief for closed plans under the section 401(a)(4) rules and include other proposed nondiscrimination rules. The regs provide that taxpayers can apply some of its provisions (including provisions that apply specifically to closed plans) for specified plan years beginning before the proposed applicability date. The IRS and Treasury anticipate that the final regs will include many significant changes in response to comments and will provide that the reliance granted in the preamble to the proposed regs may be applied for plan years beginning before 2021. When a defined benefit plan is closed to new entrants it may provide for benefits, rights, or features that are not available to participants in other plans of the employer. For such a plan, the proposed regs provide relief from nondiscrimination testing for a benefit, right, or feature that is made available to a grandfathered group of employees. The relief is provided only if the plan amendment restricting the availability of the benefit, right, or feature resulted in a significant change in the type of the defined benefit plan's formula. The relief also is conditioned on compliance with requirements for plan amendments that may have occurred before the proposed regs were issued. Commentators have noted the need for relief for benefits, rights, and features for a plan that is closed to new entrants but has not undergone a significant change in the type of the plan’s benefit formula along with relief for plan amendments that occurred before the proposed regs were issued. Accordingly, Notice 2019-60 provides a closed defined benefit plan that generally meets the eligibility conditions for the temporary relief under Notice 2014-5 (as extended) with additional temporary relief from the requirements of reg. section 1.401(a)(4)-4 regarding the nondiscriminatory availability benefits, rights, or features. The temporary relief applies to a defined benefit plan providing ongoing accruals that was modified by an amendment adopted before December 13, 2013, to provide that only employees who participated in the defined benefit plan on a specified date continue to accrue benefits under the plan. The temporary relief applies for plan years ending after November 13, 2019, and beginning before January 1, 2021. The relief applies only if no amendment adopted after January 29, 2016, expands or restricts the eligibility for the benefit, right, or feature. If such an amendment has been adopted, then the post-amendment ratio percentage of the group of employees eligible for the benefit, right, or feature must not be less than the ratio percentage before the amendment.

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IRS Expands Temporary Nondiscrimination Relief for Some Plans