IRS Extends Nondiscrimination Relief for Closed DBs

The Internal Revenue Service (IRS) is extending the temporary nondiscrimination relief for closed defined benefit (DB) plans by making that relief available for plan years beginning before 2018, if certain conditions are satisfied.

In December 2013, the IRS released Notice 2014-5, which permitted certain employers that sponsor closed DB plans and also sponsor a defined contribution (DC) plan to demonstrate 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 individual testing on that basis. Last year, the IRS extended the relief for an additional year by applying that relief to plan years beginning before 2017, if the conditions of Notice 2014-5 are satisfied.

In January, the IRS proposed rules to help closed DB plans continue to satisfy minimum coverage and other testing requirements as grandfathered employees in the old system typically build seniority and become more highly compensated than younger workers entering the DC plan.

In Notice 2016-57, the agency noted that it is anticipated that the final regulations will not be published in time for plan sponsors to make plan design decisions based on the final regulations before expiration of the latest relief provided. That is why it is extending the relief for another year.