Once Again, IRS Extends Nondiscrimination Relief for Frozen Defined Benefit Plans
The Internal Revenue Service (IRS) has once again extended the temporary nondiscrimination relief for frozen defined benefit plans, now through 2020. Frozen pension plans are pension plans that have been closed to new participants but continue to provide ongoing benefit accruals for certain participants. This extended relief is intended to enable frozen pension plans to satisfy certain nondiscrimination testing requirements. In most cases, the relief allows the frozen defined benefit plan to be aggregated with a defined contribution plan to satisfy the nondiscrimination testing requirements. The relief assists the aggregated plan in passing nondiscrimination requirements that apply to accrued benefits and to certain rights and features relating to those benefits.
The original nondiscrimination testing relief for frozen pension plans was provided in a 2013 IRS notice. This relief has now been extended on three prior occasions. Many are advocating for legislation that would permanently fix this issue by shielding frozen defined benefit pension plans from unintended nondiscrimination rule violations. The Setting Every Community Up for Retirement Enhancement Act, which includes nondiscrimination reform provisions, passed the US House of Representatives on May 21, but it is still pending in the US Senate.