For Immediate Release
Washington, DC – The ERISA Industry Committee (ERIC) today submitted comments to the Department of Treasury and Internal Revenue Service (IRS) urging the Agencies to provide permanent relief and additional options for frozen defined benefit plans to satisfy the nondiscrimination testing requirements under the Internal Revenue Code.
In general, the issue involves a situation where some employers have modified the design of their retirement plans to close the plan to new employees due to economic or other concerns. Over time a defined benefit pension plan that once easily satisfied the tax code’s nondiscrimination requirements may begin to experience difficulty satisfying them.
The letter explains that over time, increases in compensation, promotions, and employee turnover have resulted in increasing amounts of highly compensated employees and decreasing numbers of non-highly compensated employees, which can make it harder for plans to satisfy the nondiscrimination requirements.
The Treasury Department and IRS in Notice 2014-5 had previously issued temporary relief and proposed several options for permanent relief, but unfortunately ERIC found that because both the temporary relief and the proposals for permanent relief are narrowly construed, the relief will be applicable to only a limited number of plans.
“ERIC appreciates the Agencies’ consideration with respect to long-term relief in this area. The risk of failing to satisfy the nondiscrimination requirements is a significant concern for many plans and has caused plan sponsors to consider terminating their plans. As additional time passes, nondiscrimination issues become problematic for an increasing number of closed defined benefit plans,” wrote Kathryn Ricard, ERIC’s Senior Vice President for Retirement Policy.
ERIC’s letter explains that the permanent proposals suggested by the Agencies would provide valuable relief to the plans that could utilize those options, but expressed concern that there would be relatively few plans that could satisfy the proposed requirements.
ERIC’s letter recommends several solutions that address the nondiscrimination rules more broadly in order to encourage the Agencies to provide relief for a greater number of plans, including:
- Providing additional relief with respect to benefits, rights and features.
- Giving closed defined benefit plans with additional options to satisfy the nondiscrimination requirements.
- Affording defined contribution plans that provide benefits to formerly defined benefit plan participants additional options for satisfying the nondiscrimination requirements.
- Finding that contributory plans that otherwise satisfy the nondiscrimination requirements will not be considered discriminatory merely because some highly compensated employees contribute more than some non-highly compensated employees.
To access ERIC’s letter, click on the link below.