By Pension and Benefits Editorial Staff
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). Thus, the temporary relief is available for plan years beginning before 2021, if the conditions of Notice 2014-5 are satisfied.
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 provided that, while possible regulatory changes to the nondiscrimination rules were considered, the IRS would permit certain employers that sponsor a closed DB plan and a DC plan to demonstrate that the aggregated plans complied with the nondiscrimination requirements of Code Sec. 401(a)(4) on the basis of equivalent benefits, even if the aggregated plans did not satisfy the current conditions for testing on that basis, if certain conditions were met. Specifically, for plan years beginning before 2016, Notice 2014-5 permitted a DB/DC plan that included a closed DB plan that was closed before December 13, 2013 and that satisfied 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 did not meet any of the existing eligibility conditions for testing on that basis under IRS Reg. §1.401(a)(4)-9(b)(2)(v).
IRS Notice 2015-28 extended 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 were satisfied. In addition, IRS Notice 2016-57 provided an extension to plan years beginning before 2018, IRS Notice 2017-45 provided an extension to plan years beginning before 2019, and IRS Notice 2018-69 extended the relief to plan years beginning before 2020. During the period that the extension applied, the remaining provisions of the nondiscrimination regulations under Code Sec. 401(a)(4) continued to apply.
The IRS issued proposed regulations under Code Sec. 401(a)(4) relating to nondiscrimination requirements for closed plans on January 29, 2016 that will apply to plan years beginning on or after the publication of final regulations. The IRS notes that many comments have been submitted, and the IRS expects that the final regulations will include several significant changes in response to the comments. The IRS does not expect final regulations to be issued in time for plan sponsors to make plan design decisions based on the final regulations before expiration of the existing relief as currently extended. Therefore, the relief provided in Notice 2014-5 is being extended for another year, to plan years beginning before 2021, provided that the conditions of Notice 2014-5 are satisfied. The IRS states that it intends that the final regulations will provide that the reliance granted in the proposed regulations’ preamble may be applied for plan years beginning before 2021.
SOURCE: IRS Notice 2019-49.
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