On September 19, 2016, the IRS issued Notice 2016-57, which extends through 2017 the temporary nondiscrimination relief provided in IRS Notice 2014-5, and extended in IRS Notice 2015-28, which allows certain employers that sponsor a closed defined benefit plan (a plan in a "soft" freeze) and a defined contribution plan to demonstrate that the aggregated plans comply with the nondiscrimination requirements of Internal Revenue Code (Code) Section 401(a)(4) on the basis of equivalent benefits, even if the aggregated plans do not satisfy the current conditions for testing on that basis (see Legal Updates, IRS Notice 2014-5 Provides Temporary Nondiscrimination Relief for Closed Defined Benefit Plans and IRS Extends Temporary Nondiscrimination Relief for Closed Defined Benefit Plans).

Notice 2014-5 applied to plan years beginning before January 1, 2016. Notice 2015-28 extended the relief under Notice 2014-5 for an additional year (to plan years beginning before 2017).

On January 29, 2016, the IRS issued proposed regulations:

(See Legal Update, Proposed Regulations Provide Nondiscrimination Relief for Closed Defined Benefit Plans and Other Changes to the Nondiscrimination Requirements.)

Notice 2016-57 explains that many detailed comments were submitted on the proposed regulations and at the public hearing in May 2016. As a result, the IRS anticipates that the final regulations will not be published in time for plan sponsors to make plan design decisions based on the final regulations before expiration of the relief provided under Notice 2014-5 and Notice 2015-28. Therefore, Notice 2016-57 extends the relief provided under Notice 2014-5 for an additional year (to plan years beginning before 2018) if the conditions of Notice 2014-5 are satisfied.

The nondiscrimination relief provided in Notice 2016-57 is in anticipation of the final regulations under Code Section 401(a)(4) on the nondiscrimination requirements for closed plans, which are expected to:

Typically, aggregated plans will fail to meet the nondiscrimination requirements of Code Section 401(a)(4) unless plan sponsors are permitted to demonstrate compliance with the nondiscrimination rules on the basis of equivalent benefits. Notice 2016-57 provides an additional year for closed defined benefit plans to comply with the nondiscrimination requirements of Code Section 401(a)(4) on the basis of equivalent benefits, even if the plans do not satisfy the current conditions for testing on that basis. Sponsors of closed defined benefit plans should look for the forthcoming final regulations under Code Section 401(a)(4) that will provide similar relief.