n-19-60.pdf

Preserve advance releases and the authoritative Internal Revenue Bulletin rendition; directory timestamps are file-publication metadata, not legal effective dates. HTML bulletins begin June 2003; earlier available issues require full PDF parsing.

This collection currently includes the publisher’s available advance-release directory. Historical bulletin renditions are discovered separately; an advance-release record alone does not certify the collection archive complete.

Additional Temporary Nondiscrimination Relief for Closed Defined Benefit Plans
through 2020
Notice 2019-60
I. PURPOSE
This notice provides additional temporary nondiscrimination relief for closed defined
benefit plans (that is, defined benefit plans that provide ongoing accruals but that have
been amended to limit those accruals to some or all of the employees who participated
in the plan on a specified date) that generally meet the eligibility conditions for the relief
provided in Notice 2014-5, 2014-2 I.R.B. 276, as extended. Specifically, this notice
provides that, if a plan satisfies the conditions specified in this notice, the plan is
deemed to have satisfied certain of the nondiscrimination requirements relating to
benefits, rights, and features.
II. BACKGROUND
A. Law and Regulations
Section 410(b) provides in general that a plan is a qualified plan only if the classification
of employees who benefit under the plan does not discriminate in favor of highly
compensated employees (HCEs). Section 410(b)(6)(B) provides that two or more plans
may be aggregated for purposes of satisfying § 410(b), but only if those plans are also
aggregated for purposes of § 401(a)(4).
Under § 1.410(b)-2(b), a plan generally satisfies § 410(b) with respect to employees
only if the plan satisfies either the ratio percentage test of § 1.410(b)-2(b)(2) or the
average benefit test of § 1.410(b)-2(b)(3) (which requires satisfaction of the
nondiscriminatory classification test of § 1.410(b)-4 and the average benefit percentage
test of § 1.410(b)-5). The ratio percentage test and the nondiscriminatory classification
test are applied using a plan’s ratio percentage, which is defined in § 1.410(b)-9 for a
plan year as the percentage determined by dividing the percentage of the nonhighly
compensated employees (NHCEs) who benefit under the plan by the percentage of
HCEs who benefit under the plan.
Section 401(a)(4) provides in general that a plan is a qualified plan only if the
contributions or the benefits provided under the plan do not discriminate in favor of
HCEs. Compliance with § 401(a)(4) generally may be demonstrated on the basis of
either contributions or benefits (including equivalent benefits). Section 1.401(a)(4)-9(b)
contains special rules that apply for purposes of determining whether an aggregated
plan that includes one or more defined benefit plans and one or more defined
contribution plans (referred to as a DB/DC plan) satisfies the requirements of
§ 401(a)(4). A DB/DC plan may demonstrate compliance with § 401(a)(4) on the basis
of equivalent benefits only if the DB/DC plan satisfies one of three alternative conditions
set forth in § 1.401(a)(4)-9(b)(2)(v).

2

Section 1.401(a)(4)-4 provides rules regarding nondiscriminatory availability of benefits,
rights, and features. Under § 1.401(a)(4)-4(a), benefits, rights, and features are
provided to employees in a nondiscriminatory manner only if each benefit, right, or
feature satisfies the current availability requirement of § 1.401(a)(4)-4(b) and the
effective availability requirement of § 1.401(a)(4)-4(c). In general, a benefit, right, or
feature satisfies the current availability requirement if the group of employees to whom
the benefit, right, or feature is currently available during the plan year satisfies § 410(b)
(without regard to the average benefit percentage test of § 1.410(b)-5). Under the
effective availability requirement, based on all of the relevant facts and circumstances,
the group of employees to whom a benefit, right, or feature is effectively available must
not substantially favor HCEs.
The nondiscrimination regulations under § 401(a)(4) provide that the Commissioner
may, in revenue rulings, notices, and other guidance published in the Internal Revenue
Bulletin, provide any additional guidance that may be necessary or appropriate in
applying the nondiscrimination requirements of § 401(a)(4), including additional safe
harbors and alternative methods and procedures for satisfying those requirements. See
§ 1.401(a)(4)-1(d).
B. Notice 2014-5 Temporary Nondiscrimination Relief for Closed Defined Benefit
Plans
Notice 2014-5 addresses the increasingly common situation of a defined benefit plan
that has been closed to new entrants. The plan sponsor of a closed defined benefit
plan typically provides a defined contribution plan for its new hires. Under these
arrangements, in the early years after the defined benefit plan has been closed to new
entrants, the plan may be able to satisfy the coverage requirement of § 410(b) without
being aggregated with the defined contribution plan. However, the § 410(b) minimum
coverage test typically becomes more difficult for the closed defined benefit plan to
satisfy over time, as the proportion of plan participants who are HCEs increases. This
might occur for several reasons, including the tendency of NHCEs to have higher rates
of turnover than HCEs, as well as the potential for some of the NHCEs in the closed
plan to become HCEs as they continue employment and their compensation increases.
If the closed defined benefit plan cannot satisfy the coverage requirement of § 410(b) on
its own, it must be aggregated with another plan in order to satisfy that coverage
requirement. If the defined benefit plan is aggregated with a defined contribution plan
that covers the employer’s new hires to satisfy the coverage requirement, then it is also
required to be aggregated with the defined contribution plan for purposes of satisfying
the nondiscrimination requirements of § 401(a)(4). In the typical case, the aggregated
plans will fail the requirements of § 401(a)(4) unless they are permitted to demonstrate
compliance with the nondiscrimination requirements on the basis of equivalent benefits.
The aggregated plans usually may demonstrate nondiscrimination on the basis of
equivalent benefits in the initial years of aggregation without the need for benefit
changes. However, the same demographic forces that drive the increase in the
proportion of HCEs in the closed plan over time might lead to the aggregated plans
being permitted to demonstrate nondiscrimination on the basis of equivalent benefits

3

only if the plans satisfy the minimum aggregate allocation gateway (which requires a
minimum level of benefits to be provided to NHCEs).
Notice 2014-5 provides temporary nondiscrimination relief for certain closed defined
benefit pension plans. Specifically, for plan years beginning before 2016, Section III.B
of Notice 2014-5 permits a DB/DC plan that includes a closed defined benefit plan (that
was closed before December 13, 2013) and that satisfies certain conditions set forth in
the notice to demonstrate satisfaction of the nondiscrimination in amount requirement of
§ 1.401(a)(4)-1(b)(2) on the basis of equivalent benefits even if the DB/DC plan does
not meet any of the existing eligibility conditions for testing on that basis under
§ 1.401(a)(4)-9(b)(2)(v). That is, such a DB/DC plan may satisfy the nondiscrimination
requirements on the basis of equivalent benefits without being required to satisfy the
minimum aggregate allocation gateway.
A series of notices extend the temporary nondiscrimination relief provided in Notice
2014-5 by applying that relief to plan years beginning before 2021 if the conditions of
Notice 2014-5 are satisfied. See Notice 2015-28, 2015-14 I.R.B. 848, Notice 2016-57,
2016-40 I.R.B. 432, Notice 2017-45, 2017-38 I.R.B. 232, Notice 2018-69, 2018-37
I.R.B. 426, and Notice 2019-49, 2019-37 I.R.B. 699.
C. Proposed regulations to provide nondiscrimination relief for closed defined
benefit pension plans
Proposed regulations relating to nondiscrimination requirements for closed plans were
published in the Federal Register on January 29, 2016 (81 FR 4976). The proposed
regulations set forth relief for closed plans under §§ 1.401(a)(4)-4, 1.401(a)(4)-8,
and 1.401(a)(4)-9 (subject to satisfaction of certain conditions set forth in the
regulations) and contain other proposed nondiscrimination rules. The regulations
generally are proposed to apply to plan years beginning on or after the date of
publication of the final regulations in the Federal Register. The proposed regulations
provide that taxpayers are permitted to apply certain provisions of the proposed
regulations (including all of the provisions that apply specifically to closed plans) for
certain plan years beginning before the proposed applicability date. Notice 2019-49
states that it is expected that the final regulations will provide that the reliance granted in
the preamble to the proposed regulations may be applied for plan years beginning
before 2021. Thus, for plan years beginning before January 1, 2021, taxpayers may
apply the relief in Notice 2014-5 (as extended), as well as the rules relating to closed
plans in the proposed regulations.
The provisions under the proposed amendments to § 1.401(a)(4)-4 with respect to
defined benefit plans provide relief from nondiscrimination testing with respect to a
benefit, right, or feature that is made available only to a grandfathered group of
employees with respect to a closed plan. Specifically, if the eligibility conditions in the
proposed regulations are satisfied, the special testing rule treats a benefit, right, or
feature that is provided only to a grandfathered group of employees as satisfying the
current and effective availability tests of § 1.401(a)(4)-4(b) and (c). Because the special
testing rule does not apply until plan years that begin on or after the fifth anniversary of
the closure date (as defined in the proposed regulations), the benefit, right or feature

4

must be currently available to a group of employees that satisfies the minimum
coverage requirements of § 410(b) (without regard to the average benefit percentage
test of § 1.410(b)-5) for plan years that begin within the 5 years immediately following
the closure date.
The relief under the proposed amendments to § 1.401(a)(4)-4 is available only if the
amendment restricting the availability of the benefit, right, or feature also resulted in a
significant change in the type of the defined benefit plan's formula. For example, a plan
amendment that changes the plan formula from an annual percentage of final average
annual compensation to a cash balance formula would be a significant change in the
type of benefit formula, so that the special testing rule would apply to facilitate
preservation of any subsidized early retirement factors for the employees who continue
to benefit under the prior benefit formula. In addition, this proposed relief is available
only if no plan amendment that affects the availability of the benefit, right, or feature
(other than the closure amendment, as defined in the proposed regulations) is adopted
or made effective during the period that began 5 years before the closure date (with
exceptions for certain types of amendments, such as an amendment that expands or
restricts the eligibility for the benefit, right, or feature, if, as of the applicable amendment
date, the post-amendment ratio percentage of the group of employees eligible for the
benefit, right, or feature is not less than the pre-amendment ratio percentage of the
group of employees eligible for the benefit, right, or feature).
Many comments have been submitted on the proposed regulations, including oral
comments at a public hearing held on May 19, 2016. The Department of the Treasury
and the Internal Revenue Service (IRS) expect that the final regulations will include a
number of significant changes in response to those comments.
III. ADDITIONAL RELIEF FOR CLOSED DEFINED BENEFIT PLANS WITH RESPECT
TO BENEFITS, RIGHTS, OR FEATURES
A. Need for relief relating to benefits, rights, or features
At the time a defined benefit plan is closed to new entrants, the plan may provide for
benefits, rights, or features that are not available to participants in other plans of the
employer. For such a plan, the proposed regulations provide relief from the
requirements of § 1.401(a)(4)-4 relating to benefits, rights, or features only if the
amendment restricting the availability of the benefit, right, or feature also resulted in a
significant change in the type of the defined benefit plan's formula. Thus, neither Notice
2014-5 nor the proposed regulations provide relief under § 1.401(a)(4)-4 for a defined
benefit plan that is closed to new entrants but has not undergone a change in benefit
formula with respect to existing participants. In addition, the relief in the proposed
regulations relating to benefits, rights, or features is conditioned on compliance with
requirements relating to plan amendments that may have occurred long before the
proposed regulations were issued.
Commenters on the proposed regulations observed the need for relief relating to
benefits, rights, and features for a plan if the plan is closed to new entrants (but has not
undergone a significant change in the type of the plan’s benefit formula). Commenters

5

also observed the need for relief relating to plan amendments that occurred before the
proposed regulations were issued.
B. Temporary relief for certain closed defined benefit plans with respect to
benefits, rights, or features
Pursuant to the authority under § 1.401(a)(4)-1(d) to provide alternative methods for
satisfying the nondiscrimination requirements, this section III.B provides a closed
defined benefit plan that generally meets the eligibility conditions for the temporary relief
under Notice 2014-5 (as extended) with additional temporary relief from the
requirements of § 1.401(a)(4)-4 relating to benefits, rights, or features.
1. Plans to which temporary relief applies
The temporary relief under this section III.B applies to a plan if it is a defined benefit
plan providing ongoing accruals that was amended, by an amendment adopted before
December 13, 2013, to provide that only employees who participated in the defined
benefit plan on a specified date continue to accrue benefits under the plan. Thus, this
relief applies to defined benefit plans for which the relief under Notice 2014-5 (as
extended) is available (except that eligibility for this relief does not depend on the
method used to satisfy the nondiscrimination requirements for the plan year beginning
in 2013).
2. Period of temporary relief
The temporary relief under this section III.B applies for plan years ending after
November 13, 2019, and beginning before January 1, 2021. Accordingly, the last plan
year for which this relief applies is the same as the last plan year for which the relief
under Notice 2014-5, as extended most recently by Notice 2019-49, applies.
3. Effect of temporary relief
The following treatment may be applied to a defined benefit plan described in section
III.B.1 of this notice for a plan year described in section III.B.2 of this notice:
The plan is treated as satisfying § 1.401(a)(4)-4(b) and (c) for the plan year with respect
to a benefit, right, or feature that was provided under the plan at the time the
amendment described in section III.B.1 of this notice was adopted. This relief applies
only if either:
(i) No amendment adopted after January 29, 2016 expands or restricts the eligibility for
the benefit, right, or feature; or
(ii) If any such amendment has been adopted, then, as of the applicable amendment
date for that amendment (determined under § 1.411(d)-3(g)(4)),
1
the post-amendment
ratio percentage of the group of employees eligible for the benefit, right, or feature was

1
Under § 1.411(d)-3(g)(4), the term “applicable amendment date,” with respect to a plan amendment,
means the later of the effective date of the amendment or the date the amendment is adopted.

6

not less than the pre-amendment ratio percentage of the group of employees eligible for
the benefit, right, or feature.
DRAFTING INFORMATION
The principal author of this notice is Diane S. Bloom of the Office of the Associate Chief
Counsel (Employee Benefits, Exempt Organizations, and Employment Taxes).
However, other personnel from the IRS participated in development of this guidance.
For further information regarding this notice, please contact Ms. Bloom or Linda
Marshall at (202) 317-6700 (not a toll-free number).