May 10, 1990
New Pension Regulations Revealed
WASHINGTON - Four sets of proposed pension regulations
affecting all qualified retirement plans will simplify the legal and
administrative requirements that apply to qualified plans, the
Internal Revenue Service said today.
The central set of the regulations issued today covers section
401(a)(4) of the Internal Revenue Code, which says that pension
plans must not discriminate in favor of highly compensated
employees. The regulations contain the first comprehensive guidance
issued by the IRS on nondiscrimination in plan benefits and
The simplified nondiscrimination regulations also permitted the
IRS to withdraw existing regulations in related areas and reissue
them in significantly simpler form.
The IRS said that the nondiscrimination regulations are
designed to ease pension plan administration by permitting many
plans to satisfy the law on the basis of safe harbors and plan
design. Under the regulations it will be possible for many plan
sponsors to tell whether plans satisfy the nondiscrimination rules
by simply looking at the plan document rather than making
calculations based on individual employee data.
Today's regulations are among the first issued under the IRS's
new emphasis on simplifying regulations. Commissioner of Internal
Revenue Fred T. Goldberg has said that the IRS must make simplifying
regulations a top priority, to reduce the task of taxpayers trying
to comply with the law and to ease the tax administration duties of
Today's regulations are designed for ease of use so that, for
example, for most purposes this sponsor of a defined contribution
plan will generally need to consult only the two sections of the
regulations dealing with the amount of contributions and the
availability of other benefits, rights and features. The more
complex mathematical issues that apply to relatively few plans, such
as methods to convert contributions to benefits, have been placed in
separate portions of the regulations.
Because of the simplified nondiscrimination regulations, the
IRS could streamline existing proposed regulations dealing with
minimum plan participation. In their new reissued form, the text of
these regulations has been cut by over half, from 93 pages to 40.
The IRS also has withdrawn and simplified existing proposed and
temporary regulations defining compensation, so that employers can
use a number of easily administered definitions of compensation.
A fourth set of regulations issued today explains the
requirement that no more than $200,000 of compensation can be taken
into account in determining plan contributions or benefits. These
regulations contain a number of changes that make it easier to
administer previously proposed pension regulations under the Tax
Reform Act of 1986.
The IRS said that today's regulations are generally effective
for plan years beginning on or after January 1, 1991.
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