n-09-71.pdf

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Part III - Administrative, Procedural, and Miscellaneous

Special Rules Governing Eligible Combined Plans.

Notice 2009-71

I. PURPOSE
The Treasury Department and the Internal Revenue Service plan to issue
guidance relating to eligible combined plans under § 414(x) of the Internal Revenue
Code (Code). Section 414(x) was added by section 903(a) of the Pension Protection
Act of 2006, Public Law 109-280, 120 Stat. 780 (PPA ’06), effective for plan years
beginning after December 31, 2009, and amended by section 109(c) of the Worker,
Retiree, and Employer Recovery Act of 2008, Public Law 110-458, 122 Stat. 5092
(WRERA). An eligible combined plan provides a vehicle through which an employer
can maintain both a defined contribution plan and a defined benefit plan on a combined
basis, thus reducing the administrative burdens and costs of maintaining separate

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plans. This notice requests comments on issues presented by § 414(x) of the Code
with respect to eligible combined plans.
II. BACKGROUND
In general
Qualified retirement plans are subject to various requirements under the Code.
Whether a particular requirement applies, or how a particular requirement applies, may
depend on whether the plan is a defined contribution plan or a defined benefit plan.
These requirements include nondiscrimination with respect to contributions or benefits
under § 401(a)(4), vesting under §§ 401(a)(7) and 411, survivor annuity requirements
under § 401(a)(11), limits on contributions and benefits under §§ 401(a)(16) and 415,
and minimum funding standards under § 412.
Under § 414(i), a “defined contribution plan” is a plan that provides for an
individual account for each participant and for benefits based solely on the amount
contributed to the participant’s account, and any income, expenses, gains and losses,
and any forfeitures allocated to the participant’s account. Under § 414(j), a “defined
benefit plan” is any plan that is not a defined contribution plan. Under § 414(k), a
defined benefit plan that provides a benefit derived from employer contributions based
partly on the balance of a participant’s separate account is treated as a defined
contribution plan for certain purposes and as a defined benefit plan for other purposes.
Certain defined contribution plans may include a qualified cash or deferred
arrangement under § 401(k). A qualified cash or deferred arrangement is an
arrangement: (1) under which an eligible employee may elect to have the employer
make payments as contributions to the plan on behalf of the employee (referred to as

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“elective contributions”) or to make payments directly to the employee in cash; and (2)
which meets certain other requirements. See § 401(k)(2) and § 1.401(k)-1(a)(4)(i) of
the Income Tax Regulations. In some cases, a qualified cash or deferred arrangement
is structured so that an eligible employee is treated as having elected to have the
employer make elective contributions in a specified amount unless the employee elects
to receive the amount directly in cash or to have the employer make elective
contributions in a different amount (referred to as an “automatic contribution
arrangement”).
Section 701 of PPA ’06 added new provisions to the Code relating to applicable
defined benefit plans. Under § 411(a)(13)(C) of the Code, an ”applicable defined
benefit plan” is: (1) a defined benefit plan under which the accrued benefit (or any
portion thereof) is calculated as the balance of a hypothetical account maintained for the
participant or as an accumulated percentage of the participant's final average
compensation; or (2) to the extent provided under regulations, a defined benefit plan (or
any portion of such a plan) that has a similar effect.
Section 6058 generally requires an employer maintaining a qualified retirement
plan to file an annual return with respect to the plan. Section 6059 generally requires
the plan administrator of a defined benefit plan to file an actuarial report with respect to
the plan on a periodic basis. Form 5500, Annual Return/Report of Employee Benefit
Plan, which consists of a primary form and various schedules, includes the information
required to be filed under §§ 6058 and 6059, as well as information required to be
reported to the Department of Labor and the Pension Benefit Guaranty Corporation
under the Employee Retirement Income Security Act of 1974, as amended, Public Law

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93-406 (ERISA). The plan administrator generally satisfies annual reporting
requirements with respect to each of the three agencies by filing the Form 5500.
Code § 414(x)
Section 414(x) of the Code, added by section 903(a) of PPA ‘06 and amended by
section 109(c) of WRERA, provides special rules for eligible combined plans.
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Definitions
Under § 414(x)(2)(A) of the Code, an “eligible combined plan” is a plan: (1) that is
maintained by an employer that is a small employer at the time the plan is established;
(2) that consists of a defined benefit plan and an applicable defined contribution plan;
(3) the assets of which are held in a single trust forming part of the plan and are clearly
identified and allocated to the defined benefit plan and the applicable defined
contribution plan to the extent necessary for the separate application of the Code; and
(4) that meets the benefit, contribution, vesting, and nondiscrimination requirements
under § 414(x). Section 414(x)(2)(A) also provides that a “small employer” is generally
an employer (taking into account the rules of § 414(b), (c), (m), and (o)) that employed
an average of at least 2 but not more than 500 employees on each business day during
the preceding calendar year and who employs at least 2 employees on the first day of
the plan year. In the case of an employer that was not in existence throughout the
preceding calendar year, the determination of whether the employer is a small employer
is based on the average number of employees it is reasonably expected the employer
will employ on business days in the current calendar year. Section 414(x)(7) defines an

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Similarly, section 903(b) of PPA ’06 amends ERISA to add new section 210(e), which provides special
rules for eligible combined plans.

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“applicable defined contribution plan” as a defined contribution plan that includes a
qualified cash or deferred arrangement.
Application of qualified plan requirements to eligible combined plans
Section 414(x)(1) provides that, except as otherwise provided in § 414(x), the
requirements of the Code are applied to a defined benefit plan or applicable defined
contribution plan that is part of an eligible combined plan in the same manner as if each
such plan were not a part of the eligible combined plan. Further, in the case of the
termination of both the defined benefit plan and the applicable defined contribution plan
forming an eligible combined plan, the defined benefit plan and the applicable defined
contribution plan must be terminated separately by the plan administrator. Under
§ 414(x)(6)(A), the rules of § 414(k), which determine the requirements applicable to
defined benefit pension plans with separate participant accounts, do not apply to eligible
combined plans.
Minimum benefits and vesting under defined benefit plan
Under § 414(x)(2)(B), the defined benefit plan that forms part of the eligible
combined plan must provide each participant with a minimum employer-provided
accrued benefit. The minimum benefit must be an annual retirement benefit that is not
less than the applicable percentage of the participant's final average pay. For this
purpose, the applicable percentage is the lesser of: (1) 1 percent multiplied by the
participant’s years of service with the employer or (2) 20 percent. Final average pay is
determined using the period of consecutive years (not exceeding five) during which the
participant had the greatest aggregate compensation from the employer.
A special rule applies in the case of an applicable defined benefit plan that meets

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certain interest credit requirements under § 411(b)(5)(B)(i). Such a plan is treated as
meeting the minimum benefit requirement with respect to any plan year if, for the plan
year, each participant receives a minimum pay credit to his or her hypothetical account.
The minimum pay credit must be not less than the percentage of compensation
applicable to the participant in accordance with the following table:
Participant’s Age as of Beginning of Plan YearPercentage
30 or less 2
Over 30 but less than 40 4
40 or over but less than 50 6
50 or over 8

For purposes of the minimum benefit rules, years of service are determined
under the rules of § 411(a)(4), (5), and (6), except that the plan may not disregard any
year of service merely because a participant makes, or fails to make, any elective
contributions under the qualified cash or deferred arrangement that is included in the
applicable defined contribution plan that forms part of the eligible combined plan.
Under § 414(x)(2)(D), a participant must be fully vested in his or her employer-
provided accrued benefit under the defined benefit plan after completion of three years
of service.
Minimum contributions and vesting under applicable defined contribution plan
Under § 414(x)(2)(C), the applicable defined contribution plan that forms part of
the eligible combined plan must meet certain contribution requirements. In particular,

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the qualified cash or deferred arrangement included in such plan must constitute an
automatic contribution arrangement. In addition, the employer must be required to
make matching contributions on behalf of each employee eligible to participate in the
qualified cash or deferred arrangement. To satisfy the basic matching contribution
requirement in § 414(x)(2)(C)(i)(II), matching contributions must be made in an amount
equal to 50 percent of the elective contributions of the employee to the extent such
elective contributions do not exceed 4 percent of compensation. Alternatively, the plan
may provide for a different rate of matching contribution, provided that the rate of
matching contribution does not increase as the participant’s rate of elective contribution
increases, and the aggregate amount of matching contributions at each rate of elective
contribution is no less than the aggregate amount of matching contributions that would
be provided under the basic matching contribution requirement. In no case may the
rate of matching contribution for any elective contribution of a highly compensated
employee at any rate of elective contribution be higher than the rate of matching
contribution for a nonhighly compensated employee.
The applicable defined contribution plan can also provide for nonelective
employer contributions, but nonelective contributions are not taken into account in
determining whether the matching contribution requirements are met.
Under § 414(x)(2)(D), all participants must be fully vested in any matching
contributions provided under the applicable defined contribution plan, including any
matching contributions exceeding required matching contributions. In addition, a
participant must be fully vested in any nonelective contributions under the applicable
defined contribution plan after completion of three years of service.

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Other benefit and contribution requirements
Under § 414(x)(2)(E), all contributions and benefits under the defined benefit plan
and applicable defined contribution plan forming part of the eligible combined plan, and
all rights and features under each such plan, must be provided uniformly to all
participants. Under § 414(x)(2)(F), the minimum benefit and contribution requirements
applicable to the defined benefit plan and applicable defined contribution plan must be
met without application of the permitted disparity rules under § 401(l). In addition, the
defined benefit plan and applicable defined contribution plan must meet the
nondiscrimination requirements under § 401(a)(4) and the minimum coverage
requirements under § 410(b) without application of the permitted disparity rules and
without being combined with any other plan.
Nondiscrimination and top-heavy requirements
Under § 414(x)(3), a qualified cash or deferred arrangement that is included in
the applicable defined contribution plan that forms part of an eligible combined plan and
that meets the minimum contribution requirements described above is treated as
meeting the actual deferral percentage test under § 401(k) on a safe harbor basis. In
addition, in applying the safe harbor contribution percentage test for matching
contributions under § 401(m)(11), the minimum contribution requirements described
above and the notice requirements described below are substituted for the otherwise
applicable minimum contribution and notice requirements.
Under § 414(x)(4), a defined benefit plan and applicable defined contribution plan
forming part of an eligible combined plan for any plan year are treated as meeting the
top-heavy requirements under § 416.

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Automatic contribution and notice requirements
Under § 414(x)(5), the qualified cash or deferred arrangement that is included in
an eligible combined plan is treated as an automatic contribution arrangement if it meets
certain notice and election requirements and provides that each employee eligible to
participate in the arrangement is treated as having elected to make elective
contributions in an amount equal to 4 percent of the employee's compensation unless
the employee specifically elects not to have such contributions made or to have such
contributions made at a different rate. Each employee eligible to participate in the
qualified cash or deferred arrangement must receive a notice explaining the employee's
right under the arrangement to elect not to have elective contributions made on the
employee's behalf or to have the contributions made at a different rate. Each eligible
employee must also have a reasonable period of time after receipt of the notice and
before the first elective contribution is made to make an election. In addition, within a
reasonable period before any year, each eligible employee must be given notice of the
employee's rights and obligations under the arrangement. The notice must be
sufficiently accurate and comprehensive to apprise the employee of the employee’s
rights and obligations and must be written in a manner calculated to be understood by
the average eligible employee.
Reporting requirements
Section 414(x)(6)(B) provides that an eligible combined plan is treated as a
single plan for purposes of §§ 6058 and 6059.

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III. EFFECTIVE DATE
Section 414(x) is effective for plan years beginning after December 31, 2009. It
is anticipated that the guidance under consideration in this notice would be prospective.
IV. COMMENTS REQUESTED
Written comments are requested regarding possible issues to be addressed in
guidance under § 414(x).
Written comments should be submitted by October 15, 2009. Send submissions
to CC:PA:LPD:PR, (Notice 2009-xx), Room 5203, Internal Revenue Service, PO Box
7604, Ben Franklin Station, Washington, D.C. 20044. Comments may also be hand
delivered Monday through Friday between the hours of 8 a.m. and 4:00 p.m. to:
CC:PA:LPD:PR, (Notice 2009-xx), Courier’s Desk, Internal Revenue Service, 1111
Constitution Avenue, N.W., Washington DC. Alternatively, comments may be submitted
via the Internet at notice.comments@irscounsel.treas.gov
(Notice 2009-71). All
comments will be available for public inspection.
DRAFTING INFORMATION
The principal author of this notice is Natalie Payne, formerly of the Office of the
Division Counsel/Associate Chief Counsel (Tax Exempt and Government Entities). For
further information regarding this notice, contact Qualified Plans Branch 1 of the Office
of the Division Counsel/Associate Chief Counsel (Tax Exempt and Government Entities)
at (202) 622-6090 (not a toll-free number).