This section of the FEDERAL REGISTER

contains notices to the public of the proposed

issuance of rules and regulations. The

purpose of these notices is to give interested

persons an opportunity to participate in the

rule making prior to the adoption of the final

rules.

Proposed Rules Federal Register

4976 

Vol. 81, No. 19 

Friday, January 29, 2016 

1See § 1.401(a)(4)–8(c)(2)(ii) and § 1.401(a)(4)–12 

(definition of standard interest rate). This standard 

interest rate is used to determine assumed growth 

of a defined contribution plan account and to 

convert the projected account balance to an annuity 

at normal retirement age. 

2This higher minimum contribution rate is 

required under § 1.401(a)(4)–8(b)(1)(i)(B)(3) and 

(b)(1)(vi). 

3See § 1.401(a)(4)–8(b)(1)(i)(B)(1) and (2), 

(b)(1)(iii), and (b)(1)(iv). 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Part 1 

[REG–125761–14] 

RIN 1545–BM58 

Nondiscrimination Relief for Closed 

Defined Benefit Pension Plans and 

Additional Changes to the Retirement 

Plan Nondiscrimination Requirements 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Notice of proposed rulemaking 

and notice of public hearing. 

SUMMARY: This document contains 

proposed regulations that modify the 

nondiscrimination requirements 

applicable to certain retirement plans 

that provide additional benefits to a 

grandfathered group of employees 

following certain changes in the 

coverage of a defined benefit plan or a 

defined benefit plan formula. The 

proposed regulations also make certain 

other changes to the nondiscrimination 

rules that are not limited to these plans. 

These regulations would affect 

participants in, beneficiaries of, 

employers maintaining, and 

administrators of tax-qualified 

retirement plans. 

DATES: Written or electronic comments 

and must be received by April 28, 2016. 

Outlines of topics to be discussed at the 

public hearing scheduled for May 19, 

2016 at 10 a.m., must be received by 

April 28, 2016. 

ADDRESSES: Send submissions to: 

CC:PA:LPD:PR (REG–125761–14), Room 

5203, Internal Revenue Service, P.O. 

Box 7604, Ben Franklin Station, 

Washington DC 20044. Submissions 

may be hand-delivered Monday through 

Friday between the hours of 8 a.m. and 

4 p.m. to: CC:PA:LPD:PR (REG–125761– 

14), Courier’s Desk, Internal Revenue 

Service, 1111 Constitution Avenue NW., 

Washington, DC, or sent electronically 

via the Federal eRulemaking Portal at 

http://www.regulations.gov (IRS REG– 

125761–14). 

FOR FURTHER INFORMATION CONTACT: 

Concerning the regulations, Kelly C. 

Scanlon and Linda S. F. Marshall at 

(202) 317–6700; concerning submissions 

of comments, the hearing, and/or being 

placed on the building access list to 

attend the hearing, Oluwafunmilayo 

(Funmi) Taylor at (202) 317–6901 (not 

toll-free numbers). 

SUPPLEMENTARY INFORMATION: 

Background 

Section 401(a)(4) provides generally 

that a plan is a qualified plan only if the 

contributions or benefits provided 

under the plan do not discriminate in 

favor of highly compensated employees. 

In 1991, the Treasury Department and 

the IRS issued comprehensive 

regulations under section 401(a)(4) (TD 

8360, 56 FR 47524) setting forth several 

alternative methods for testing 

compliance with this statutory 

requirement. In 1993, the Treasury 

Department and the IRS made 

significant amendments to those 

regulations (TD 8485, 58 FR 46773). 

Under the section 401(a)(4) 

regulations, a plan is permitted to 

demonstrate that either the 

contributions or the benefits provided 

under the plan are nondiscriminatory in 

amount, regardless of whether the plan 

is a defined benefit or defined 

contribution plan. See § 1.401(a)(4)– 

1(b)(2). In order to test a defined 

contribution plan on the basis of 

benefits, the amounts allocated to 

employees under the plan must be 

converted to equivalent benefits. This 

conversion is done using an interest rate 

between 7.5% and 8.5%.1 In addition, 

for purposes of section 401(a)(4), a 

defined benefit plan and a defined 

contribution plan are permitted to be 

aggregated and treated as a single plan 

pursuant to § 1.401(a)(4)–9, which refers 

to such an aggregated plan as a DB/DC 

plan. 

After issuance of the final regulations, 

a new type of plan design developed. 

This type of plan is often referred to as 

a ‘‘new comparability’’ plan and is 

typically a defined contribution plan 

that provides higher allocation rates to 

an older and more highly compensated 

group of employees. This type of plan 

nonetheless satisfies the 

nondiscrimination requirements by 

testing the contributions on the basis of 

equivalent benefits because the 

conversion to equivalent benefits 

reflects assumed growth to normal 

retirement age and therefore results in 

relatively lower equivalent benefits for 

the highly compensated employees who 

are closer to normal retirement age. The 

Treasury Department and the IRS 

concluded that this type of plan was 

inconsistent with the intent behind the 

nondiscrimination regulations. 

Consequently, the Treasury Department 

and the IRS amended the section 

401(a)(4) regulations in 2001 to require 

that a new comparability plan provide 

a higher minimum contribution to 

nonhighly compensated employees 2 in 

order for the plan to be eligible to 

demonstrate compliance with the 

nondiscrimination requirements of 

section 401(a)(4) on the basis of 

equivalent benefits (TD 8954, 66 FR 

34535) (the ‘‘2001 amendments’’). 

This higher minimum contribution 

requirement was directed at the new 

comparability plans. Other defined 

contribution plans that provide 

‘‘broadly available allocation rates’’ or 

allocation rates that are ‘‘based on a 

gradual age or service schedule’’ are not 

subject to the higher minimum 

contribution requirement even if they 

demonstrate compliance with the 

nondiscrimination requirements of 

section 401(a)(4) on the basis of 

equivalent benefits.3 In addition, under 

the 2001 amendments, defined benefit 

replacement allocations (‘‘DBRAs’’) may 

be disregarded when determining 

whether a defined contribution plan has 

broadly available allocation rates. The 

2001 amendments also prescribe rules 

regarding DB/DC plans that provide for 

benefits in a manner similar to new 

comparability plans. Under these rules 

(contained in § 1.401(a)(4)–9(b)(2)(v)), in 

order for a DB/DC plan to be eligible to 

demonstrate compliance with the 

section 401(a)(4) nondiscrimination 

requirements on the basis of equivalent 

benefits, it must satisfy a minimum 


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4 Generally, in order to be eligible for the relief 

provided by Notice 2014–5, each defined benefit 

plan that is part of an aggregated DB/DC plan must 

have satisfied the requirements of section 401(a)(4) 

without using the minimum aggregate allocation 

gateway under § 1.401(a)(4)–9(b)(2)(v)(D). Thus, the 

defined benefit plan must have either been 

primarily defined benefit in character (within the 

meaning of § 1.401(a)(4)–9(b)(2)(v)(B)), consisted of 

broadly available separate plans (within the 

meaning of § 1.401(a)(4)–9(b)(2)(v)(C)), or satisfied 

the applicable nondiscrimination rules without 

being aggregated with a DC plan. 

5Section 1.401(a)(4)–4 provides rules for 

determining whether the benefits, right, and 

features provided under a plan are made available 

in a nondiscriminatory manner. Under these rules, 

each benefit, right, or feature must satisfy the 

current availability requirement of § 1.401(a)(4)– 

4(b) (which requires testing of the group to which 

the benefit, right, or feature is currently available) 

and the effective availability requirement of 

§ 1.401(a)(4)–4(c) (which requires that the group of 

employees to whom the benefit, right, or feature is 

effectively available must not substantially favor 

highly compensated employees). 

aggregate allocation gateway unless the 

DB/DC plan either fits within the 

definition of ‘‘primarily defined benefit 

in character’’ or consists of ‘‘broadly 

available separate plans.’’ This 

minimum aggregate allocation gateway 

requires a minimum allocation rate (or 

equivalent allocation rate) for each 

nonhighly compensated employee. 

Since 2001, a number of employers 

have moved away from providing 

retirement benefits through traditional 

defined benefit plans. In many of these 

cases, employers have either 

significantly changed the type of benefit 

formula provided under the plan (such 

as in the case of a conversion to a cash 

balance plan), or have prohibited new 

employees from entering the plan 

entirely. The employers may then have 

allowed employees who had already 

begun participation in the defined 

benefit plan (or who are older or have 

been credited with longer service under 

the plan) to continue to earn pension 

benefits under the defined benefit plan 

while closing the plan or formula to all 

other employees. These defined benefit 

plans are sometimes referred to as 

‘‘closed plans,’’ and the employees who 

continue to earn pension benefits under 

the closed plan are often known as a 

‘‘grandfathered group of employees.’’ In 

situations in which new employees 

continue to earn benefits under the 

defined benefit plan, but are under a 

new formula, any formula that 

continues to apply to a grandfathered 

group of employees is sometimes 

referred to as a ‘‘closed formula.’’ 

Closed plans are required to meet the 

coverage rules under section 410(b) and 

the nondiscrimination rules under 

section 401(a)(4) (including a 

nondiscrimination requirement 

regarding the availability of benefits, 

rights, and features). Many closed plans, 

however, may eventually find it difficult 

to meet these requirements because the 

proportion of the grandfathered group of 

employees who are highly compensated 

employees compared to the employer’s 

total workforce increases over time. This 

occurs because members of the 

grandfathered group of employees 

usually continue to receive pay raises 

(and so may become highly 

compensated employees), and new 

employees (who are generally nonhighly 

compensated employees) are not 

covered by the closed plan. 

When a closed defined benefit plan 

can no longer meet the 

nondiscrimination requirements on a 

stand-alone basis because of the 

demographic changes previously 

described, it can demonstrate 

compliance with section 401(a)(4) by 

aggregating with the employer’s defined 

contribution plan. In general, it is easier 

to meet the nondiscrimination 

requirements if the resulting DB/DC 

plan demonstrates compliance with 

section 401(a)(4) based on the benefits 

or equivalent benefits provided to the 

employees (rather than based on 

contributions). 

On January 6, 2014, the Treasury 

Department and the IRS published 

Notice 2014–5, 2014–2 I.R.B. 276. 

Notice 2014–5 provided temporary 

nondiscrimination relief for certain 

closed plans. Specifically, under Notice 

2014–5, if certain criteria are satisfied,4

a plan sponsor is permitted to test a DB/ 

DC plan that includes a closed plan that 

was closed before December 13, 2013, 

on a benefits basis for plan years 

beginning before January 1, 2016, 

without complying with the minimum 

aggregate allocation gateway, even if 

that would otherwise be required under 

the current regulations. Notice 2015–28, 

2015–14 I.R.B. 848, extended that relief 

for an additional year by applying it to 

plan years beginning before 2017 

provided that the conditions of Notice 

2014–5 are satisfied. 

Notice 2014–5 also requested 

comments on whether the section 

401(a)(4) regulations should be 

amended to provide additional 

alternatives that would allow a DB/DC 

plan to satisfy the nondiscrimination in 

amount requirements on the basis of 

equivalent benefits, and whether certain 

other permanent changes should be 

made to the nondiscrimination 

regulations, such as modifications to the 

rules regarding nondiscriminatory 

benefits, rights, and features.5 The 

comments received in response to 

Notice 2014–5 generally supported 

these types of changes. In addition, all 

of the commenters requested permanent 

changes to the nondiscrimination 

requirements in order to make it easier 

for closed plans to continue to satisfy 

the nondiscrimination requirements. 

The Treasury Department and the IRS 

agree that permanent changes to the 

nondiscrimination rules should be made 

in order to help employers and plan 

sponsors preserve the retirement 

expectations of certain grandfathered 

groups of employees. These changes are 

meant to apply to situations in which 

the proportion of the grandfathered 

group of employees who are highly 

compensated employees compared to 

the employer’s total workforce has 

increased due to ordinary demographic 

changes, as previously described in this 

preamble. 

Explanation of Provisions 

I. Overview 

The proposed regulations modify a 

number of provisions in the existing 

regulations under section 401(a)(4) to 

address situations and plan designs, 

including closed plans and formulas, 

that were not contemplated in the 

development of the regulations and the 

2001 amendments. While many of the 

changes in the proposed regulations 

provide nondiscrimination relief for 

certain closed plans and formulas, the 

proposed regulations also include other 

changes that are not limited to closed 

plans and formulas. 

II. Rules Related to Closed Plans and 

Similar Arrangements 

The proposed regulations set forth 

special rules that allow closed plans and 

similar arrangements to satisfy the 

nondiscrimination rules in additional 

situations. These special rules are based 

on the existing rules for DBRAs, as 

modified to respond to concerns raised 

by stakeholders with respect to those 

existing rules. 

Under the proposed regulations, the 

eligibility conditions set forth in the 

modified DBRA rules (described in 

section II.A of this portion of the 

preamble) provide a framework for the 

eligibility conditions for the snapshot 

rule related to closed plans in a DB/DC 

plan (described in section II.B of this 

portion of the preamble). The modified 

DBRA rules are also used as a basis for 

the special testing rule for benefits, 

rights, and features provided to a 

grandfathered group of employees 

(described in section II.C of this portion 

of the preamble). For example, the 

special testing rule for a benefit, right, 

or feature provided to a grandfathered 

group of employees under a defined 

contribution plan establishes 

nondiscrimination relief for matching 

contributions provided to a 


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4978 Federal Register / Vol. 81, No. 19 / Friday, January 29, 2016 / Proposed Rules 

grandfathered group of employees who 

formerly participated in a defined 

benefit plan that is intended to be 

consistent with the nondiscrimination 

relief provided by the modified DBRA 

rules for nonelective contributions 

provided to such a grandfathered group 

of employees. 

A. Modifications to the DBRA Rules 

Under § 1.401(a)(4)–8 

The proposed regulations modify the 

rules applicable to DBRAs under 

§ 1.401(a)(4)–8, which allow certain 

defined contribution plan allocations to 

be disregarded when determining 

whether a defined contribution plan has 

broadly available allocation rates. The 

rules applicable to DBRAs allow 

employers to provide, in a 

nondiscriminatory manner, certain 

allocations to replace defined benefit 

plan retirement benefits without having 

to satisfy the minimum aggregate 

allocation gateway. The modifications 

in the proposed regulations are intended 

to allow more allocations to fit within 

the DBRA rules. For example, under the 

existing regulations a DBRA must be 

reasonably designed to replace the 

benefits that would have been provided 

under the closed defined benefit plan. 

The proposed regulations provide 

greater flexibility in this respect and 

allow the allocations to be reasonably 

designed to replace some or all of the 

benefits that would have been provided 

under the closed plan, subject to a 

requirement that the allocations be 

provided in a consistent manner to all 

similarly situated employees. 

The proposed regulations incorporate 

a modified version of the conditions for 

an allocation to be a DBRA that were 

reflected in Rev. Rul. 2001–30, 2001–2 

C.B. 46. For example, under one of the 

conditions set forth in Rev. Rul. 2001– 

30, in order for an allocation to be a 

DBRA, the defined benefit plan’s benefit 

formula for the group of employees who 

formerly benefitted under that plan 

must have generated equivalent normal 

allocation rates that increased from year 

to year as employees attained higher 

ages. The proposed regulations ease this 

restriction on the types of defined 

benefit plans with respect to which a 

DBRA can be provided by allowing a 

DBRA also to replace the benefit 

provided under a defined benefit plan 

with a benefit formula that generated 

equivalent normal allocation rates that 

increased from year to year as 

employees were credited with 

additional years of service (rather than 

only as the employees attained higher 

ages). 

The existing regulation also requires 

that the group of employees who receive 

a DBRA must be a nondiscriminatory 

group of employees, and Rev. Rul. 

2001–30 interprets this rule as requiring 

that the group of employees satisfy the 

minimum coverage requirements of 

section 410(b) (determined without 

regard to the average benefit percentage 

test). The proposed regulations 

incorporate this interpretation, but limit 

its application so that the rule only 

applies for the first 5 years after the 

closure date. In addition, the proposed 

regulations incorporate the 

interpretation in Rev. Rul. 2001–30 

regarding whether the defined benefit 

plan was an established 

nondiscriminatory defined benefit plan 

by requiring that the closed plan be in 

effect for 5 years before the closure date 

(with one year substituted for 5 years, as 

provided by Rev. Rul. 2001–30, in the 

case of a defined benefit plan 

maintained by a former employer) with 

no substantial change to the closed plan 

during that time (except for certain 

permitted amendments allowed by the 

proposed regulations). 

In addition, the proposed regulations 

expand the list of permitted 

amendments to a closed plan that do not 

prevent allocations under a plan from 

being DBRAs. For example, the 

proposed regulations permit an 

amendment to a closed plan during the 

5-year period before it was closed, 

provided that the amendment does not 

increase the accrued benefit or future 

accruals for any employee, does not 

expand coverage, and does not reduce 

the ratio-percentage under any 

applicable nondiscrimination test. In 

addition, under the proposed 

regulations, an amendment during this 

period could extend coverage to an 

acquired group of employees provided 

that all similarly situated employees 

within that group are treated in a 

consistent manner. 

As under the existing regulations, the 

proposed regulations contain a general 

restriction on plan amendments relating 

to a DBRA; however, the proposed 

regulations expand the list of plan 

amendments that are excepted from this 

rule. The proposed regulations retain 

the exception from this restriction on 

plan amendments for an amendment 

that makes de minimis changes in the 

calculation of a DBRA and for an 

amendment that adds or removes a 

‘‘greater-of’’ plan provision (under 

which a participant receives the greater 

of the otherwise applicable allocation 

and the DBRA). In addition, the 

proposed regulations provide an 

exception from this restriction for any 

plan amendment modifying a DBRA 

that does not reduce the ratio percentage 

under any applicable nondiscrimination 

test. 

B. Closed Plan Rule Added to the Plan 

Aggregation and Restructuring Rules 

Under § 1.401(a)(4)–9 

The proposed regulations add a new 

exception to the requirement that a DB/ 

DC plan must satisfy the minimum 

aggregate allocation gateway once the 

other conditions under § 1.401(a)(4)–9 

are not met (the ‘‘closed plan rule’’). 

This closed plan rule, which applies to 

a DB/DC plan that includes a closed 

plan, provides an exception to the 

minimum aggregate allocation gateway 

that would otherwise apply, but only if 

the closed plan was in effect for 5 years 

before the closure date and no 

significant change was made to the 

closed plan during or since that time 

(except for certain permitted 

amendments). 

The DB/DC plan may use this closed 

plan rule for a plan year that begins on 

or after the fifth anniversary of the 

closure date. To be eligible for the 

closed plan rule, during the 5-year 

period following the closure date, either 

the DB/DC plan must satisfy the 

nondiscrimination in amount 

requirement of section 401(a)(4) without 

using the minimum aggregate allocation 

gateway, or the closed plan must satisfy 

that requirement without aggregation 

with any defined contribution plan. 

This requirement is comparable to the 

requirement that the group of employees 

who receive DBRAs must be a group of 

employees who satisfy the minimum 

coverage requirements of section 410(b). 

Under the proposed regulations, 

certain amendments to a closed defined 

benefit plan do not prevent the plan 

from using the closed plan rule. These 

plan amendments are intended to allow 

a plan sponsor of a closed plan to 

address changed circumstances. For 

example, under the proposed 

regulations, a plan amendment during 

the 5-year period ending on the closure 

date does not prevent the plan from 

later using the closed plan rule, 

provided that the plan amendment does 

not increase the accrued benefit or 

future accruals for any employee, does 

not expand coverage, and does not 

reduce the ratio percentage under any 

applicable nondiscrimination test. 

Similarly, an amendment to the closed 

plan is permitted after the closure date, 

provided that the amendment does not 

reduce the ratio percentage under any 

applicable nondiscrimination test. Thus, 

for example, under the proposed 

regulations, a plan sponsor may add 

nonhighly compensated employees to a 

coverage group after it is closed in order 

to satisfy the nondiscrimination rules. 


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6The existing regulations provide a special rule 

for current availability testing for a benefit, right, or 

feature that applies solely to benefits accrued before 

the amendment date. See § 1.401(a)(4)–4(d)(2). 

De minimis changes to the closed plan’s 

benefit formula are also permitted under 

the proposed regulations. 

C. Special Testing Rule for the 

Nondiscriminatory Availability of a 

Benefit, Right, or Feature Provided to a 

Grandfathered Group of Employees 

Under § 1.401(a)(4)–4 

The proposed regulations establish a 

special nondiscrimination testing rule 

under § 1.401(a)(4)–4 that applies if a 

benefit, right, or feature is made 

available only to a grandfathered group 

of employees with respect to a closed 

plan. This special rule provides relief in 

certain circumstances from certain 

nondiscrimination testing for a benefit, 

right, or feature provided under the 

closed plan, or for a rate of matching 

contributions provided to a 

grandfathered group under a defined 

contribution plan. 

If the eligibility conditions are 

satisfied, the special testing rule treats a 

benefit, right, or feature that is provided 

only to a grandfathered group of 

employees as satisfying the current and 

effective availability tests of 

§ 1.401(a)(4)–4(b) and (c). The special 

testing rule applies to plan years 

beginning on or after the fifth 

anniversary of the closure date and 

applies on a plan-year by plan-year 

basis. To be eligible for the special 

testing rule, the benefit, right or feature 

must be currently available to a group 

of employees that satisfies the minimum 

coverage requirements of section 410(b) 

for the plan years that begin within 5 

years after the closure date. Once the 

special testing rule applies to a benefit, 

right, or feature, the special testing rule 

continues to apply for purposes of that 

benefit, right, or feature indefinitely 

(unless a later amendment changes the 

eligibility for the benefit, right, or 

feature). If a plan amendment changes 

the eligibility for the benefit, right, or 

feature after the closure date, then the 

special testing rule will cease to apply 

(subject to certain specified exceptions). 

If the benefit, right, or feature that is 

available solely to a grandfathered group 

of employees is provided under a 

defined benefit plan, then it must be 

provided under the closed plan (rather 

than a different defined benefit plan). 

This is because the purpose of the 

special rule is to accommodate a plan 

amendment under which the benefit 

formula has been changed, but the prior 

benefit formula has been preserved for 

a grandfathered group of employees and 

the benefit, right, or feature is made 

available only to the grandfathered 

group of employees who continue to 

accrue benefits under the prior benefit 

formula.6 Accordingly, the special 

testing rule is available only if the 

amendment restricting the availability 

of the benefit, right, or feature also 

resulted in a significant change in the 

type of the defined benefit plan’s 

formula. For example, a conversion to a 

cash balance plan would be a significant 

change in the type of benefit formula, so 

that the special testing rule would apply 

to facilitate preservation of any 

subsidized early retirement factors for 

the employees who continue to benefit 

under the prior benefit formula. By 

contrast, in the case of a benefit formula 

that determines benefits as a percentage 

of compensation, a change in that 

formula to reduce that percentage would 

not be considered a significant change 

in the type of benefit formula, even if 

the reduction is large. 

The special testing rule for a benefit, 

right, or feature provided under the 

closed plan also requires that the 

benefit, right, or feature has been in 

effect without being amended for a 5- 

year period before the closure date 

(subject to a limited exception for 

acquired employees). This rule is 

designed to ensure that the special 

treatment is available only for a longstanding provision and cannot be used 

for a benefit, right, or feature that has 

not been provided long enough for 

participants to have established a 

reasonable expectation that it will 

continue. In addition, this rule prevents 

a plan sponsor from obtaining special 

treatment for a benefit, right, or feature 

added shortly before and in anticipation 

of the closure of the plan. The proposed 

regulations set forth a list of permitted 

plan amendments that do not result in 

the loss of this special testing rule that 

are generally comparable to the list of 

permitted amendments for other closed 

plan arrangements. 

The special testing rule also applies to 

a rate of matching contributions under 

a defined contribution plan that meets 

certain requirements. In order to be 

eligible for this testing rule, the rate of 

matching contributions must be 

reasonably designed so that the 

matching contributions will replace 

some or all of the value of the benefit 

accruals that each employee in the 

grandfathered group of employees 

would have been provided under the 

closed plan in the absence of a closure 

amendment. In addition, the rate of 

matching contributions for the 

grandfathered group of employees must 

be provided in a consistent manner to 

all similarly situated employees. 

III. Modification of Testing Options 

Under § 1.401(a)(4)–9 for DB/DC Plans, 

Including DB/DC Plans That Do Not 

Include a Closed Plan 

In addition to providing a special rule 

for closed plans and similar 

arrangements, the proposed regulations 

generally ease the rules under which 

any DB/DC plan can satisfy the 

nondiscrimination in amount 

requirement on the basis of benefits. 

These changes are intended to facilitate 

the ongoing maintenance of a defined 

benefit plan that provides coverage to a 

group of employees that is determined 

using a reasonable business 

classification. 

The proposed regulations expand the 

ability to use the average of the 

equivalent allocation rates under the 

defined benefit plan for purposes of 

satisfying the minimum aggregate 

allocation gateway by permitting the 

averaging of allocation rates for 

nonhighly compensated employees 

under the defined contribution plan for 

this purpose. This modification is 

intended to better accommodate plan 

sponsors that have a defined 

contribution plan with service- or agebased allocation formulas. The Treasury 

Department and the IRS have 

determined that it is appropriate, in this 

context, to allow shorter-service 

nonhighly compensated employees to 

be provided less than the minimum 

aggregate allocation gateway rate, as 

long as longer-service nonhighly 

compensated employees are provided 

allocation rates that are sufficiently 

higher than the minimum aggregate 

allocation gateway rate. The Treasury 

Department and the IRS are considering 

whether any restrictions on this rule are 

appropriate so that the rule serves its 

intended purpose of facilitating 

formulas that provide higher allocation 

rates to longer-service nonhighly 

compensated employees, and invite 

comments on ways to permit 

appropriate flexibility while ensuring 

the provision is not used to circumvent 

the purpose of the nondiscrimination 

rules. 

The proposed regulations also include 

a limitation on the averaging of rates 

that applies to both defined contribution 

and defined benefit plans in order to 

minimize the impact of outliers. In 

general, this special rule applies a cap 

under which any equivalent normal 

allocation rate or allocation rate in 

excess of 15% is treated as equal to 

15%. However, this cap is raised to 25% 

for any allocation rate or equivalent 

normal allocation rate that results solely 


jstallworth on DSK7TPTVN1PROD with PROPOSALS
4980 Federal Register / Vol. 81, No. 19 / Friday, January 29, 2016 / Proposed Rules 

7Under the existing regulations, the 

nondiscrimination requirements of section 401(a)(4) 

and the coverage rules of section 410(b) are 

coordinated. The general test under the section 

401(a)(4) regulations is applied by determining 

whether each rate group under the plan (that is, for 

each highly compensated employee, the group of 

employees with a benefit or contribution rate that 

is greater than or equal to the benefit or 

contribution rate for the highly compensated 

employee) satisfies section 410(b) as if it were a 

plan. 

from a plan design providing allocation 

rates or generating equivalent normal 

allocation rates that are a function of age 

or service under which higher rates are 

provided to older or longer-service 

employees. 

In addition, under the proposed 

regulations, the average of the matching 

contributions actually made for 

nonhighly compensated employees may 

be used to a limited extent (up to 3 

percent of compensation) for purposes 

of determining whether each nonhighly 

compensated employee satisfies the 

minimum aggregate allocation gateway 

test. Thus, for example, if the minimum 

aggregate allocation gateway is 7% and 

the average of the matching 

contributions actually made for 

nonhighly compensated employees is 

3%, then a non-elective contribution of 

4% for each individual would be 

needed in order to satisfy the minimum 

aggregate allocation gateway under the 

proposed regulations. The regulations 

use the average matching contributions, 

rather than matching contributions 

allocated for each employee, in order to 

avoid diluting the incentive effect of an 

employer match. 

The proposed regulations also provide 

a new alternative to the minimum 

aggregate allocation gateway. Under this 

alternative, a DB/DC plan is not 

required to satisfy the minimum 

aggregate allocation gateway if it can 

satisfy the nondiscrimination in amount 

requirement on the basis of equivalent 

benefits using an interest rate of 6%, 

rather than the current standard interest 

rate of between 7.5% and 8.5%. 

IV. Benefit Formulas for Individual 

Employees or Groups Without a 

Reasonable Business Purpose; 

Modifications to the Amounts Testing 

Rules Under § 1.401(a)(4)–2 and 

§ 1.401(a)(4)–3 

The proposed regulations also include 

changes to address certain arrangements 

that take advantage of the flexibility in 

the existing nondiscrimination rules 7 to 

provide a special benefit formula for 

selected employees without extending 

that formula to a classification of 

employees that is reasonable and is 

established under objective business 

criteria. A plan satisfies the minimum 

coverage requirements of section 410(b) 

if the plan’s ratio percentage is 70% or 

higher or the plan satisfies the average 

benefit test. To satisfy the average 

benefit test, pursuant to § 1.410(b)–4, 

the group of employees must be 

determined using a classification that is 

reasonable and that is established under 

objective business criteria pursuant to 

§ 1.410(b)–4(b) and must have a ratio 

percentage that is described in 

§ 1.410(b)–4(c) (which includes safe 

harbor and unsafe harbor percentages). 

A classification of employees that is 

reasonable and is established under 

objective business criteria is referred to 

in this preamble as a ‘‘reasonable 

business classification.’’ To the extent 

that a plan provides a special benefit 

formula and can still pass the 

nondiscrimination requirements, the 

plan sponsor can use a qualified 

retirement plan to provide benefits that 

would otherwise be provided under a 

nonqualified plan. These arrangements 

are sometimes referred to as qualified 

supplemental executive retirement 

plans (or QSERPs). 

Under the general test in the existing 

regulations, if a plan satisfies the 

minimum coverage requirements of 

section 410(b) using the average benefit 

percentage test, then the rate group for 

each highly compensated employee is 

treated as satisfying the minimum 

coverage requirements if the ratio 

percentage for the rate group is equal to 

the midpoint between the safe harbor 

and the unsafe harbor percentages (or 

the ratio percentage for the plan as a 

whole, if less). This rule recognizes that 

the composition of a rate group may be 

unpredictable and so the rate group 

should not be subject to a reasonable 

business classification standard. 

However, that same consideration is not 

relevant if the group of employees to 

whom the allocation formula under a 

defined contribution plan (or benefit 

formula under a defined benefit plan) 

applies is not a reasonable business 

classification. 

Accordingly, the proposed regulations 

limit the existing rule under which a 

rate group with respect to a highly 

compensated employee is treated as 

satisfying the average benefit percentage 

test to those situations in which the 

allocation formula (or benefit formula) 

that applies to the highly compensated 

employee also applies to a reasonable 

business classification. For example, if a 

benefit formula applies solely to a 

highly compensated employee who is 

identified by name, it does not apply to 

a reasonable business classification. See 

§ 1.410(b)–4(b). In such a case, the 

proposed regulations would require that 

the rate group with respect to that 

individual satisfy the ratio percentage 

test. 

Proposed Applicability Date 

Except as described below, these 

regulations are proposed to be 

applicable to plan years beginning on or 

after the date of publication of the 

Treasury decision adopting these rules 

as final regulations in the Federal 

Register. Taxpayers are permitted to 

apply the provisions of these proposed 

regulations except for those described in 

section III of the Explanation of 

Provisions portion of the preamble for 

plan years beginning before this 

proposed applicability date, but not for 

plan years earlier than those beginning 

on or after January 1, 2014. Accordingly, 

the ability to rely on a provision of these 

proposed regulations for periods prior to 

the proposed applicability date for these 

regulations applies to the disregard of 

certain defined benefit replacement 

allocations in cross-testing; the 

exception from the minimum aggregate 

allocation gateway with respect to 

certain closed plans; the special testing 

rule for benefits, rights, and features 

with respect to certain closed plans; and 

the rule applying the ratio percentage 

test to a rate group in the case of a 

benefit formula that does not apply to a 

reasonable business classification. 

Taxpayers may rely on these provisions 

(that is, the provisions that the proposed 

regulations would permit a taxpayer to 

apply before the proposed applicability 

date for these regulations) in order to 

satisfy the nondiscrimination 

requirements of section 401(a)(4) for 

plan years beginning on or after January 

1, 2014, and until the corresponding 

final regulations become applicable. 

Special Analyses 

Certain IRS regulations, including this 

one, are exempt from the requirements 

of Executive Order 12866, as 

supplemented and reaffirmed by 

Executive Order 13563. Therefore, a 

regulatory impact assessment is not 

required. It also has been determined 

that section 553(b) of the Administrative 

Procedure Act (5 U.S.C. chapter 5) does 

not apply to these regulations, and 

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, these 

regulations have been submitted to the 

Chief Counsel for Advocacy of the Small 

Business Administration for comment 

on their impact on small business. 


jstallworth on DSK7TPTVN1PROD with PROPOSALS
Federal Register / Vol. 81, No. 19 / Friday, January 29, 2016 / Proposed Rules 4981 

Comments and Public Hearing 

Before these proposed regulations are 

adopted as final regulations, 

consideration will be given to any 

comments that are submitted timely to 

the IRS as prescribed in this preamble 

under the ADDRESSES heading. Treasury 

and the IRS request comments on all 

aspects of the proposed rules, including 

the proposed applicability date. 

Treasury and the IRS also request 

comments on the following issues: 

• Whether guidance needs to be 

developed for a plan that has more than 

one closure or closure amendment? 

• Whether the rules regarding 

transition allocations and successor 

employers are still needed in light of the 

modifications to the DBRA rules? 

All comments will be available for 

public inspection and copying at 

www.regulations.gov or upon request. 

A public hearing has been scheduled 

for May 19, 2016, beginning at 10 a.m. 

in the Auditorium, Internal Revenue 

Service, 1111 Constitution Avenue NW., 

Washington, DC. Because of building 

security procedures, visitors must enter 

at the Constitution Avenue entrance. In 

addition, all visitors must present photo 

identification to enter the building. Due 

to access restrictions, visitors will not be 

admitted beyond the immediate 

entrance area more than 30 minutes 

before the hearing starts. For 

information about having your name 

placed on the building access list to 

attend the hearing, see the FOR FURTHER

INFORMATION CONTACT section of this 

preamble. 

The rules of 26 CFR 601.601(a)(3) 

apply to the hearing. Persons who wish 

to present oral comments at the hearing 

must submit written or electronic 

comments by April 28, 2016 and an 

outline of the topics to be discussed and 

the time to be devoted to each topic by 

April 28, 2016. A signed paper or 

electronic copy of the outline should be 

submitted as prescribed in this 

preamble under the ADDRESSES heading. 

A period of 10 minutes will be allotted 

to each person for making comments. 

An agenda showing the scheduling of 

the speakers will be prepared after the 

deadline for receiving outlines has 

passed. Copies of the agenda will be 

available free of charge at the hearing. 

Statement of Availability for IRS 

Documents 

For copies of recently issued Revenue 

Procedures, Revenue Rulings, notices, 

and other guidance published in the 

Internal Revenue Bulletin, please visit 

the IRS Web site at http://irs.gov. 

Drafting Information 

The principal authors of these 

proposed regulations are Kelly C. 

Scanlon and Linda S. F. Marshall, IRS 

Office of Associate Chief Counsel (Tax 

Exempt and Government Entities). 

However, other personnel from the IRS 

and the Department of Treasury 

participated in the development of the 

proposed regulations. 

List of Subjects in 26 CFR Part 1 

Income taxes, reporting and 

recordkeeping requirements. 

Proposed Amendments to the 

Regulations 

Accordingly, 26 CFR part 1 is 

proposed to be 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. 7805 * * * 

■ Par. 2. Section 1.401(a)(4)–0 is 

amended by: 

■ 1. Adding paragraph (c)(5) to the entry 

for § 1.401(a)(4)–2. 

■ 2. Adding paragraph (d)(8) to the entry 

for § 1.401(a)(4)–4. 

■ 3. Adding paragraph (a)(4) to the entry 

for § 1.401(a)(4)–13. 

The additions read as follows: 

§ 1.401(a)(4)–0 Table of contents. 

* * * * * 

§ 1.401(a)(4)–2 Nondiscrimination in 

amount of employer contributions under a 

defined contribution plan. 

* * * * * 

(c) * * * 

(5) Effective/applicability date. 

* * * * * 

§ 1.401(a)(4)–4 Nondiscriminatory 

availability of benefits, rights, and features 

* * * * * 

(d) * * * 

(8) Special testing rule for 

grandfathered group of employees. 

* * * * * 

§ 1.401(a)(4)–13 Effective dates and freshstart rules. 

(a) * * * 

(4) Effective/applicability date. 

* * * * * 

■ Par. 3. Section 1.401(a)(4)–2 is 

amended by: 

■ 1. Revising paragraph (c)(3)(ii). 

■ 2. Revising Examples 4 and 5 in 

paragraph (c)(4). 

■ 3. Adding Examples 6 and 7 to 

paragraph (c)(4). 

■ 4. Adding paragraph (c)(5). 

The revisions and additions read as 

follows: 

§ 1.401(a)(4)–2 Nondiscrimination in 

amount of employer contributions under a 

defined contribution plan. 

* * * * * 

(c) * * * 

(3) * * * 

(ii) Application of nondiscriminatory 

classification test. A rate group satisfies 

the nondiscriminatory classification test 

of § 1.410(b)–4 if and only if— 

(A) The formula that is used to 

determine the allocation for the HCE 

with respect to whom the rate group is 

established applies to a group of 

employees that satisfies the reasonable 

classification requirement of § 1.410(b)– 

4(b); and 

(B) The ratio percentage of the rate 

group is greater than or equal to the 

midpoint between the safe and unsafe 

harbor percentages applicable to the 

plan (or the ratio percentage of the plan, 

if that percentage is less). 

* * * * * 

(4) * * * 

Example 4. (a) The facts are the same as in 

Example 3, except that N4 has an allocation 

rate of 8.0 percent. In addition, the formula 

that is used to determine the allocation for 

H2 is the same formula that is used to 

determine the allocation for all other 

employees in Plan D. 

(b) There are two rate groups in Plan D. 

Rate group 1 consists of H1 and all those 

employees who have an allocation rate 

greater than or equal to H1’s allocation rate 

(5.0 percent). Thus, rate group 1 consists of 

H1, H2 and N1 through N4. Rate group 2 

consists of H2, and all those employees who 

have an allocation rate greater than or equal 

to H2’s allocation rate (7.5 percent). Thus, 

rate group 2 consists of H2 and N4. 

(c) Rate group 1 satisfies the ratio 

percentage test under § 1.410(b)–2(b)(2) 

because the ratio percentage of the rate group 

is 100 percent—that is, 100 percent (the 

percentage of all nonhighly compensated 

nonexcludable employees who are in the rate 

group) divided by 100 percent (the 

percentage of all highly compensated 

nonexcludable employees who are in the rate 

group). 

(d) Rate group 2 does not satisfy the ratio 

percentage test of § 1.410(b)–2(b)(2) because 

the ratio percentage of the rate group is 50 

percent—that is, 25 percent (the percentage 

of all nonhighly compensated nonexcludable 

employees who are in the rate group) divided 

by 50 percent (the percentage of all highly 

compensated nonexcludable employees who 

are in the rate group). 

(e) However, under paragraph (c)(3)(ii) of 

this section rate group 2 satisfies the 

nondiscriminatory classification test of 

§ 1.410(b)–4 because (i) the formula that is 

used to determine the allocation for H2 

applies to a group of employees that satisfies 

the reasonable classification requirement of 

§ 1.410(b)–4(b) (in this case, because it 

applies to all the employees) and (ii) the ratio 

percentage of the rate group (50 percent) is 

greater than the midpoint between the safe 

harbor and unsafe harbor percentages 


jstallworth on DSK7TPTVN1PROD with PROPOSALS
4982 Federal Register / Vol. 81, No. 19 / Friday, January 29, 2016 / Proposed Rules 

applicable to the plan under § 1.410(b)– 

4(c)(4) (40.5 percent). 

(f) Under paragraph (c)(3)(iii) of this 

section, rate group 2 satisfies the average 

benefit percentage test if Plan D satisfies the 

average benefit percentage test. (The 

requirement that Plan D satisfy the average 

benefit percentage test applies even though 

Plan D satisfies the ratio percentage test and 

would ordinarily not need to run the average 

benefit percentage test.) If Plan D satisfies the 

average benefit percentage test, then rate 

group 2 satisfies section 410(b); thus, Plan D 

satisfies the general test in paragraph (c)(1) of 

this section because each rate group under 

the plan satisfies section 410(b). 

Example 5. (a) Plan E satisfies section 

410(b) by satisfying the nondiscriminatory 

classification test of § 1.410(b)–4 and the 

average benefit percentage test of § 1.410(b)– 

5 (without regard to § 1.410(b)–5(f)). See 

§ 1.410(b)–2(b)(3). Plan E uses the facts-andcircumstances requirements of § 1.410(b)– 

4(c)(3) to satisfy the nondiscriminatory 

classification test of § 1.410(b)–4. The safe 

and unsafe harbor percentages applicable to 

the plan under § 1.410(b)–4(c)(4) are 29 and 

20 percent, respectively. Plan E has a ratio 

percentage of 22 percent. Rate group 1 under 

Plan E has a ratio percentage of 23 percent. 

The formula that is used to determine the 

allocation for the HCE with respect to whom 

rate group 1 was formed applies to all other 

employees. 

(b) Under paragraph (c)(3)(ii) of this 

section, rate group 1 satisfies the 

nondiscriminatory classification requirement 

of § 1.410(b)–4, because (i) the formula that 

is used to determine the allocation for the 

HCE with respect to whom the rate group 

was formed applies to a group of employees 

that satisfies the reasonable classification 

requirement of § 1.410(b)–4(b) (in this case, 

because it applies to all the employees) and 

(ii) the ratio percentage of the rate group (23 

percent) is greater than the lesser of— 

(1) The ratio percentage for the plan as a 

whole (22 percent); and 

(2) The midpoint between the safe and 

unsafe harbor percentages (24.5 percent). 

(c) Under paragraph (c)(3)(iii) of this 

section, the rate group satisfies section 410(b) 

because the plan satisfies the average benefit 

percentage test of § 1.410(b)–5. 

Example 6. (a) Employer Z maintains a 

defined contribution plan, Plan F. Employer 

Z has six nonexcludable employees, all of 

whom benefit under Plan F. There is one 

HCE (H1) and five NHCEs (N1 through N5). 

There is one rate group under Plan F. The 

formula that is used to determine the 

allocation for H1 is the greater of $20,000 or 

10% of compensation for the year. The 

formula that applies to determine the 

allocation for N1 through N5 is 10% of 

compensation. 

(b) Under paragraph (c)(3)(ii) of this 

section, the rate group with respect to H1 

does not satisfy the nondiscriminatory 

classification test under § 1.410(b)–4 because 

the formula that is used to determine the 

allocation for H1 (with respect to whom the 

rate group is established) only applies to H1. 

Therefore, the rate group will satisfy 

paragraph (c)(3) of this section only if the 

ratio percentage of the rate group is greater 

than or equal to 70 percent. This ratio 

percentage test applies even if H1’s 

compensation is greater than $200,000. In 

such a case, the rate group will pass the ratio 

percentage test (and accordingly the plan will 

satisfy the general test of this paragraph (c)) 

because each employee receives an allocation 

of 10% of compensation and therefore the 

ratio percentage for the rate group is equal to 

100%. 

Example 7. The facts are the same as in 

Example 6, except that the classification of 

employees who are entitled to benefit under 

the formula that applies to H1 includes N1 

and N2, who are identified by name. Under 

paragraph (c)(3)(ii) of this section, the rate 

group with respect to H1 does not satisfy the 

nondiscriminatory classification test under 

§ 1.410(b)–4 because the classification of H1, 

N1 and N2 by name does not satisfy the 

reasonable classification requirement of 

§ 1.410(b)–4(b). Therefore, the rate group 

with respect to H1 will satisfy paragraph 

(c)(3) of this section only if the ratio 

percentage of the rate group is greater than 

or equal to 70 percent. 

(5) Effective/applicability date. See 

§ 1.401(a)(4)–13(a)(4) for rules on the 

effective/applicability date of this 

paragraph (c). 

■ Par. 4. In § 1.401(a)(4)–3, paragraph 

(c)(2) is revised to read as follows: 

§ 1.401(a)(4)–3 Nondiscrimination in 

amount of employer-provided benefits 

under a defined benefit plan. 

* * * * * 

(c) * * * 

(2) Satisfaction of section 410(b) by a 

rate group. For purposes of determining 

whether a rate group satisfies section 

410(b), the rules of § 1.401(a)(4)–2(c)(3) 

apply except that § 1.401(a)(4)– 

2(c)(3)(ii)(A) is applied by substituting 

‘‘benefit formula’’ for ‘‘formula that is 

used to determine the allocation.’’ See 

paragraph (c)(4) of this section and 

§ 1.401(a)(4)–2(c)(4), Example 3 through 

Example 6, for examples of this rule. 

See § 1.401(a)(4)–13(a)(4) for rules on 

the effective/applicability date of this 

paragraph (c)(2). 

* * * * * 

■ Par. 5. In § 1.401(a)(4)–4, paragraph 

(d)(8) is added to read as follows: 

§ 1.401(a)(4)–4 Nondiscriminatory 

availability of benefits, rights, and features. 

* * * * * 

(d) * * * 

(8) Special testing rule for 

grandfathered group of employees—(i) 

General rule. For a plan year that begins 

on or after the fifth anniversary of the 

closure date with respect to a closed 

defined benefit plan, a benefit, right, or 

feature under a defined benefit or 

defined contribution plan that is 

available only to a grandfathered group 

of employees with respect to the closed 

defined benefit plan is treated as 

satisfying paragraphs (b) and (c) of this 

section for the plan year, provided 

that— 

(A) No plan amendment that affects 

the availability of the benefit, right, or 

feature (other than the closure 

amendment) has an applicable 

amendment date (within the meaning of 

§ 1.411(d)–3(g)(4)) that is within the 

period that begins on the closure date 

and ends on the last day of the plan 

year; and 

(B) The additional requirements of 

paragraph (d)(8)(ii) or (iii) of this 

section, whichever is applicable, are 

satisfied. 

(ii) Additional requirements in the 

case of a benefit, right, or feature 

provided under a defined benefit plan. 

If the benefit, right, or feature is 

provided under a defined benefit plan, 

then the following additional 

requirements apply— 

(A) The defined benefit plan under 

which the benefit, right, or feature is 

provided is the closed defined benefit 

plan; 

(B) No plan amendment that affects 

the availability of the benefit, right, or 

feature (other than the closure 

amendment) has an applicable 

amendment date that is within the 5– 

year period ending on the closure date; 

and 

(C) The closure amendment that 

restricted the availability of the benefit, 

right, or feature, making it available 

only to the grandfathered group of 

employees, must also have provided for 

a significant change in the type of 

benefit formula under the plan (such as 

a change from a benefit formula that is 

not a statutory hybrid benefit formula to 

a lump sum-based benefit formula). 

(iii) Additional requirements in the 

case of a benefit, right, or feature 

provided under a defined contribution 

plan. If the benefit, right, or feature is 

provided under a defined contribution 

plan, then the following additional 

requirements apply— 

(A) The benefit, right, or feature must 

be a right to a rate of matching 

contributions provided under the 

defined contribution plan; 

(B) The rate of matching contributions 

must be reasonably designed so that the 

matching contributions will replace 

some or all of the value of the benefit 

accruals that each employee in the 

grandfathered group of employees 

would have been provided under the 

closed defined benefit plan in the 

absence of a closure amendment (based 

on the terms of that plan and the section 

415(b)(1)(A) dollar limit in effect 

immediately prior to the closure date); 


jstallworth on DSK7TPTVN1PROD with PROPOSALS
Federal Register / Vol. 81, No. 19 / Friday, January 29, 2016 / Proposed Rules 4983 

(C) The closed defined benefit plan 

must satisfy the conditions set forth in 

§ 1.401(a)(4)–8(b)(1)(iii)(D)(3); and 

(D) The rate of matching contributions 

must be provided in a consistent 

manner to all similarly situated 

employees. 

(iv) Certain amendments not taken 

into account. For purposes of applying 

the rules under this paragraph (d)(8), the 

following plan amendments are not 

taken into account (and, in the case of 

an amendment described in paragraph 

(d)(8)(iv)(C) or (D) of this section, the 

rules of this paragraph (d)(8) are applied 

as if the benefit, right, or feature 

provided after the amendment were the 

benefit, right, or feature provided before 

the amendment): 

(A) An amendment adopted during 

the 5-year period ending on the closure 

date that extends eligibility for the 

benefit, right, or feature to an acquired 

group of employees provided that all 

similarly situated employees within that 

group are treated in a consistent 

manner. 

(B) An amendment adopted after the 

closure date that expands or restricts the 

eligibility for the benefit, right, or 

feature, provided that, as of the 

applicable amendment date, the ratio 

percentage of the group of employees 

eligible for the benefit, right, or feature 

(taking into account the plan 

amendment) is not less than the ratio 

percentage of the group of employees 

eligible for the benefit, right, or feature 

provided before the amendment. 

(C) An amendment adopted after the 

closure date that results in a 

replacement of the benefit, right, or 

feature with another benefit, right, or 

feature that is available to the same 

group of employees as the original 

benefit, right, or feature, provided that 

the original benefit, right, or feature is 

of inherently equal or greater value 

(within the meaning of paragraph 

(d)(4)(i)(A) of this section) than the 

benefit, right, or feature that replaces it. 

(D) An amendment adopted after the 

closure date that results in a 

replacement of the benefit, right, or 

feature with another benefit, right, or 

feature that is available to the same 

group of employees as the original 

benefit, right, or feature, provided that 

there is only a de minimis difference 

between the amount payable under the 

original benefit, right, or feature and the 

amount payable under the benefit, right, 

or feature that replaces it. 

(E) An amendment that is permitted 

by guidance published by the 

Commissioner in the Internal Revenue 

Bulletin. 

(v) Examples. The following examples 

illustrate the rules in this paragraph 

(d)(8): 

Example 1—(i) Pre-amendment defined 

benefit plan. Employer A maintains Plan P, 

a defined benefit plan that provides for an 

annual benefit equal to 2% of an employee’s 

average annual compensation multiplied by 

the employee’s years of service. Plan P also 

provides for a subsidized early retirement 

benefit available to employees who retire 

between the ages of 55 and 65 with 20 years 

of service. Plan P was established in 2003. 

The plan year is a calendar year. For the 2015 

plan year, Plan P satisfied the 

nondiscrimination requirements under 

sections 410(b) and 401(a)(4) without regard 

to the special rules under section 410(b)(6)(C) 

and without aggregation with any other plan. 

(ii) Plan conversion amendment. On 

November 1, 2015, Employer A amends Plan 

P to cease future accruals under its benefit 

formula effective as of the close of the plan 

year ending December 31, 2015 and to 

provide future benefit accruals under a cash 

balance formula. The cash balance formula 

provides for pay credits equal to 5% of 

compensation and annual interest credits at 

an interest crediting rate of 6%. Early 

retirement benefits payable with respect to 

benefits accrued under the cash balance 

formula are determined as the actuarial 

equivalent of the hypothetical account 

balance, determined using reasonable 

actuarial assumptions that are specified in 

Plan P. Under the terms of the conversion 

amendment, an employee’s benefit is equal to 

the employee’s benefit under the prior 

benefit formula as of the close of the plan 

year ending December 31, 2015, plus the 

amount determined under the cash balance 

formula. However, any employee who had 

attained the age of 50 and had completed 15 

years of service on or before December 31, 

2015 is entitled to a plan benefit that is the 

greater of the benefit determined under the 

pre-amendment formula, or the benefit 

described in the prior sentence. Except for 

the closure amendment, there is no other 

plan amendment that affects the availability 

of Plan P’s early retirement subsidy. No other 

significant change to Plan P’s coverage or 

benefit formula is made with an applicable 

amendment date that is during the period 

beginning on January 1, 2011 and ending on 

December 31, 2015 (the 5-year period ending 

on the closure date). 

(iii) Applicability of special testing rule. 

The plan conversion amendment is a closure 

amendment with a closure date of December 

31, 2015. Plan P’s subsidized early retirement 

benefit available solely to the grandfathered 

group of employees is a separate benefit, 

right, or feature that must be tested for 

current and effective availability under 

paragraphs (b) and (c) of this section. For a 

plan year that begins on or after January 1, 

2021, Plan P’s subsidized early retirement 

benefit is eligible for the relief provided by 

the special testing rule of this paragraph 

(d)(8) because all of the applicable 

requirements are satisfied. The requirement 

under paragraph (d)(8)(i)(A) of this section is 

satisfied because no other plan amendment 

that affects the availability of the subsidized 

early retirement benefit has an applicable 

amendment date that is on or after December 

31, 2015. The additional requirements 

pertaining to a benefit, right, or feature 

provided under a defined benefit plan are 

also satisfied: The subsidized early 

retirement benefit is provided under a closed 

defined benefit plan as required by paragraph 

(d)(8)(ii)(A) of this section; no amendment 

that affected the availability of the subsidized 

early retirement benefit was made with an 

applicable amendment date during the 5-year 

period ending on the closure date as required 

by paragraph (d)(8)(ii)(B) of this section; and 

Plan P has undergone a significant change in 

benefit formula in connection with the 

closure amendment that resulted in a 

restriction on the availability of the 

subsidized early retirement benefit as 

required by paragraph (d)(8)(ii)(C) of this 

section. 

Example 2—(i) Closure of defined benefit 

plan. The facts are the same as in Example 

1 of this paragraph (d)(8)(v), except that, 

instead of adopting a plan conversion 

amendment, Employer A amends Plan P to 

cease future accruals under the original 

benefit formula for all employees. 

(ii) Plan amendment to profit-sharing plan 

that provides enhanced rate of matching 

contributions. Employer A has a profitsharing plan that includes a qualified cash or 

deferred arrangement and matching 

contributions with respect to elective 

deferrals of up to 3% of compensation. On 

November 1, 2015, Employer A amends the 

plan to provide, effective January 1, 2016, for 

additional matching contributions of up to an 

additional 4% of compensation solely for 

employees who (1) were previously covered 

under the defined benefit plan, and (2) had 

attained the age of 50 and had 15 years of 

service on or before December 31, 2015. This 

enhanced rate of matching contributions is 

reasonably designed so that the matching 

contributions will replace some or all of the 

value of the benefit accruals that would have 

otherwise been provided to this 

grandfathered group of employees under Plan 

P. Employer A makes no other change to this 

enhanced rate of matching contribution after 

the enhanced rate is established. 

(iii) Applicability of special testing rule. 

The plan amendment is a closure amendment 

with a closure date of December 31, 2015. 

The enhanced rate of matching contribution 

that is available solely to the grandfathered 

group of employees is a separate benefit, 

right, or feature that must be tested for 

current and effective availability under 

paragraphs (b) and (c) of this section. For a 

plan year that begins on or after January 1, 

2021, Plan P’s enhanced rate of matching 

contribution is eligible for the relief provided 

by the special testing rule of this paragraph 

(d)(8) because all applicable requirements are 

satisfied. The requirement under paragraph 

(d)(8)(i)(A) of this section is satisfied because 

no change was made to the enhanced rate of 

match with an applicable amendment date 

that is on or after December 31, 2015. The 

following applicable additional requirements 

are also satisfied: The benefit, right, or 

feature provided under the defined 

contribution plan is a rate of matching 

contribution as required by paragraph 

(d)(8)(iii)(A) of this section; the enhanced 


jstallworth on DSK7TPTVN1PROD with PROPOSALS
4984 Federal Register / Vol. 81, No. 19 / Friday, January 29, 2016 / Proposed Rules 

rate of matching contribution is reasonably 

designed so that the matching contributions 

will replace some of the value of the benefit 

accruals that each employee in the 

grandfathered group of employees would 

have otherwise been provided under Plan P 

immediately prior to the closure date as 

required by paragraph (d)(8)(iii)(B) of this 

section; and the rate of matching 

contributions is provided in a consistent 

manner to all similarly situated employees as 

required by paragraph (d)(8)(iii)(D) of this 

section. 

(iv) Applicability of § 1.401(a)(4)– 

8(b)(1)(iii)(D)(3). In addition to the 

requirements described in paragraph (iii) of 

this Example 2, Plan P meets the conditions 

for a closed defined benefit plan specified in 

§ 1.401(a)(4)–8(b)(1)(iii)(D)(3) as required by 

paragraph (d)(8)(iii)(C) of this section because 

Plan P’s prior benefit formula generated 

equivalent normal allocation rates that 

increased as employees attained higher ages; 

Plan P satisfied the minimum coverage and 

nondiscrimination requirements under 

sections 410(b) and 401(a)(4) without regard 

to the special rules under section 410(b)(6)(C) 

and without aggregating with any other plan 

for the plan year preceding the closure date; 

and Plan P was in effect for the five-year 

period ending on the closure date and neither 

the benefit formula nor the coverage of the 

plan was significantly changed during this 

period. 

(vi) Effective/applicability dates. The 

rules of this paragraph (d)(8) apply to 

plan years beginning on or after the date 

of publication of the Treasury decision 

adopting these rules as final in the 

Federal Register. Taxpayers may apply 

the rules of this paragraph (d)(8) for 

plan years beginning on or after January 

1, 2014. 

* * * * * 

■ Par. 6. Section 1.401(a)(4)–8 is 

amended by: 

■ 1. Revising paragraphs (b)(1)(iii)(B) 

through (E). 

■ 2. Removing paragraph (b)(1)(iii)(F). 

■ 3. Adding paragraph (b)(1)(iv)(E). 

The revisions and additions read as 

follows: 

§ 1.401(a)(4)–8 Cross-testing. 

* * * * * 

(b) * * * 

(1) * * * 

(iii) * * * 

(B) Defined benefit replacement 

allocations disregarded. In determining 

whether a plan has broadly available 

allocation rates for the plan year within 

the meaning of paragraph (b)(1)(iii)(A) 

of this section, the following rules in 

paragraphs (b)(1)(iii)(B)(1) and (2) of this 

section apply: 

(1) If an employee receives a defined 

benefit replacement allocation (within 

the meaning of paragraph (b)(1)(iii)(D) of 

this section) for the plan year in 

addition to the employee’s otherwise 

applicable allocation under the plan for 

the plan year, then the employee’s 

allocation rate is determined without 

regard to the defined benefit 

replacement allocation. 

(2) If an employee receives an 

allocation for the plan year that is the 

greater of the allocation for which the 

employee would otherwise be eligible 

and the defined benefit replacement 

allocation (within the meaning of 

paragraph (b)(1)(iii)(D) of this section), 

then the allocation for which the 

employee would otherwise be eligible is 

considered currently available to the 

employee, even if the employee’s 

defined benefit replacement allocation 

is greater. See paragraph (b)(1)(iii)(C)(2) 

of this section for additional rules 

relating to ‘‘greater-of’’ plan provisions. 

(C) Plan provisions—(1) In general. 

Plan provisions providing for defined 

benefit replacement allocations (within 

the meaning of paragraph (b)(1)(iii)(D) of 

this section) for the plan year must 

specify both the group of employees 

who are eligible for the defined benefit 

replacement allocations and the amount 

of the defined benefit replacement 

allocations. 

(2) ‘‘Greater-of’’ plan provisions. An 

allocation does not fail to be a defined 

benefit replacement allocation within 

the meaning of paragraph (b)(1)(iii)(D) of 

this section merely because the plan 

provides that each employee who is 

eligible for a defined benefit 

replacement allocation receives the 

greater of that allocation and the 

allocation for which the employee 

would otherwise be eligible under the 

plan. 

(3) Limited plan amendments. Except 

as provided in paragraph (b)(1)(iii)(D)(5) 

of this section, an allocation is not a 

defined benefit replacement allocation 

within the meaning of paragraph 

(b)(1)(iii)(D) of this section for the plan 

year if the plan provisions relating to 

the allocation are amended after the 

date those plan provisions are both 

adopted and effective. 

(D) Defined benefit replacement 

allocation—(1) In general. A defined 

benefit replacement allocation is an 

allocation under a defined contribution 

plan provided only to a grandfathered 

group of employees with respect to a 

closed defined benefit plan. An 

allocation is treated as a defined benefit 

replacement allocation if— 

(i) The allocation satisfies the 

conditions to be a replacement 

allocation with respect to a closed 

defined benefit plan in paragraph 

(b)(1)(iii)(D)(2) of this section; 

(ii) The closed defined benefit plan 

satisfies the conditions in paragraph 

(b)(1)(iii)(D)(3) of this section; and 

(iii) For each plan year that begins 

before the fifth anniversary of the 

closure date of the closed defined 

benefit plan, the grandfathered group of 

employees is a nondiscriminatory group 

of employees within the meaning of 

paragraph (b)(1)(iii)(D)(4) of this section. 

(2) Replacement allocation. An 

allocation is a replacement allocation 

with respect to a closed defined benefit 

plan under this paragraph 

(b)(1)(iii)(D)(2) if— 

(i) The allocation is designed so that 

it is reasonably expected to replace 

some or all of the value of the benefit 

accruals that each employee in the 

grandfathered group of employees 

would have been provided under the 

closed defined benefit plan in the 

absence of a closure amendment (based 

on the terms of that plan and the section 

415(b)(1)(A) dollar limit in effect 

immediately prior to the closure date); 

and 

(ii) The allocation is provided in a 

consistent manner to all similarly 

situated employees. 

(3) Closed defined benefit plan. A 

closed defined benefit plan satisfies the 

conditions in this paragraph 

(b)(1)(iii)(D)(3) if— 

(i) The closed defined benefit plan’s 

benefit formula applicable to the 

grandfathered group of employees 

generated equivalent normal allocation 

rates that increased from year to year as 

employees attained higher ages or were 

credited with additional years of 

service; 

(ii) The closed defined benefit plan 

satisfied the minimum coverage and 

nondiscrimination requirements under 

sections 410(b) and 401(a)(4) without 

regard to the special rules under section 

410(b)(6)(C) and without aggregating 

with any other plan, for the plan year 

preceding the closure date; and 

(iii) The closed defined benefit plan 

was in effect for the 5-year period 

ending on the closure date and neither 

the benefit formula nor the coverage of 

the plan was significantly changed by 

plan amendment with an effective date 

during this period. 

(4) Nondiscriminatory group of 

employees. A group of employees is a 

nondiscriminatory group of employees 

for purposes of this paragraph 

(b)(1)(iii)(D)(4) if the group of employees 

satisfies section 410(b) for the plan year 

(without regard to § 1.410(b)–5). 

(5) Certain amendments not taken 

into account. For purposes of 

determining whether the requirements 

of paragraphs (b)(1)(iii)(C)(3) and 

(b)(1)(iii)(D)(3) of this section are 

satisfied, the following plan 

amendments are not taken into account: 


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Federal Register / Vol. 81, No. 19 / Friday, January 29, 2016 / Proposed Rules 4985 

(i) An amendment to the closed 

defined benefit plan adopted during the 

5-year period ending on the closure 

date, provided that the accrued benefit 

or future accruals for any employee are 

not increased, coverage is not expanded, 

and the amendment is not 

discriminatory within the meaning of 

paragraph (b)(1)(iii)(D)(6) of this section. 

(ii) An amendment to the defined 

contribution plan under which the 

defined benefit replacement allocation 

is provided that makes de minimis 

changes in the calculation of that 

allocation (such as a change in the 

definition of compensation to include 

section 132(f) elective reductions). 

(iii) An amendment to the defined 

contribution plan under which the 

defined benefit replacement allocation 

is provided that adds or removes a 

‘‘greater-of’’ provision described under 

paragraph (b)(1)(iii)(C)(2) of this section. 

(iv) An amendment to the defined 

contribution plan under which the 

defined benefit replacement allocation 

is provided that makes changes in the 

calculation of that allocation in a 

manner that is not discriminatory 

within the meaning of paragraph 

(b)(1)(iii)(D)(6) of this section. 

(v) An amendment that guidance 

published by the Commissioner in the 

Internal Revenue Bulletin provides will 

not be taken into account. 

(6) Nondiscriminatory amendment— 

(i) General rule. An amendment to a 

plan is not discriminatory if the ratio 

percentage of the plan is not decreased 

as a result of the amendment and, in the 

case of a plan that demonstrates 

compliance with the nondiscrimination 

in amount requirement of § 1.401(a)(4)– 

1(b)(2) using a method other than a safe 

harbor test under § 1.401(a)(4)–2(b), 

§ 1.401(a)(4)–3(b), or paragraph (b)(3) or 

(c)(3) of this section, the ratio 

percentage for the rate group with 

respect to any HCE is not decreased as 

a result of the amendment. 

(ii) Timing of nondiscrimination 

testing. In determining whether the ratio 

percentage of the plan or the rate group 

is decreased as a result of an 

amendment, an amendment that is not 

in effect for an entire plan year is treated 

as if it were in effect for the entire plan 

year. In the case of an amendment that 

has separate portions with separate 

effective dates, each portion of the 

amendment is treated as a separate 

amendment that must satisfy the 

requirements of paragraph 

(b)(1)(iii)(D)(6)(i) of this section for the 

plan year in which it takes effect. 

(7) Special rules for former employers 

and acquired employees. The following 

special rules apply in the case of former 

employers and acquired employees: 

(i) If the closed defined benefit plan 

was sponsored by a former employer 

and not by the employer, then the rules 

in paragraph (b)(1)(iii)(D)(3)(ii) of this 

section do not apply and one year is 

substituted for 5 years with respect to 

paragraph (b)(1)(iii)(D)(3)(iii) of this 

section; 

(ii) An amendment adopted during 

the 5-year period ending on the closure 

date that extends the coverage or benefit 

formula of the closed defined benefit 

plan to an acquired group of employees 

may be applied (in addition to the 

amendments described in paragraph 

(b)(1)(iii)(D)(5) of this section) provided 

that all similarly situated employees 

within that group are treated in a 

consistent manner; and 

(iii) If the employees of a former 

employer become the employees of the 

new employer as a result of a 

transaction that is a merger, acquisition, 

or similar event, then the transaction is 

treated as a closure amendment with 

respect to the former employer’s plan as 

of the effective date of the acquisition. 

(E) Effective/applicability date. See 

§ 1.401(a)(4)–13(a)(4) for rules on the 

effective/applicability date of this 

section. 

(iv) * * * 

(E) Defined benefit replacement 

allocation may be disregarded. In 

determining whether a plan has a 

gradual age or service schedule for the 

plan year within the meaning of 

paragraph (b)(1)(iv)(A) of this section, if 

an employee receives a defined benefit 

replacement allocation (within the 

meaning of paragraph (b)(1)(iii)(D) of 

this section) for the plan year, then the 

plan’s schedule is determined without 

regard to the defined benefit 

replacement allocation. For this 

purpose, the rules under paragraph 

(b)(1)(iii)(B) of this section apply. See 

§ 1.401(a)(4)–13(a)(4) for rules on the 

effective/applicability date of this 

paragraph (b)(1)(iv)(E). 

* * * * * 

■ Par. 7. Section 1.401(a)(4)–9 is 

amended by: 

■ 1. Revising paragraphs (b)(2)(v)(A) 

and (b)(2)(v)(D)(3). 

■ 2. Adding paragraphs (b)(2)(v)(D)(4) 

and (5). 

■ 3. Redesignating paragraph (b)(2)(v)(F) 

as paragraph (b)(2)(v)(H). 

■ 4. Adding paragraphs (b)(2)(v)(F) and 

(b)(2)(v)(G). 

The revisions and additions read as 

follows: 

§ 1.401(a)(4)–9 Plan aggregation and 

restructuring. 

* * * * * 

(b) * * * 

(2) * * * 

(v) Eligibility for testing on a benefits 

basis—(A) General rule—(1) In general. 

Unless, for the plan year, a DB/DC plan 

is primarily defined benefit in character 

(within the meaning of paragraph 

(b)(2)(v)(B) of this section) or consists of 

broadly available separate plans (within 

the meaning of paragraph (b)(2)(v)(C) of 

this section), in order to be permitted to 

demonstrate satisfaction of the 

nondiscrimination in amount 

requirement of § 1.401(a)(4)–1(b)(2) on 

the basis of benefits, the DB/DC plan 

must satisfy the minimum aggregate 

allocation gateway (as described in 

paragraph (b)(2)(v)(D) of this section) 

except as provided in paragraph 

(b)(2)(v)(A)(2) of this section. 

(2) Additional testing options. A DB/ 

DC plan that is not eligible to 

demonstrate satisfaction of the 

nondiscrimination in amount 

requirement of § 1.401(a)(4)–1(b)(2) on 

the basis of benefits under paragraph 

(b)(2)(v)(A)(1) of this section is 

permitted to demonstrate satisfaction of 

that requirement on the basis of benefits 

if the DB/DC plan satisfies either the 

closed plan rule of paragraph (b)(2)(v)(F) 

of this section or the lower interest rate 

rule of paragraph (b)(2)(v)(G) of this 

section. 

(3) Effective/applicability date. See 

§ 1.401(a)(4)–13(a)(4) for rules on the 

effective/applicability date of this 

paragraph (b)(2)(v)(A). 

* * * * * 

(D) * * * 

(3) Averaging of rates for NHCEs—(i) 

Defined benefit plan. For purposes of 

this paragraph (b)(2)(v)(D), a plan is 

permitted to treat each NHCE who 

benefits under a defined benefit plan 

that is part of the DB/DC plan as having 

an equivalent normal allocation rate 

equal to the average of the equivalent 

normal allocation rates under the 

defined benefit plan for all NHCEs 

benefitting under that plan. 

(ii) Defined contribution plan. For 

purposes of this paragraph (b)(2)(v)(D), 

a plan is permitted to treat each NHCE 

who benefits under a defined 

contribution plan that is part of the DB/ 

DC plan as having an allocation rate 

equal to the average of the allocation 

rates under the defined contribution 

plan for all NHCEs benefitting under 

that plan. 

(iii) Limitations on the averaging of 

rates. For purposes of applying 

paragraphs (b)(2)(v)(D)(3)(i) and (ii) of 

this section, any equivalent normal 

allocation rate or allocation rate in 

excess of 15% of plan year 

compensation is treated as being 15%. 

The preceding sentence is applied by 

substituting 25% for 15% each time it 


jstallworth on DSK7TPTVN1PROD with PROPOSALS
4986 Federal Register / Vol. 81, No. 19 / Friday, January 29, 2016 / Proposed Rules 

appears, but only if any allocation rate 

or equivalent normal allocation rate 

higher than 15% results solely from a 

plan design providing allocation rates or 

generating equivalent normal allocation 

rates that are a function of age or service 

under which higher rates are provided 

to older or longer-service employees. 

(4) Use of matching contributions. For 

purposes of this paragraph (b)(2)(v)(D), 

if an NHCE is eligible for a matching 

contribution under a defined 

contribution plan that is part of the DB/ 

DC plan, then the lesser of 3% and the 

average matching contribution 

percentage for the group of eligible 

NHCEs in that plan is permitted to be 

added to the allocation rate for that 

NHCE. For this purpose, the average 

matching contribution percentage for 

the group of eligible NHCEs in a plan is 

the actual contribution percentage 

(within the meaning of § 1.401(m)–5) for 

that group, determined without taking 

into account any employee 

contributions. 

(5) Effective/applicability date. See 

§ 1.401(a)(4)–13(a)(4) for rules on the 

effective/applicability date of this 

paragraph (b)(2)(v)(D). 

* * * * * 

(F) Closed plan rule—(1) In general. 

For a plan year that begins on or after 

the fifth anniversary of the closure date 

with respect to a closed defined benefit 

plan, a DB/DC plan that includes a 

closed defined benefit plan satisfies the 

closed plan rule of this paragraph 

(b)(2)(v)(F) for the plan year if— 

(i) The closed defined benefit plan 

was in effect for the 5-year period 

ending on the closure date and neither 

the benefit formula nor the coverage of 

the plan was significantly changed by 

plan amendment (other than the closure 

amendment) with an effective date 

during the period that begins five years 

before the closure date and ends on the 

last day of the plan year; and 

(ii) For each plan year that begins on 

or after the closure date and before the 

fifth anniversary of the closure date, one 

of the requirements in paragraph 

(b)(2)(v)(F)(2) of this section is satisfied. 

(2) Testing for 5 years post-closure. A 

DB/DC plan meets the requirements of 

this paragraph (b)(2)(v)(F)(2) if— 

(i) Each defined benefit plan that is 

part of the DB/DC plan satisfies the 

nondiscrimination in amount 

requirement of § 1.401(a)(4)–1(b)(2) on 

the basis of benefits without aggregation 

with any defined contribution plan; 

(ii) The DB/DC plan satisfies the 

nondiscrimination in amount 

requirement of § 1.401(a)(4)–1(b)(2) on 

the basis of contributions; or 

(iii) The DB/DC plan satisfies the 

primarily defined benefit in character 

requirement of paragraph (b)(2)(v)(B) of 

this section, or the broadly available 

separate plans requirement of paragraph 

(b)(2)(v)(C) of this section. 

(3) Certain amendments not taken 

into account. For purposes of this 

paragraph (b)(2)(v)(F), the following 

plan amendments are not taken into 

account: 

(i) An amendment to the closed 

defined benefit plan adopted during the 

5-year period ending on the closure 

date, provided that the accrued benefit 

or future accruals for any employee are 

not increased, coverage is not expanded, 

and the amendment is not 

discriminatory within the meaning of 

§ 1.401(a)(4)–8(b)(1)(iii)(D)(6). 

(ii) An amendment adopted during 

the 5-year period ending on the closure 

date that extends the benefit formula 

with respect to the closed defined 

benefit plan to an acquired group of 

employees provided that all similarly 

situated employees within that group 

are treated in a consistent manner. 

(iii) An amendment to the closed 

defined benefit plan that is adopted 

after the closure date that is not 

discriminatory within the meaning of 

§ 1.401(a)(4)–8(b)(1)(iii)(D)(6). 

(iv) An amendment to the closed 

defined benefit plan that makes de 

minimis changes in the benefit formula 

(v) An amendment that guidance 

published by the Commissioner in the 

Internal Revenue Bulletin provides will 

not be taken into account. 

(G) Lower interest rate rule. A DB/DC 

plan satisfies the lower interest rate rule 

of this paragraph (b)(2)(v)(G) if the plan 

can demonstrate satisfaction of the 

nondiscrimination in amount 

requirement of § 1.401(a)(4)–1(b)(2) on 

the basis of benefits, provided that 

benefits are normalized using an interest 

rate of 6% rather than a standard 

interest rate. 

* * * * * 

■ Par. 8. In § 1.401(a)(4)–12, add 

definitions for Closed defined benefit 

plan, Closure amendment, Closure date, 

and Grandfathered group of employees 

in alphabetical order to read as follows: 

§ 1.401(a)(4)–12 Definitions. 

* * * * * 

Closed defined benefit plan. Closed 

defined benefit plan means a defined 

benefit plan that has been amended to— 

(1) Cease accruals under a benefit 

formula provided by the defined benefit 

plan for some or all employees whose 

benefits were previously determined 

under that benefit formula; or 

(2) Limit participation in the defined 

benefit plan to a group of employees 

that consists of some or all of the plan 

participants who participated in the 

plan as of the closure date. 

Closure amendment. A closure 

amendment is a plan amendment that 

results in a closed defined benefit plan. 

Closure date. A closure date is the last 

day before accruals cease or 

participation is limited pursuant to the 

closure amendment. 

* * * * * 

Grandfathered group of employees. A 

grandfathered group of employees with 

respect to a closure amendment means 

the group of employees who, after the 

closure date, either continue accruals 

under the closed defined benefit plan’s 

benefit formula or are entitled to an 

allocation formula under a defined 

contribution plan because those 

employees previously participated in 

the closed defined benefit plan. 

* * * * * 

■ Par. 9. In § 1.401(a)(4)–13, paragraph 

(a)(4) is added to read as follows: 

§ 1.401(a)(4)–13 Effective dates and freshstart rules. 

(a) * * * 

(4) Effective/applicability date—(i) In 

general. Except as otherwise provided 

in this paragraph (a)(4), the rules of 

§ 1.401(a)(4)–2(c), § 1.401(a)(4)–3(c)(2), 

§ 1.401(a)(4)–8(b), and § 1.401(a)(4)– 

9(b)(2)(v)(A) and (D) apply to plan years 

beginning on or after the date of 

publication of the Treasury decision 

adopting these rules as final in the 

Federal Register. 

(ii) Application for earlier plan years. 

Except as provided in paragraph 

(a)(4)(iii) of this section, taxpayers may 

apply § 1.401(a)(4)–2(c), § 1.401(a)(4)– 

3(c)(2), § 1.401(a)(4)–8(b), or 

§ 1.401(a)(4)–9(b)(2)(v)(A) and (D) for 

plan years beginning on or after January 

1, 2014 and before the effective/

applicability date specified under 

paragraph (a)(4)(i) of this section. 

Alternatively, for these plan years, 

taxpayers may apply § 1.401(a)(4)–2(c), 

§ 1.401(a)(4)–3(c)(2), § 1.401(a)(4)–8(b), 

or § 1.401(a)(4)–9(b)(2)(v)(A) and (D) as 

contained in 26 CFR part 1 revised April 

1, 2015. 

(iii) Certain rules not applicable until 

finalized. The rules of § 1.401(a)(4)– 

9(b)(2)(v)(D)(3)(ii), (b)(2)(v)(D)(4), and 

(b)(2)(v)(G) are not permitted to be 

applied for plan years before the 

effective/applicability date specified in 

paragraph (a)(4)(i) of this section. 

* * * * * 

John Dalrymple, 

Deputy Commissioner for Services and 

Enforcement. 

[FR Doc. 2016–01675 Filed 1–28–16; 8:45 am] 

BILLING CODE 4830–01–P 


jstallworth on DSK7TPTVN1PROD with PROPOSALS