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Sept. 19 — Frozen defined benefit pension plans have another year of relief from the tax code’s nondiscrimination requirements, the IRS announced.
The Internal Revenue Service plans to finalize rules that would apply primarily to closed defined benefit plans—plans that are still in operation but closed to new entrants, or apply a new kind of benefit formula to new entrants—and provide relief from nondiscrimination testing requirements if several conditions are met. The IRS is extending the relief for plan years beginning before 2018, the agency said in Notice 2016-57 issued Sept. 19.
Under the IRS’s nondiscrimination requirements, a retirement plan is considered qualified—that is, maintains its tax-preferred status—if the contributions or benefits provided under the plan don’t discriminate in favor of highly compensated employees.
The proposed rules that were released in January on this issue would allow large employers to continue closed defined benefit plans and maintain retirement expectations for employees in those plans with less fear of plan disqualification because of nondiscrimination requirements.
The proposed rules were criticized in a hearing in May, with witnesses saying they will only help a small percentage of frozen defined benefit plans.
The forthcoming final regulations are expected to allow plan sponsors to apply the provisions that specifically apply to closed plans for certain earlier plan years, the notice said.
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Notice 2016-57 is at http://src.bna.com/iGC.
Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.
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