On August 23, 2019, the IRS issued Notice 2019-49, which extends through 2020 the nondiscrimination relief for closed defined benefit plans provided in IRS Notice 2014-5 and extended by Notices 2015-28, 2016-57, 2017-45, and 2018-69.

Over the last five years the IRS has provided nondiscrimination relief to certain closed defined benefit plans. Closed defined benefit plans limit ongoing accruals to some or all of the employees who participated in the plan on a certain date, also referred to as a "soft freeze" (for more information, see Practice Note, Freezing Defined Benefit Plans: Types of Defined Benefit Plan Freezes).

In Notice 2014-5, the IRS permitted sponsors of a closed defined benefit plan and a defined contribution plan to demonstrate that the aggregated plan (DB/DC plan) complies with the nondiscrimination requirements of Section 401(a)(4) of the Internal Revenue Code (Code) (26 U.S.C. § 401(a)(4)) and Treasury Regulation Section 1.401(a)(4)-1(b)(2) (26 C.F.R. § 1.401(a)(4)-1(b)(2)) on the basis of equivalent benefits, even if the DB/DC plan does not satisfy the current conditions for nondiscrimination testing on that basis under Treasury Regulation Section 1.401(a)(4)-9(b)(2)(v) (26 C.F.R. § 1.401(a)(4)-9(b)(2)(v)) (see Legal Update, IRS Notice 2014-5 Provides Temporary Nondiscrimination Relief for Closed Defined Benefit Plans).

In Notice 2015-28, the IRS extended this relief through 2016, as long as the DB/DC plan met the equivalent benefits requirements of Notice 2014-5 (see Legal Update, IRS Extends Temporary Nondiscrimination Relief for Closed Defined Benefit Plans).

In January 2016, the IRS issued proposed regulations under Code Section 401(a)(4) providing nondiscrimination relief for closed defined benefit plans (81 Fed. Reg. 4976 (Jan. 29, 2016)) (see Legal Update, Proposed Regulations Provide Nondiscrimination Relief for Closed Defined Benefit Plans and Other Changes to the Nondiscrimination Requirements).

In Notice 2016-57, the IRS extended the nondiscrimination relief provided in Notices 2014-5 and 2015-28 for an additional year (to plan years beginning before 2018) if the conditions of Notice 2014-5 were satisfied (see Legal Update, IRS Notice 2016-57 Extends Nondiscrimination Relief for Closed Defined Benefit Plans Through 2017). This temporary relief was extended again in Notice 2017-45, to plan years beginning before 2019 (see Legal Update, IRS Notice 2017-45 Extends Temporary Nondiscrimination Relief for Closed Defined Benefit Plans Through 2018), and in Notice 2018-69, to plan years beginning before 2020 (see Legal Update, IRS Notice 2018-69 Extends Temporary Nondiscrimination Relief for Closed Defined Benefit Plans Through 2019).

Notice 2019-49 extends the temporary nondiscrimination relief for closed defined benefit plans to plan years beginning before 2021 if the requirements of Notice 2014-5 are satisfied. The IRS is extending nondiscrimination relief for an additional year because it anticipates that the final regulations under Code Section 401(a)(4) providing nondiscrimination relief for closed defined benefit plans will not be published in time for plan sponsors to make plan design decisions before the expiration of the nondiscrimination relief provided under Notice 2014-5, as extended by Notice 2018-69. The IRS received many comments on the proposed regulations and it expects that the final regulations will include a number of significant changes in response to those comments.

The IRS expects the final nondiscrimination regulations to provide that the reliance granted in the preamble to the proposed regulations may be applied for plan years beginning before 2021.

DB/DC plans usually will fail to meet the nondiscrimination requirements of Code Section 401(a)(4) unless plan sponsors are permitted to demonstrate compliance with the nondiscrimination rules on the basis of equivalent benefits. Notice 2019-49 provides an additional year for closed defined benefit plans to comply with the nondiscrimination requirements of Code Section 401(a)(4) on the basis of equivalent benefits, even if the plans do not satisfy the current conditions for testing on that basis.

Sponsors of closed defined benefit plans that have been aggregated with defined contribution plans should: