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 contributions.

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 the IRS.

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 The IRS also has withdrawn and simplified existing proposed and temporary regulations defining compensation, so that employers can use a number of easily administered definitions of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.

Previous | Next

1990 IRS News Releases | News Releases Main | Home