IRS Extends Temporary Nondiscrimination Relief for Closed DB Plans
The IRS has announced that it is extending the temporary nondiscrimination relief for closed defined benefit plans.
The IRS made the announcement
in Notice 2017-45, which says that the IRS has extended the relief provided in Notice 2014-5
by making that relief available for plan years beginning before 2019 if the conditions of Notice 2014-5 are satisfied.
Notice 2014-5 provides temporary nondiscrimination relief for certain closed DB plans (i.e., DB plans that provide ongoing accruals but that have been amended to limit those accruals to some or all of the employees who participated in the plan on a specified date). It permits certain employers that sponsor a closed DB plan and a defined contribution plan to demonstrate that the aggregated plans comply with the nondiscrimination requirements of Internal Revenue Code Section 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.
In Notice 2014-5, the Treasury Department and the IRS also said that they were considering whether the regulations under Code Section 401(a)(4) should be amended to provide additional alternatives that would allow a DB/DC plan to demonstrate that it has satisfied the nondiscrimination in amount requirement of Treas. Reg. §1.401(a)(4)-1(b)(2) on the basis of equivalent benefits. It also describes possible alternatives that would allow for such combined testing on the basis of equivalent benefits and requested comments on whether or not any of these additional alternatives should be made available, and whether there are any other alternatives that should be considered.
ASPPA and ACOPA submitted a comment letter
on Notice 2014-5 on Feb. 28, 2014. In the letter, ASPPA and ACOPA say that in situations in which the “primarily DB” or “broadly available” criteria of Treas. Reg. §1.401(a)(4)- 9(b)(2)(v)(B) or (C) are not met, the current gateway structure of Treas. Reg. §1.401(a)(4)-9(b)(2)(v)(D) has allowed for flexibility in design, while providing meaningful benefits for non-highly compensated employees (NHCEs). “The gateway regulations have served the purpose they were intended to serve, and the gateway structure should be preserved,” they write.
The IRS issued Notice 2017-45 in anticipation of the issuance of final amendments to the Code Section 401(a)(4) regulations. The IRS intends that the final regulations will provide that the reliance granted in the preamble to the proposed regulations may be applied for plan years beginning before 2019.
Notice 2017-45 will appear in Internal Revenue Bulletin 2017-38, which will be issued on Sept. 18, 2017.