IRS Extends Nondiscrimination Relief for Frozen Pensions to 2021

Another reprieve for defined benefit plans closed to new participants

By Fred Farkash and Marjorie Martin © Buck August 28, 2019
IRS Extends Nondiscrimination Relief for Frozen Pensions to 2021

In Notice 2019-49, the IRS has again extended the temporary relief from select nondiscrimination requirements [meant to prevent pension plans from being limited to high-earning employees] that had first been announced in Notice 2014-5. If the conditions in that notice are satisfied, defined benefit plan sponsors may continue to rely on its relief for plan years beginning before 2021—at which point IRS anticipates the changes to the nondiscrimination regulations will be finalized.


Looking to lower costs and reduce future funding obligations, many employers closed their defined benefit (DB) plans to new entrants while maintaining the plans for employees who had entered prior to the date they initiated the change ("soft-frozen" or "closed" plans). Some of those employers found that they could no longer meet any of the DB nondiscrimination testing alternatives within their intended budget. Seeing a complete freeze of their DB plans as the only option for the future, these employers had appealed to IRS and Treasury for a change in the rules.

IRS responded to this plea with temporary relief in Notice 2014-5. The relief allowed DB and defined contribution (DC) plans that are aggregated for nondiscrimination testing (DB/DC plans) to use the DB cross-testing option for a plan year that begins before Jan. 1, 2016, if it included a DB plan that was soft-frozen before Dec. 13, 2013. In addition, each of the DB plans in the DB/DC plan was required to satisfy one of the following conditions:

  • For the plan year beginning in 2013, the DB plan was part of a DB/DC plan that either was primarily DB in character or consisted of broadly available separate plans.
  • In the case of a DB plan that was soft-frozen before December 13, 2013, the DB plan was not part of a DB/DC plan for the plan year beginning in 2013 because the DB plan satisfied the coverage and nondiscrimination requirements without aggregation with any DC plan.

The IRS did not change any other requirements of the nondiscrimination regulations, such as the condition that the timing of an amendment be nondiscriminatory.

The IRS intends to make permanent changes to the nondiscrimination regulations to address these situations and has proposed regulatory changes accordingly. To provide more time for making these changes, the IRS extended the 2013 relief through 2016 plan years in Notice 2015-28, through 2017 plan years in Notice 2016-57, through 2018 plan years in Notice 2017-45, and through 2019 plan years in Notice 2018-69.

[SHRM members-only toolkit: Designing and Administering Defined Benefit Retirement Plans]

Another Year Allowed

Because IRS does not expect that revised regulations can be finalized in sufficient time to make decisions about design changes needed to comply based on the current extended relief period, Notice 2019-49 extends the relief for another year. Notice 2019-49 does not change the conditions for the relief or expand it to additional plans. Only DB plans providing ongoing accruals and soft-frozen with an amendment adopted before December 13, 2013 are eligible.

IRS expects that the changes to the nondiscrimination regulations for closed plans will be effective for plan years beginning on or after January 1, 2021 and will permit plan sponsors to apply them to certain earlier plan years.

Importantly, the new notice again references comments on the proposed regulations, noting the IRS and Treasury "expect that the final regulations will include a number of significant changes in response to those comments."

It is still possible that employers will see additional congressional relief from the Retirement Security Preservation Act (S. 2352) introduced in the Senate or from the Setting Every Community Up for Retirement Enhancement (SECURE) Act (H.R. 1994) that gained passage in the House.

Fred Farkash, CEBS, Fellow-ISCEBS, is a director at HR advisory firm Buck, based in New York City, and Marjorie Martin is a principal in Buck's Knowledge Resource Center. This article originally appeared in the Aug. 26, 2019 issue of Buck's For Your Information. © 2019 Buck Global LLC. All rights reserved. Republished with permission.

 IRS Extends Frozen Plan Relief for Benefits, Rights and Features Testing

In Notice 2019-60, issued on Nov. 17, 2019, the IRS extended additional nondiscrimination testing relieve to frozen defined benefit (DB) plans, specifically for benefits, rights and features (BRT) testing.

"Notice 2019-60 should provide welcome relief for plan sponsors of some soft-frozen DB plans that would otherwise fail their next nondiscrimination test for benefits, rights and features," according to an alert by HR consultancy Buck.

Common BRFs in a DB plan, the Buck alert noted, include:

  • Optional forms of benefit (e.g., distribution alternatives, early retirement benefits, and retirement-type subsidies).
  • Ancillary benefits (e.g. certain social security supplements, disability benefits, life and health benefits, pre-retirement death benefits, and plant shut-down benefits).
  • Other rights or features (such as the right to purchase additional retirement or ancillary benefits, or the right to make rollovers contributions, or transfer to/from the plan.

Notice 2019-60, however, "will not provide relief for DB plans that were soft frozen on Dec. 13, 2013 or later," the Buck alert stated. "It also will not help plans amended after Jan. 29, 2016 to change the availability of benefits, rights and features that hurt BRF testing coverage ratios (even if the coverage ratio dropped by an insignificant amount as a result of the amendment and the plan still passed BRF testing at that time)."

According to Buck, "unless the final regulations or subsequent guidance provide relief for such plans, they could be required to adopt a timely corrective amendment to remedy the failure. Such amendments must generally be adopted by the 15th day of the 10th month after the end of the plan year."

Related SHRM Articles:

House Passes SECURE Act to Ease 401(k) Compliance, Promote Savings [measure also removes administrative burdens on frozen pensions], SHRM Online, May 2019

Employers Seek Compliance-Test Relief for Frozen Pensions, SHRM Online, May 2016

Temporary Nondiscrimination Relief for Closed DB Plans, SHRM Online, December 2013


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