Pension & Benefits News IRS provides additional temporary nondiscrimination relief for closed defined benefit plan
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Wednesday, December 18, 2019

IRS provides additional temporary nondiscrimination relief for closed defined benefit plan

By Pension and Benefits Editorial Staff

The IRS has provided additional temporary nondiscrimination relief for certain closed defined benefit plans concerning benefits, rights, or features. Closed defined benefit plans are plans that are closed to new entrants as of a specified date, but continue to provide ongoing accruals for existing participants. The temporary relief applies for plan years ending after November 13, 2019, and beginning before January 1, 2021.

Prior temporary relief. Under IRS Notice 2014-5, for plan years beginning before 2016, a defined benefit/defined contribution plan that includes a closed defined benefit plan that was closed before December 13, 2013, may satisfy nondiscrimination requirements on the basis of equivalent benefits without being required to satisfy the minimum aggregate allocation gateway. A series of notices extends this relief most currently to plan years beginning before 2021 (see IRS Notice 2019-49).

The IRS also has 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 proposed regulations provide relief from nondiscrimination testing with respect to a benefit, right, or feature that is made available only to a grandfathered group of employees with respect to a closed plan. 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. Thus, for plan years beginning before January 1, 2021, plans may apply the nondiscrimination testing relief in Notice 2014-5 (as extended), as well the proposed regulations relating to nondiscrimination for closed plans.

Need for relief. Neither Notice 2014-5 nor the proposed regulations provide relief for a defined benefit plan that is closed to new entrants but has not undergone a change in benefit formula with respect to existing participants. In addition, the relief in the proposed regulations relating to benefits, rights, or features is conditioned on compliance with requirements relating to plan amendments that may have occurred long before the proposed regulations were issued.

New temporary relief for closed plans. The new temporary relief applies to a plan if it is a defined benefit plan providing ongoing accruals that was amended, 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. Note that the last plan year for which the new temporary relief applies is the same as the last plan year for which the relief under Notice 2014-5 (as extended) applies. Also, unlike Notice 2014-5, eligibility for the new temporary relief does not depend on the method used to satisfy the nondiscrimination requirements for the plan year beginning in 2013.

The plan is treated as satisfying both the current availability and the effective availability rules for nondiscriminatory availability of benefits, rights, and features for the plan year with respect to a benefit, right, or feature that was provided under the plan at the time of the above-mentioned amendment. This relief applies only if either:

  • No amendment adopted after January 29, 2016 expands or restricts the eligibility for the benefit, right, or feature; or
  • If any such amendment has been adopted, then as of the applicable amendment date for that amendment, the post-amendment ratio percentage of the group of employees eligible for the benefit, right, or feature was not less than the pre-amendment ratio percentage of the group of employees eligible for the benefit, right, or feature.

Source: IRS Notice 2019-60.

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