IRS Withdraws Some Proposed Nondiscrimination Rules

Rules affecting cross-tested plans were included in proposed guidance providing nondiscrimination testing relief for certain DB plans.

The Internal Revenue Service (IRS) has announced it will withdraw certain provisions of proposed regulations published on January 29, 2016.  

The provisions of the proposed regulations that will be withdrawn are the provisions that would modify Internal Revenue Code (IRC) Sections 1.401(a)(4)-2(c) and 1.401(a)(4)-3(c). These provisions were intended to address certain qualified retirement plan designs that take advantage of flexibility in the existing nondiscrimination rules to provide a special benefit formula for selected employees without extending that formula to a classification of employees that is reasonable and established under objective business criteria.

Cross-tested plans, as well as qualified supplemental executive retirement plans (QSERPs) use these designs.

In Announcement 2016-16, the IRS says it and the Treasury have given additional consideration to the potential effects of those provisions on the adoption and continued maintenance of qualified retirement plans with a variety of designs and have concluded that further consideration will be needed with respect to issues relating to those provisions.  Accordingly, the Treasury Department and the IRS will withdraw the provisions.

The provisions relating to defined benefit (DB) nondiscrimination testing relief are not affected.