The IRS issued Notice 2014-5, which relaxes requirements for employers to qualify for aggregate plan testing. Employers had complained that it was difficult to satisfy the three conditions the IRS required to qualify for the testing.
Some employers maintain "closed" defined benefit pension plans (i.e., defined benefit plans that provide ongoing accruals but that have been amended to limit those accruals to some or all of the employees who participated in the plan on a specified date). The employees to whom the defined benefit plan is closed are often generally covered by a defined contribution plan maintained by the employer. In many cases, the defined benefit plan covers more highly compensated employees than the defined contribution plan, making it difficult or impossible for the defined benefit plan to satisfy coverage and nondiscrimination requirements.
The defined benefit plan, however, can often comply with the requirements if the defined benefit and defined contribution plans are tested together as if they were one defined benefit plan, with the contributions in the defined contribution plan converted to equivalent benefits for testing people (aggregated plan testing). To test on that basis, one of three alternative conditions must be satisfied, according to current IRS regulations.
Notice 2014-5 provides relief by relaxing two of the conditions and by adding one additional alternative condition, so that more employers can qualify for aggregated plan testing. The conditions for aggregated plan testing are complex, and a description of them is beyond the scope of this summary discussion.
The relief provided by Notice 2014-5 is limited in nature: It applies for only plan years that begin before Jan. 1, 2016. In addition, it applies only to defined benefit plans that were closed (as defined above) by an amendment adopted before Dec. 13, 2013. The IRS indicates in the notice, however, that it may make the relief changes permanent.
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