IRS Notice 2018-69 Extends Temporary Nondiscrimination Relief for Closed Defined Benefit Plans Through 2019 | Practical Law
IRS Notice 2018-69 Extends Temporary Nondiscrimination Relief for Closed Defined Benefit Plans Through 2019 | Practical Law
The Internal Revenue Service (IRS) issued Notice 2018-69, which extends through 2019 the nondiscrimination relief for closed defined benefit plans provided in IRS Notice 2014-5 and extended by Notices 2015-28, 2016-57, and 2017-45.
The Internal Revenue Service (IRS) issued Notice 2018-69, which extends through 2019 the nondiscrimination relief for closed defined benefit plans provided in IRS Notice 2014-5 and extended by Notices 2015-28, 2016-57, and 2017-45.
On August 24, 2018, the IRS issuedNotice 2018-69, which extends through 2019 the nondiscrimination relief for closeddefined benefit plansprovided inIRS Notice 2014-5and extended by Notices 2015-28, 2016-57, and 2017-45.
Previous IRS Relief
Over the last four years the IRS has provided nondiscrimination relief to closed defined benefit plans. Closed defined benefit plans limit ongoing accruals to some or all of the employees who participated in the plan on a certain date, also referred to as a "soft freeze" (for more information, seePractice Note, Freezing Defined Benefit Plans: Types of Defined Benefit Plan Freezes).
Notice 2018-69extends the temporary nondiscrimination relief for closed defined benefit plans to plan years beginning before 2020 if the requirements of Notice 2014-5 are satisfied. The IRS is extending nondiscrimination relief for an additional year because it anticipates that the final regulations under Code Section 401(a)(4) providing nondiscrimination relief for closed defined benefit plans will not be published in time for plan sponsors to make plan design decisions before the expiration of the nondiscrimination relief provided underNotice 2014-5, as extended by Notice 2017-45. The IRS received many comments on the proposed regulations and it expects that the final regulations will include a number of significant changes in response to those comments.
The IRS expects the final nondiscrimination regulations to provide that the reliance granted in the preamble to the proposed regulations may be applied for plan years beginning before 2020.
Practical Implications
DB/DC plans usually will fail to meet the nondiscrimination requirements of CodeSection 401(a)(4)unless plan sponsors are permitted to demonstrate compliance with the nondiscrimination rules on the basis of equivalent benefits.Notice 2018-69provides an additional year for closed defined benefit plans to comply with the nondiscrimination requirements of CodeSection 401(a)(4)on the basis of equivalent benefits, even if the plans do not satisfy the current conditions for testing on that basis.
Sponsors of closed defined benefit plans that have been aggregated with defined contribution plans should:
Take note of the extension of temporary nondiscrimination relief provided by Notice 2018-69.
Expect the IRS to issue final regulations under Code Section 401(a)(4) in the near future that will provide similar relief.