February 17, 1989
TO: PENSION MEMBERS NO. 11-89
RE: IRS PROPOSED REGULATIONS CONCERNING MINIMUM PARTICIPATION
STANDARDS
__________________________________________________________
Attached is a copy of the IRS proposed regulations issued
under section 401(a)(26), which was added to the Internal Revenue
Code by the 1986 Tax Reform Act and applies to plan years
beginning after December 31, 1988. Section 401(a)(26) requires
that a qualified plan benefit at least the lesser of 50 employees
or 40 percent of all employees of the employer.
Under the proposed regulations, all plans must satisfy
section 401(a)(26) with respect to each current benefit
structure, but only defined benefit plans must satisfy section
401(a)(26) with respect to prior benefit structures. The
analysis section preceding the proposed regulations states that a
defined contribution plan's prior benefit structure is deemed to
satisfy section 401(a)(26). According to this discussion, a
frozen defined contribution plan will satisfy section 401(a)(26)
without regard to the number of employees who have benefits under
the plan.
The proposed regulations also contain a number of
transitional rules. For example, a defined contribution plan
that terminates on or before May 31, 1989 generally will not be
treated as disqualified upon termination for failure to satisfy
section 401(a)(26) provided that no highly compensated employee
receives a contribution allocation for any plan year beginning
after December 31, 1988.
We will keep you informed of further developments.
Kathy D. Ireland
Assistant General Counsel
Attachment