In Notice 2015-28, the IRS extended the temporary nondiscrimination relief originally provided in Notice 2014-5 for certain “closed” defined benefit pension plans.
Closed defined benefit pension plans are defined benefit 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 the defined benefit plan is closed are often generally covered by a defined contribution plan maintained by the employer.
In many cases, the defined benefit plan covers more highly compensated employees than the defined contribution plan does, making it difficult or impossible for the defined benefit plan to satisfy coverage and nondiscrimination requirements. However, the 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 to test on that basis. Employers are finding it difficult to satisfy any of the three conditions. (The conditions for aggregated plan testing are complex, and a description of them is beyond the scope of this summary discussion.)
Notice 2014-5 provided relief — relaxing two of the conditions and adding one alternative condition — to enable more employers to qualify for aggregated plan testing.
In Notice 2015-28, the IRS announced that the temporary relief provided in Notice 2014-5 applies for plan years that begin before Jan. 1, 2017 (originally the relief applied only to plan years beginning before Jan. 1, 2016). The relief applies only to defined benefit plans that were closed (as defined previously) by an amendment adopted before Dec. 13, 2013.