In a Notice, IRS has extended for one more year, i.e., for plan years beginning before 2021, previously provided temporary relief with respect to the rules that require that qualified plans not discriminate in favor of highly compensated employees.
Background. Notice 2014-5, 2014-2 IRB 276, provides temporary nondiscrimination relief for certain “closed” defined benefit pension plans (that is, defined benefit 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). Specifically, for plan years beginning before 2016, that Notice permits a defined benefit/defined contribution (DB/DC) plan that includes a closed defined benefit plan (that was closed before December 13, 2013) and that satisfies certain conditions set forth in the Notice to demonstrate satisfaction of the nondiscrimination-in-amount requirement of Reg § 1.401(a)(4)-1(b)(2) on the basis of equivalent benefits even if the DB/DC plan does not meet any of the existing eligibility conditions for testing on that basis under Reg § 1.401(a)(4)-9(b)(2)(v).
Notice 2015-28, 2015-14 IRB 848, Notice 2016-57, 2016-40 IRB 432, Notice 2017-45, 2017-38 IRB 232, and Notice 2018-69, 2018-37 IRB 426, extend the temporary nondiscrimination relief provided in Notice 2014-5 by applying that relief to plan years beginning before 2020 if the conditions of Notice 2014-5 are satisfied. Notice 2015-28 further provides that, during the period for which the extension applies, the remaining provisions of the nondiscrimination regs under Code Sec. 401(a)(4) continue to apply.
Proposed regs relating to nondiscrimination requirements for closed plans were published in the Federal Register on January 29, 2016 (Preamble to Prop Reg REG-125761-14, 81 FR 4976). The proposed regs set forth relief for closed plans under Reg § 1.401(a)(4)-4, Reg §1.401(a)(4)-8, and Reg §1.401(a)(4)-9 (subject to satisfaction of certain conditions set forth in the regs) and contain other proposed nondiscrimination rules. The regs are proposed to apply generally to plan years beginning on or after the date of publication of the final regs. The proposed regs provide that taxpayers are permitted to apply certain provisions of the proposed regs (including all of the provisions that apply specifically to closed plans) for certain plan years beginning before the proposed applicability date.
IRS creates an additional extension. IRS anticipates that the final regs will not be published in time for plan sponsors to make plan design decisions based on the final regs before expiration of the relief provided under Notice 2014-5 (as last extended by Notice 2018-69).
IRS has therefore extended the temporary nondiscrimination relief for closed plans that is provided in Notice 2014-5 to plan years beginning before 2021 if the conditions of Notice 2014-5 are satisfied.
This extension is provided in anticipation of the issuance of final amendments to the Code Sec. 401(a)(4) regs. In addition, IRS expects that the final regs will provide that the reliance granted in the preamble to the proposed regs may be applied for plan years beginning before 2021.