[firm] blog logo

IRS Issues Temporary Relief from Nondiscrimination Requirements for Closed Defined Benefit Plans

IRS Notice 2014-5 provides temporary nondiscrimination relief for certain defined benefit pension plans that have been ?Ç£frozen?Ç¥ to new entrants (e.g., a defined benefit plan that provides ongoing accruals for employees who were hired before a specified date).?á The notice permits certain employers that sponsor a ?Ç£closed?Ç¥ defined benefit plan and an ongoing defined contribution plan to demonstrate that the aggregated plans comply with the nondiscrimination requirements of Section 401(a)(4) of the Internal Revenue Code of 1986, as amended (the ?Ç£Code?Ç¥), on the basis of equivalent benefits, even if the aggregated plans do not satisfy the current conditions for testing on that basis.?á The notice also requests comments on possible permanent changes to the nondiscrimination rules under Section 401(a)(4).?á?á Notice 2014-5 can be found?áhere.

IRS Issues Final Regulations, Updated Proposed Regulations, and Updated FAQs Addressing the Net Investment Income Tax

The Net Investment Income Tax (?Ç£NIIT?Ç¥) is an additional 3.8% tax that went into effect on January 1, 2013, on certain net investment income of individuals, estates, and trusts that have modified adjusted gross income (?Ç£MAGI?Ç¥) above certain statutory threshold amounts (e.g., $250,000 for married taxpayers filing jointly, $200,000 for single taxpayers).?á Net investment income includes, but is not limited to, interest, dividends, capital gains, rental and royalty income, and non-qualified annuities.?á Net investment income does not include wages, unemployment compensation, Social Security Benefits, tax-exempt interest, self-employment income, or distributions from qualified plans described in Code Sections 401(a), 403(a), 403(b), 408, 408A, or 457(b), including Section 404(k) dividends distributed under an employee stock ownership plan.?á Generally, an affected taxpayer owes NIIT on the lesser of the taxpayer?ÇÖs net investment income or the amount by which the taxpayer?ÇÖs MAGI exceeds the threshold.?á The final regulations can be found here.

December 2013