The Internal Revenue Service (“IRS”) has again extended nondiscrimination relief by issuing Notice 2019-49 for defined benefit plans that are currently “closed” or sometimes referred to as “frozen”. In order for a defined benefit plan to maintain its tax-deferred status, the IRS requires, among other things, a plan to satisfy the nondiscrimination testing rules by showing that it does not discriminate in favor of highly-compensated employees (“HCE’s”). This requirement can be challenging to meet when a plan is frozen or closed and HCE’s are still participating in and benefiting from the plan, while new participants are prevented from entering. Although a plan is closed, the plan sponsor is still required to meet all funding obligations in order to fulfill the nondiscrimination testing requirements.
In response to this concern, the IRS granted temporary relief in Notice 2014-5 with the aim to make permanent rule changes in the future. However, the IRS has yet to make the changes permanent. It has instead repeatedly extended the temporary relief most recently for plan years beginning prior to 2021. It is important to note that the conditions set forth in Notice 2014-5 must still be met in order to qualify for the relief as outlined here.
If you have questions about the rule and how it might affect you, please contact your Nyhart consultant.