At 10:10am ET this morning, the IRS issued new guidance for plan sponsors who sponsor both a “closed” defined benefit plan and a defined contribution plan. With so many state and local governments adopting these arrangements, or discussing adopting these arrangements, kudos to the IRS for tackling this issue in such a timely manner.
In Notice 2014-05, the IRS permits certain employers that sponsor a “closed” defined benefit plan and a defined contribution plan to demonstrate that the aggregated plans comply with the nondiscrimination requirements of Code section 401(a)(4) on the basis of equivalent benefits, even if the aggregated plans do not satisfy the current conditions for testing on that basis.
Notice 2014-05 defines a “closed” defined benefit plan as a defined benefit plan that provides ongoing accruals but have been amended to limit those accruals to some or all employees who participated in the plan on a specific date. The IRS states that closing a defined benefit plan often occurs in conjunction with an amendment that provides new or greater contributions under a defined contribution plan intended to replace accruals under the defined benefit plan for new hires or other employees to whom the defined benefit plan is closed.
Notice 2014-05 is 7 pages long, and will be published on Jan. 6, 2014 in Internal Revenue Bulletin 2014-2.