Reg. § 1.401(a)(4)-1 Nondiscrimination requirements of section 401(a)(4).
(a) In general Section provides that a plan is a qualified plan only if the contributions or the benefits provided under the plan do not discriminate in favor of HCEs. Whether a plan satisfies this requirement depends on the form of the plan and on its effect in operation. In making this determination, intent is irrelevant. This section sets forth the exclusive rules for determining whether a plan satisfies section . A plan that complies in form and operation with the rules in this section therefore satisfies section .
(b) Requirements a plan must satisfy
(1) In general In order to satisfy section , a plan must satisfy each of the requirements of this .
(2) Nondiscriminatory amount of contributions or benefits
(i) General rule Either the contributions or the benefits provided under the plan must be nondiscriminatory in amount. It need not be shown that both the contributions and the benefits provided are nondiscriminatory in amount, but only that either the contributions alone or the benefits alone are nondiscriminatory in amount.
(ii) Defined contribution plans
(A) General rule A defined contribution plan satisfies this if the contributions allocated under the plan (including forfeitures) are nondiscriminatory in amount under . Alternatively, a defined contribution plan (other than an ESOP) satisfies this if the equivalent benefits provided under the plan are nondiscriminatory in amount under . includes a safe-harbor testing method for contributions provided under a target benefit plan.
(B) Section 401(k) plans and section 401(m) plans A section plan is deemed to satisfy this because defines a section plan as a plan consisting of elective contributions under a qualified cash or deferred arrangement (i.e., one that satisfies section , the nondiscriminatory amount requirement applicable to qualified cash or deferred arrangements). A section plan satisfies this only if the plan satisfies and . Contributions under a nonqualified cash or deferred arrangement, elective contributions described in that fail to satisfy the allocation and compensation requirements of , matching contributions that fail to satisfy , and qualified nonelective contributions treated as elective or matching contributions for certain purposes under and , respectively, are not subject to the special rule in this , because they are not treated as part of a section plan or section plan as those terms are defined in . The contributions described in the preceding sentence must satisfy of this section.
(iii) Defined benefit plans A defined benefit plan satisfies this if the benefits provided under the plan are nondiscriminatory in amount under . Alternatively, a defined benefit plan satisfies this if the equivalent allocations provided under the plan are nondiscriminatory in amount under . includes a safe-harbor testing method for benefits provided under a cash balance plan. In addition, provides a safe-harbor testing method for benefits provided under a defined benefit plan that is part of a floor-offset arrangement.
(3) Nondiscriminatory availability of benefits, rights, and features All benefits, rights, and features provided under the plan must be made available in the plan in a nondiscriminatory manner. Rules for determining whether this requirement is satisfied are set forth in .
(4) Nondiscriminatory effect of plan amendments and terminations The timing of plan amendments must not have the effect of discriminating significantly in favor of HCEs. Rules for determining whether this requirement is satisfied are set forth in . provides additional requirements regarding plan terminations.
(c) Application of requirements
(1) In general The requirements of of this section must be applied in accordance with the rules set forth in this .
(2) Interpretation The provisions of through must be interpreted in a reasonable manner consistent with the purpose of preventing discrimination in favor of HCEs.
(3) Plan-year basis of testing The requirements of of this section are generally applied on the basis of the plan year and on the basis of the terms of the plan in effect during the plan year. Thus, unless otherwise provided, the compensation, contributions, benefit accruals, and other items used to apply these requirements must be determined with respect to the plan year being tested. However, provides rules allowing for corrective amendments made after the close of the plan year to be taken into account in satisfying certain requirements under of this section.
(4) Application of section 410(b) rules
(i) Relationship between sections 401(a)(4) and 410(b) To be a qualified plan, a plan must satisfy both sections and . Section requires that a plan benefit a nondiscriminatory group of employees, and section requires that the contributions or benefits provided to employees benefiting under the plan not discriminate in favor of HCEs. Consistent with this requirement, the definition of a plan subject to testing under section is the same as the definition of a plan subject to testing under section , i.e., the plan determined after applying the mandatory disaggregation rules of and the permissive aggregation rules of . In addition, whichever testing option is used for the plan year under (e.g., quarterly testing) must also be used for purposes of determining whether the plan satisfies section for the plan year.
(ii) Special rules for certain aggregated plans Special rules are set forth in for applying the nondiscriminatory amount and availability requirements of and of this section to a plan that includes one or more defined benefit plans and one or more defined contribution plans that have been permissively aggregated under .
(iii) Restructuring In certain circumstances, a plan may be restructured on the basis of employee groups and treated as comprising two or more plans, each of which is treated as a separate plan that must independently satisfy sections and . Rules relating to restructuring plans for purposes of applying the requirements of of this section are set forth in .
(iv) References to section 410(b) Except as otherwise specifically provided, references to satisfying section in through mean satisfying (taking into account any special rules available in satisfying that section, other than the permissive aggregation rules of ). In the case of a plan described in section that has not made the election described in section and is not subject to section , references in through to satisfying section mean satisfying section .
(5) Collectively-bargained plans The requirements of of this section are treated as satisfied by a collectively-bargained plan that automatically satisfies section under .
(6) Former employees In applying the nondiscriminatory amount and availability requirements of and of this section, former employees are tested separately from active employees, unless otherwise provided. Rules for applying and of this section to former employees are set forth in .
(7) Employee-provided contributions and benefits In applying the nondiscriminatory amount requirement of of this section, employee-provided contributions and benefits are tested separately from employer-provided contributions and benefits, unless otherwise provided. Rules for determining the amount of employer-provided benefits under a defined benefit plan that include employee contributions not allocated to separate accounts are set forth in , and rules for applying of this section to employee contributions under such a plan are set forth in . See of this section for rules applicable to employee contributions allocated to separate accounts.
(8) Allocation of earnings Notwithstanding any other provision in through , a defined contribution plan does not satisfy of this section if the manner in which income, expenses, gains, or losses are allocated to accounts under the plan discriminates in favor of HCEs or former HCEs.
(9) Rollovers, transfers, and buybacks In applying the requirements of of this section, rollover (including direct rollover) contributions described in section , , , , or , elective transfers described in , Q&A-3(b), transfers of assets and liabilities described in section , and employee buybacks are treated in accordance with the rules set forth in .
(10) Vesting A plan does not satisfy the nondiscriminatory amount requirement of of this section unless it satisfies with respect to the manner in which employees vest in their accrued benefits.
(11) Crediting service A plan does not satisfy and of this section unless it satisfies with respect to the manner in which employees' service is credited under the plan. Service other than actual service with the employer may not be taken into account in determining whether the plan satisfies and of this section except as provided in .
(12) Governmental plans The rules of this section apply to a governmental plan within the meaning of section , except as provided in and .
(13) Employee stock ownership plans [Reserved]
(14) Section 401(h) benefits In applying the requirements of of this section, the portion of a plan providing benefits described in section is tested separately from the portion of the same plan providing retirement benefits, and thus is not required to satisfy this section. Rules applicable to section benefits are set forth in .
(15) Definitions In applying the requirements of this section, the definitions in govern.
(16) Effective dates and fresh-start rules In applying the requirements of this section, the effective dates set forth in govern. also provides certain transition and fresh-start rules that apply for purposes of this section.
(d) Additional guidance The Commissioner may, in revenue rulings, notices, and other guidance, published in the Internal Revenue Bulletin, provide any additional guidance that may be necessary or appropriate in applying the nondiscrimination requirements of section , including additional safe harbors and alternative methods and procedures for satisfying those requirements. See .
[T.D. 8485, 58 FR 46780, Sept. 3, 1993, as amended by T.D. 9169, 69 FR 78153, Dec. 29, 2004]