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IRS issues testing relief for closed defined benefit pension plans

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Corporations that sponsor defined benefit plans closed to new employees got some good news Friday from the Internal Revenue Service, which granted relief from non-discrimination testing rules through 2015.

Defined benefit plan advocates wanted the IRS to allow plans to be considered in compliance if they were at the time of closing. The IRS agreed to the change, but only for 2014 and 2015, and only if benefits were not enhanced for some people but not others. The IRS left the door open for tighter rules in later years by asking for comments on possible new ones.

Washington lobbyists had hoped to get permanent relief from the rules, which were written to apply to ongoing plans. Closed plans came closer to violating the IRS non-discrimination rules as participants' income grew, and some sponsors were freezing their plans as a precaution, to avoid running afoul of the rules.

“We applaud the Treasury and IRS for getting this out quickly and addressing in a very effective way our concerns,” said Kent Mason, an attorney at law firm Davis & Harman, who is outside counsel for the American Benefits Council.

Hazel Bradford writes for Pensions & Investments, a sister publication of Business Insurance.