Closed pension plans get nondiscrimination relief

Tax Hot Topics newsletter The IRS has issued guidance (Notice 2019-60) providing additional temporary nondiscrimination relief for closed defined benefit (DB) plans.

DB plans are generally subject to nondiscrimination rules to prevent the plan from favoring highly compensated employees (HCEs). A closed DB plan is one that provides ongoing benefit accruals, but has been amended to limit those accruals to some or all of the employees who participated in the plan on a specified date. Closed DB plans may not be able to satisfy the nondiscrimination requirements because of the likelihood that existing plan participants may become HCEs over time. A closed DB plan may also provide benefits to existing participants that are not available to participants of an employer’s other plans.

Notice 2014-5 enabled employers who sponsored both a closed DB plan and a defined contribution plan to aggregate both plans to satisfy the nondiscrimination requirements. Notice 2019-49 extended the temporary nondiscrimination relief in Notice 2014-5 to plan years beginning before 2021 if the conditions of Notice 2014-5 were met. Proposed regulations published in 2016 provided additional temporary relief from nondiscrimination testing for closed DB plans, provided that any plan amendment restricting the availability of plan benefits also resulted in a significant change to the plan benefit formula. Closed DB plans that did not change the plan benefit formula were not eligible for this relief. To address this issue, Notice 2019-60 extends nondiscrimination relief for these plans as follows:

  • Closed DB plans that did not have a benefit formula change are deemed to satisfy the nondiscrimination requirements, provided certain conditions are met regarding eligibility for benefits under the plan.
  • Closed DB plans are generally eligible for relief under Notice 2019-60 if they are also eligible for relief under Notice 2014-5.
  • This new nondiscrimination relief applies for plan years ending after Nov. 13, 2019, and beginning before Jan. 1, 2021.

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

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