Tax Facts

3854 / What safe harbor designs allow a target benefit plan to satisfy the nondiscrimination requirements?



The regulations provide a safe harbor testing method for target benefit plans. Because target benefit plans are defined contribution plans that determine allocations based on a defined benefit funding approach, the safe harbor is included in the rules for cross testing.

A target benefit plan generally will be deemed to meet the “nondiscrimination in amount” requirement if:

(1)  it satisfies uniformity requirements with respect to normal retirement age and the allocation formula (the Social Security retirement age will be treated as a uniform retirement age);1


(2)  it provides a stated benefit formula that complies with one of the defined benefit plan safe harbors that uses the fractional accrual rule;


(3)  employer contributions are determined under an individual level premium funding method specified in the regulations, based on an employee’s stated benefit and “theoretical reserve;”


(4)  employee contributions, if any, are not used to fund the stated benefit; and


(5)  the stated benefit formula satisfies Treasury Regulation Section 1.401(l)-3, if permitted disparity is taken into account.2








1.  IRC § 401(a)(5)(F).

2.  Treas. Reg. § 1.401(a)(4)-8(b)(3).

Tax Facts Premium Tools
Calculators
100+ calculators specifically designed to help you easily assist clients with specific planning situations and calculations.
Practice Guidance
Designed to help you discover new ways for which to build and maintain client relationships.
Concepts Illustrated
Specifically designed to help you easily assist clients with specific planning situations and calculations.
Tax Facts Archives
Access to the entire library of Tax Facts dating back to 2012 allowing you to look up the exact tax figures from prior years.