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IRS issues extension for closed defined-benefit plans

On Behalf of | Sep 4, 2019 | IRS Issues

Sponsors of closed defined benefits plans in Georgia may be interested to learn that a fifth extension was granted for temporary nondiscrimination relief for these plans. Under federal benefits law, employers that offer benefits must offer equal benefits to all employees. However, a number of companies shifted from offering traditional defined benefits or pension plans to offering defined contribution plans, including 401(k)s. The defined benefits plans continue in place, but are “closed,” because they only include employees who worked at the company as of the date of the plan’s closure. Since 2014, the IRS has issued temporary relief for these plans, allowing them to continue so long as they remain “closed” to only those employees enrolled at a certain date.

On August 27, the IRS issued Notice 201-49, renewing that guidance for an additional year for all plan years beginning before 2021, so long as the closed plans involved meet the guidelines specified in the original 2014 notice. It includes defined-benefit plans that were amended before December 13, 2013 to limit accruals to employees that were already employed as of a certain specific date. In most cases, new employees have been included in a defined-contribution plan instead.

The IRS reported that it received many comments on its proposed final regulation to address the issue. The regulation is expected to include multiple changes to the original draft, some significant. The IRS said that it knows that plan administrators will need advance notice of the final rule in order to make decisions about how to manage their plans’ assets moving forward.

The issue is of concern to many employers and plan administrators, and several pieces of legislation may be introduced in Congress to provide a permanent fix. Plan administrators might work with a tax law attorney to learn more about their obligations under the law.