IRS extends temporary nondiscrimination relief for closed defined benefit plans

In Notice 2017-45, the IRS extends the temporary nondiscrimination relief originally provided in Notices 2014-5, 2015-28 and 2016-57 for certain “closed” defined benefit pension plans.

Closed defined benefit pension plans are plans that 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 specified date. The employees to whom a defined benefit plan is closed are often generally covered by a defined contribution plan maintained by their employer. In many cases, a defined benefit plan covers a higher number of highly compensated employees than a defined contribution plan, making it difficult or impossible for a defined benefit plan to satisfy coverage and nondiscrimination requirements. However, a defined benefit plan can often comply with the requirements if the defined benefit and defined contribution plans are tested together as if they were one defined benefit plan, with the contributions in the defined contribution plan converted to equivalent benefits for testing persons (“aggregated plan testing”). Current IRS regulations require that one of three alternative conditions be satisfied in order to test on that basis. Employers are finding it difficult to satisfy any of the three conditions.

Notice 2014-5 provided relief for plan years that begin before Jan. 1, 2016, by relaxing two of the conditions, and by adding one additional alternative condition, in order to enable more employers to qualify for aggregated plan testing. The conditions for aggregated plan testing are complex in nature, and a description of the conditions is beyond the scope of this summary discussion.

The relief provided by Notice 2014-5 was further extended by Notices 2015-28 and 2016-57. In Notice 2017-45, the IRS announced that the relief is now being extended for plan years that begin before Jan. 1, 2019. The relief was previously set to apply for plan years that begin before Jan. 1, 2018. Thus, the relief has been extended by one year.

Eddie Adkins
Partner, Washington National Tax Office
T +1 202 521 1565

Jeffrey Martin
Partner, Washington National Tax Office
T +1 202 521 1526

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