The Internal Revenue Service (IRS) has extended for an additional year the temporary nondiscrimination relief it offers closed defined benefit (DB) retirement plans.
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Notice 2018-69, issued on August 24, provides relief extension to plans with plan years beginning before 2020 that meet the requirements set in original 2014 guidance. This extension was granted because the IRS expects that final regulations being devised under Internal Revenue Code Section 401(a)(4) will not be published in time for plan sponsors to make changes to plan design before the expiration of nondiscrimination relief first granted in Notice 2014-5. That notice was extended most recently by Notice 2017-45.
The original notice provided short-term relief for some DB plans that are closed or undergoing a “soft freeze”—those that make ongoing accruals limited only to certain employees who participated in the plan on a specific date. It allowed sponsors with both a closed DB plan and an active defined contribution (DC) plan to show that their aggregated plan complies with nondiscrimination requirements.
DB plans are likely to fail Section 401(a)(4) requirements that evaluate and ensure that qualified retirement plans’ benefits do not discriminate in favor of officers, owners, shareholders, or any other employee classified as a highly compensated employee (HCE) unless plan sponsors can demonstrate compliance with these rules on the basis of equivalent benefits.
The IRS said in the latest notice that it had received many public comments on the proposed regulations about nondiscrimination relief for closed DB plans, and it expects the final regulations will contain a number of significant changes that reflect those comments.
PBGC Proposals for Terminated Plans
In other regulatory news for DB plans, on July 16, the Pension Benefit Guaranty Corporation (PBGC) published proposed regulations that would change reporting and disclosure requirements for terminated and insolvent multiemployer pension plans in several ways.
In 83 Fed Reg. 32815, the PBGC proposes amendments for the annual valuation requirement, withdrawal liability payments, applications to the agency for financial assistance, and terminated and insolvent plan notices.
The proposed regulations would affect reporting rules for multiemployer plans that are terminated by a mass withdrawal of all contributing employers or in critical status, insolvent, or expected to be insolvent.
The Federal Register filing details the proposed changes and their impact on several disclosure actions required of distressed or terminated multiemployer plans.
The PBGC said the proposals would increase efficiency and reduce administrative costs for troubled multiemployer plans when disclosing certain information to the agency, especially for smaller plans.
Filing Relief for Smaller Plans
For example, the proposed rules allow smaller plans terminated by mass withdrawal to perform less frequent actuarial valuations and meet fewer notice requirements. At the same time, the proposals would add annual actuarial valuation mandates for some insolvent plans and set out new annual filing requirements regarding actuarial valuation and withdrawal liability status for some insolvent and closed plans.
Comments on the proposed regulations are due to the PBGC by September 14.