This section of the FEDERAL REGISTER

contains regulatory documents having general

applicability and legal effect, most of which

are keyed to and codified in the Code of

Federal Regulations, which is published under

50 titles pursuant to 44 U.S.C. 1510.

The Code of Federal Regulations is sold by

the Superintendent of Documents.

Rules and Regulations Federal Register

34469 

Vol. 83, No. 140 

Friday, July 20, 2018 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Part 1 

[TD 9835] 

RIN–1545–BN05 

Definitions of Qualified Matching 

Contributions and Qualified 

Nonelective Contributions 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Final regulations. 

SUMMARY: This document contains final 

regulations that amend the definitions 

of qualified matching contributions 

(QMACs) and qualified nonelective 

contributions (QNECs) under 

regulations regarding certain qualified 

retirement plans that contain cash or 

deferred arrangements under section 

401(k) or that provide for matching 

contributions or employee contributions 

under section 401(m). Under these 

regulations, an employer contribution to 

a plan may be a QMAC or QNEC if it 

satisfies applicable nonforfeitability 

requirements and distribution 

limitations at the time it is allocated to 

a participant’s account, but need not 

meet these requirements or limitations 

when it is contributed to the plan. These 

regulations affect participants in, 

beneficiaries of, employers maintaining, 

and administrators of tax-qualified 

plans that contain cash or deferred 

arrangements or provide for matching 

contributions or employee 

contributions. 

DATES: Effective date. These regulations 

are effective July 20, 2018. 

Applicability date. These regulations 

apply to plan years beginning on or after 

July 20, 2018. However, taxpayers may 

apply these regulations to earlier 

periods. 

FOR FURTHER INFORMATION CONTACT: 

Angelique Carrington at (202) 317–4148 

(not a toll-free number). 

SUPPLEMENTARY INFORMATION: 

Background 

Section 401(k)(1) provides that a 

profit-sharing or stock bonus plan, a 

pre-ERISA money purchase plan, or a 

rural cooperative plan will not be 

considered as failing to satisfy the 

requirements of section 401(a) merely 

because the plan includes a qualified 

cash or deferred arrangement (CODA). 

To be considered a qualified CODA, a 

plan must satisfy several requirements, 

including: (i) Under section 

401(k)(2)(B), amounts held by the plan’s 

trust that are attributable to employer 

contributions made pursuant to an 

employee’s election must satisfy certain 

distribution limitations; (ii) under 

section 401(k)(2)(C), an employee’s right 

to such employer contributions must be 

nonforfeitable; and (iii) under section 

401(k)(3), such employer contributions 

must satisfy certain nondiscrimination 

requirements. 

Under section 401(k)(3)(D)(ii), the 

employer contributions taken into 

account for purposes of applying the 

nondiscrimination requirements may, 

under such rules as the Secretary may 

provide and at the election of the 

employer, include matching 

contributions within the meaning of 

section 401(m)(4)(A) that meet the 

distribution limitations and 

nonforfeitability requirements of section 

401(k)(2)(B) and (C) (also referred to as 

qualified matching contributions or 

QMACs) and qualified nonelective 

contributions within the meaning of 

section 401(m)(4)(C) (QNECs). Under 

section 401(m)(4)(C), a QNEC is an 

employer contribution, other than a 

matching contribution, with respect to 

which the distribution limitations and 

nonforfeitability requirements of section 

401(k)(2)(B) and (C) are met. 

Under § 1.401(k)–1(b)(1)(ii), a CODA 

satisfies the applicable 

nondiscrimination requirements if it 

satisfies the actual deferral percentage 

(ADP) test of section 401(k)(3), 

described in § 1.401(k)–2. The ADP test 

limits the disparity permitted between 

the percentage of compensation made as 

employer contributions to the plan for a 

plan year on behalf of eligible highly 

compensated employees and the 

percentage of compensation made as 

employer contributions on behalf of 

eligible nonhighly compensated 

employees. If the ADP test limits are 

exceeded, the employer must take 

corrective action to ensure that the 

limits are met. In determining the 

amount of employer contributions made 

on behalf of an eligible employee, 

employers are allowed to take into 

account certain QMACs and QNECs 

made on behalf of the employee by the 

employer. 

In lieu of applying the ADP test, an 

employer may choose to design its plan 

to satisfy an ADP safe harbor, including 

the ADP safe harbor provisions of 

section 401(k)(12), described in 

§ 1.401(k)–3. Under § 1.401(k)–3, a plan 

satisfies the ADP safe harbor provisions 

of section 401(k)(12) if, among other 

things, it satisfies certain contribution 

requirements. With respect to the safe 

harbor under section 401(k)(12), an 

employer may choose to satisfy the 

contribution requirement by providing a 

certain level of QMACs or QNECs to 

eligible nonhighly compensated 

employees under the plan. 

A defined contribution plan that 

provides for matching or employee 

after-tax contributions must satisfy the 

nondiscrimination requirements under 

section 401(m) with respect to those 

contributions for each plan year. Under 

§ 1.401(m)–1(b)(1), the matching 

contributions and employee 

contributions under a plan satisfy the 

nondiscrimination requirements for a 

plan year if the plan satisfies the actual 

contribution percentage (ACP) test of 

section 401(m)(2) described in 

§ 1.401(m)–2. 

The ACP test limits the disparity 

permitted between the percentage of 

compensation made as matching 

contributions and after-tax employee 

contributions for or by eligible highly 

compensated employees under the plan 

and the percentage of compensation 

made as matching contributions and 

after-tax employee contributions for or 

by eligible nonhighly compensated 

employees under the plan. If the ACP 

test limits are exceeded, the employer 

must take corrective action to ensure 

that the limits are met. In determining 

the amount of employer contributions 

made on behalf of an eligible employee, 

employers are allowed to take into 

account certain QNECs made on behalf 

of the employee by the employer. 

Employers must also take into account 

QMACs made on behalf of the employee 

by the employer unless an exclusion 

applies (including an exclusion for 


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34470 Federal Register / Vol. 83, No. 140 / Friday, July 20, 2018 / Rules and Regulations 

1The existing definitions of QMACs and QNECs 

in §§ 1.401(k)–6 and 1.401(m)–5 refer to the 

distribution requirements of § 1.401(k)–1(d). 

Section 1.401(k)–1(d) is more appropriately 

characterized as providing distribution limitations 

(consistent with the heading of § 1.401(k)–1d)). 

Accordingly, this preamble refers to distribution 

limitations rather than distribution requirements, 

and, as noted in the Explanation of Provisions 

section of this preamble, the definitions of QMACs 

and QNECs in §§ 1.401(k)–6 and 1.401(m)–5 are 

amended in the final regulations to refer to 

distribution limitations. 

QMACs that are taken into account 

under the ADP test). 

If an employer designs its plan to 

satisfy the ADP safe harbor of section 

401(k)(12), it may avoid performing the 

ACP test with respect to matching 

contributions under the plan, as long as 

the additional requirements of the ACP 

safe harbor of section 401(m)(11) are 

met. 

As defined in § 1.401(k)–6, QMACs 

and QNECs must satisfy the 

nonforfeitability requirements of 

§ 1.401(k)–1(c) and the distribution 

limitations 1 of § 1.401(k)–1(d) ‘‘when 

they are contributed to the plan.’’ 

Similarly, under the independent 

definitions in § 1.401(m)–5, QMACs and 

QNECs must satisfy the nonforfeitability 

requirements of § 1.401(k)–1(c) and the 

distribution limitations of § 1.401(k)– 

1(d) ‘‘at the time the contribution is 

made.’’ In general, contributions satisfy 

the nonforfeitability requirements of 

§ 1.401(k)–1(c) if they are immediately 

nonforfeitable within the meaning of 

section 411, and contributions satisfy 

the distribution limitations of 

§ 1.401(k)–1(d) if they may not be 

distributed before the employee’s death, 

disability, severance from employment, 

attainment of age 591⁄2, or hardship, or 

upon the termination of the plan. 

Before 2017, the Department of the 

Treasury (Treasury Department) and the 

Internal Revenue Service (IRS) received 

comments with respect to the 

definitions of QMACs and QNECs in 

§§ 1.401(k)–6 and 1.401(m)–5. In 

particular, commenters asserted that 

employer contributions should qualify 

as QMACs and QNECs as long as they 

satisfy applicable nonforfeitability 

requirements at the time they are 

allocated to participants’ accounts, 

rather than when they are first 

contributed to the plan. Commenters 

pointed out that interpreting sections 

401(k)(3)(D)(ii) and 401(m)(4)(C) to 

require satisfaction of applicable 

nonforfeitability requirements at the 

time amounts are first contributed to the 

plan would preclude plan sponsors with 

plans that permit the use of amounts in 

plan forfeiture accounts to offset future 

employer contributions under the plan 

from applying such amounts to fund 

QMACs and QNECs. This is because the 

amounts would have been allocated to 

the forfeiture accounts only after a 

participant incurred a forfeiture of 

benefits and, thus, generally would have 

been subject to a vesting schedule when 

they were first contributed to the plan. 

Commenters requested that QMAC and 

QNEC requirements not be interpreted 

to prevent the use of plan forfeitures to 

fund QMACs and QNECs. The 

commenters urged that the 

nonforfeitability requirements under 

§ 1.401(k)–6 should apply when QMACs 

and QNECs are allocated to participants’ 

accounts and not when the 

contributions are first made to the plan. 

In considering the comments, the 

Treasury Department and the IRS took 

into account that the nonforfeitability 

requirements applicable to QMACs and 

QNECs are intended to ensure that 

QMACs and QNECS provide 

nonforfeitable benefits for the 

participants who receive them. In 

accordance with that purpose, the 

Treasury Department and the IRS 

concluded that it is sufficient to require 

that amounts allocated to participants’ 

accounts as QMACs and QNECs be 

nonforfeitable at the time they are 

allocated to participants’ accounts, 

rather than when such contributions are 

made to the plan. 

Accordingly, on January 18, 2017, the 

Treasury Department and the IRS issued 

a notice of proposed rulemaking (REG– 

131643–15), which was published in the 

Federal Register (82 FR 5477). Under 

the notice of proposed rulemaking, the 

Treasury Department and the IRS 

proposed to amend § 1.401(k)–6 to 

provide that amounts used to fund 

QMACs and QNECs must be 

nonforfeitable and subject to 

distribution limitations in accordance 

with § 1.401(k)–1(c) and (d) when 

allocated to participants’ accounts, and 

to no longer require that amounts used 

to fund QMACs and QNECs satisfy the 

nonforfeitability requirements and 

distribution limitations when they are 

first contributed to the plan. As a result, 

forfeitures would be permitted to be 

used to fund QMACs and QNECs. No 

public hearing on the notice of proposed 

rulemaking was requested or held. 

Several comments on the proposed rules 

were submitted, and, after consideration 

of all the comments, the proposed 

regulations are adopted without 

substantive modification. 

This document contains amendments 

to 26 CFR part 1. 

Explanation of Provisions 

This document contains final 

regulations that amend the definitions 

of QMACs and QNECs to provide that 

employer contributions to a plan are 

QMACs or QNECs if they satisfy 

applicable nonforfeitability 

requirements and distribution 

limitations at the time they are allocated 

to participants’ accounts. Accordingly, 

these regulations permit forfeitures of 

prior contributions to be used to fund 

QMACs and QNECs. 

The Treasury Department and the IRS 

received five comments in response to 

the notice of proposed rulemaking that 

raised issues relating to the modification 

of the QMAC and QNEC definitions, 

including issues with respect to plan 

amendments and the pre-approved plan 

program, as described in Rev. Proc. 

2015–36, 2015–27 I.R.B. 20, Part III of 

Rev. Proc. 2016–37, 2016–29 I.R.B. 136, 

and Rev. Proc. 2017–41, 2017–29 I.R.B. 

92. The Treasury Department and the 

IRS determined that the comments 

relating to the pre-approved plan 

program are outside the scope of these 

regulations, which relate solely to the 

modification of the definitions of 

QMACs and QNECs. These comments 

have been shared with IRS Tax Exempt 

and Government Entities, Employee 

Plans, which administers the preapproved plan program. 

The comments also included 

questions relating to the application of 

section 411(d)(6) in cases in which a 

plan sponsor seeks to amend its plan to 

apply the rules in this regulation. The 

application of section 411(d)(6) is 

generally outside the scope of these 

regulations. However, if a plan sponsor 

adopts a plan amendment to define 

QMACs and QNECs in a manner 

consistent with these final regulations 

and applies that amendment 

prospectively to future plan years, 

section 411(d)(6) would not be 

implicated. Moreover, in the common 

case of a plan that provides that 

forfeitures will be used to pay plan 

expenses incurred during a plan year 

and that any remaining forfeitures in the 

plan at the end of the plan year will be 

allocated pursuant to a specified 

formula among active participants who 

have completed a specified number of 

hours of service during the plan year, 

section 411(d)(6) would not prohibit a 

plan amendment adopted before the end 

of the plan year that permits the use of 

forfeitures to fund QMACs and QNECs 

(even if, at the time of the amendment, 

one or more participants had already 

completed the specified number of 

hours of service). This is because all 

conditions for receiving an allocation 

will not have been satisfied at the time 

of the amendment, since one of the 

conditions for receiving an allocation is 

that plan expenses at the end of the plan 

year are less than the amount of 


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Federal Register / Vol. 83, No. 140 / Friday, July 20, 2018 / Rules and Regulations 34471 

forfeitures. See § 1.411(d)–4, Q&A– 

1(d)(8) (features that are not section 

411(d)(6) protected benefits include 

‘‘[t]he allocation dates for contributions, 

forfeitures, and earnings, the time for 

making contributions (but not the 

conditions for receiving an allocation of 

contributions or forfeitures for a plan 

year after such conditions have been 

satisfied), and the valuation dates for 

account balances’’). 

These regulations are substantively 

the same as the proposed regulations. 

However, the Treasury Department and 

the IRS have determined that the 

distribution requirements referred to in 

the existing definitions of QMACs and 

QNECs in §§ 1.401(k)–6 and 1.401(m)–5 

are more appropriately characterized as 

distribution limitations (consistent with 

the heading of § 1.401(k)–1(d)), and, 

accordingly, these definitions have been 

amended to refer to distribution 

limitations. 

Effective/Applicability Date 

These regulations are effective on July 

20, 2018. 

These regulations apply to plan years 

beginning on or after July 20, 2018. 

However, taxpayers may apply these 

regulations to earlier periods. 

Special Analyses 

This regulation is not subject to 

review under section 6(b) of Executive 

Order 12866 pursuant to the 

Memorandum of Agreement (April 11, 

2018) between the Department of the 

Treasury and the Office of Management 

and Budget regarding review of tax 

regulations. Because the regulation does 

not impose a collection of information 

on small entities, the Regulatory 

Flexibility Act (5 U.S.C. chapter 6) does 

not apply. Pursuant to section 7805(f) of 

the Internal Revenue Code, the notice of 

proposed rulemaking preceding these 

regulations was submitted to the Chief 

Counsel for Advocacy of the Small 

Business Administration for comment 

on its impact on small business. 

Statement of Availability of IRS 

Documents 

IRS Revenue Procedures, Revenue 

Rulings, notices and other guidance 

cited in this preamble are published in 

the Internal Revenue Bulletin (or 

Cumulative Bulletin) and are available 

from the Superintendent of Documents, 

U.S. Government Publishing Office, 

Washington, DC 20402, or by visiting 

the IRS website at http://www.irs.gov. 

Drafting Information 

The principal author of these 

regulations is Angelique Carrington, 

Office of Associate Chief Counsel (Tax 

Exempt and Governmental Entities). 

However, other personnel from the IRS 

and Treasury Department participated 

in the development of these regulations. 

List of Subjects in 26 CFR Part 1 

Income taxes, Reporting and 

recordkeeping requirements. 

Adoption of Amendments to the 

Regulations 

Accordingly, 26 CFR part 1 is 

amended as follows: 

PART 1—INCOME TAXES 

■ Paragraph 1. The authority citation 

for part 1 continues to read in part as 

follows: 

Authority: 26 U.S.C. 401(m)(9) and 26 

U.S.C. 7805. * * * 

■ Par. 2. Section 1.401(k)–1 is amended 

by adding paragraph (g)(5) to read as 

follows: 

§ 1.401(k)–1 Certain cash or deferred 

arrangements. 

* * * * * 

(g) * * * 

(5) Applicability date for definitions 

of qualified matching contributions 

(QMACs) and qualified nonelective 

contributions (QNECs). The revisions to 

the second sentence in the definitions of 

QMACs and QNECs in § 1.401(k)–6 

apply to plan years ending on or after 

July 20, 2018. 

■ Par. 3. Section 1.401(k)–6 is amended 

by revising the second sentence in the 

definitions of Qualified matching 

contributions (QMACs) and Qualified 

nonelective contributions (QNECs) to 

read as follows: 

§ 1.401(k)–6 Definitions. 

* * * * * 

Qualified matching contributions 

(QMACs). * * * Thus, the matching 

contributions must satisfy the 

nonforfeitability requirements of 

§ 1.401(k)–1(c) and be subject to the 

distribution limitations of § 1.401(k)– 

1(d) when they are allocated to 

participants’ accounts. * * * 

Qualified nonelective contributions 

(QNECs). * * * Thus, the nonelective 

contributions must satisfy the 

nonforfeitability requirements of 

§ 1.401(k)–1(c) and be subject to the 

distribution limitations of § 1.401(k)– 

1(d) when they are allocated to 

participants’ accounts. 

* * * * * 

■ Par. 4. Section 1.401(m)–1 is amended 

by adding paragraph (d)(4) to read as 

follows: 

§ 1.401(m)–1 Employee contributions and 

matching contributions. 

* * * * * 

(d) * * * 

(4) Effective date for definitions of 

qualified matching contributions 

(QMACs) and qualified nonelective 

contributions (QNECs). The revisions to 

the definitions of QMACs and QNECs in 

§ 1.401(m)–5 apply to plan years ending 

on or after July 20, 2018. 

■ Par. 5. Section 1.401(m)–5 is 

amended by revising the definitions of 

Qualified matching contributions 

(QMACs) and Qualified nonelective 

contributions (QNECs) to read as 

follows: 

§ 1.401(m)–5 Definitions. 

* * * * * 

Qualified matching contributions 

(QMACs). Qualified matching 

contributions or QMACs means 

qualified matching contributions or 

QMACs as defined in § 1.401(k)–6. 

Qualified nonelective contributions 

(QNECs). Qualified nonelective 

contributions or QNECs means qualified 

nonelective contributions or QNECs as 

defined in § 1.401(k)–6. 

Kirsten Wielobob, 

Deputy Commissioner for Services and 

Enforcement. 

Approved: July 13, 2018. 

David J. Kautter, 

Assistant Secretary of the Treasury (Tax 

Policy). 

[FR Doc. 2018–15495 Filed 7–19–18; 8:45 am] 

BILLING CODE 4830–01–P 

DEPARTMENT OF DEFENSE 

Office of the Secretary 

32 CFR Part 175 

RIN 0790–AJ54 

[Docket ID: DOD–2016–OS–0108] 

Indemnification or Defense, or 

Providing Notice to the Department of 

Defense, Relating to a Third-Party 

Environmental Claim 

AGENCY: Department of Defense (DoD). 

ACTION: Final rule. 

SUMMARY: The DoD is identifying the 

proper address and notification method 

for an entity making a request for 

indemnification or defense, or providing 

notice to DoD, of a third-party claim 

under section 330 of the National 

Defense Authorization Act for Fiscal 

Year 1993, as amended (hereinafter 

‘‘section 330’’), or under section 1502(e) 

of the Floyd D. Spence National Defense 

Authorization Act for Fiscal Year 2001, 

(hereinafter ‘‘section 1502(e)’’). This 

rule also identifies the documentation 


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