Nondiscrimination Relief for Closed Defined Benefit Plans Extended

By Alistair M. Nevius, J.D.

Employers that sponsor both a closed defined benefit plan and a defined contribution plan will be allowed to continue to use the aggregated plans to comply with the nondiscrimination requirements of Sec. 401(a)(4) under guidance issued by the IRS on Monday (Notice 2016-57). This relief, which was first issued in Notice 2014-5, will now be available for plan years beginning before 2017, as long as the plan satisfies the conditions of Notice 2014-5. The remaining provisions of the nondiscrimination regulations under Sec. 401(a)(4) continue to apply.

Closed defined benefit plans provide ongoing accruals but have been amended to limit those accruals to some or all of the employees who participated in the plan on a certain date. Often defined benefit plans are closed when an employer switches to a defined contribution plan.

Earlier this year, the IRS issued proposed regulations (REG-125761-14) that would allow employers to maintain closed defined benefit plans without running afoul of the nondiscrimination rules. Those regulations would generally apply to plan years beginning after they are adopted as final, and the IRS does not anticipate finalizing them before the relief issued in Notice 2014-5 would have expired, so it is extending the relief for one more year.

Alistair Nevius (anevius@aicpa.org) is The Tax Adviser’s editor-in-chief, tax.

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