SECTION 6. EFFECT OF REPEAL OF

FAMILY AGGREGATION ON NONDISCRIMINATION SAFE HARBORS

.01 The regulations under § 401(a)(4) provide safe harbors that a plan may meet to satisfy the requirement that either the contributions or the benefits under the plan be nondiscriminatory in amount. See, for example, § 1.401(a)(4)–2(b) and § 1.401(a)(4)–3(b). The safe harbors generally are designed to ensure that a plan that meets a safe harbor will automatically satisfy the nondiscrimination in amount requirement if the plan is operated in accordance with its terms. In general, the safe harbors require a uniform allocation or benefit formula, although formulas that provide lower allocations or benefits for highly compensated employees are permitted.

.02 In section 6.09 of Rev. Proc. 97–

January 26, 1998 24 1998–4 I.R.B.

41, it was noted that in many cases plans would remain qualified even though the family aggregation rules of § 414(q)(6) and § 401(a)(17)(A) continued to apply under the plans subsequent to the repeal of these rules. Nevertheless, the continued application of family aggregation will cause a plan to fail to be a safe harbor plan. This is because the application of family aggregation may, in some circumstances, result in lower allocations or benefits for employees who are not highly compensated.

.03 Thus, a plan will not satisfy a nondiscrimination in amount safe harbor for a plan year beginning after December 31, 1996, unless family aggregation is disregarded in the operation of the plan and the plan is amended within the remedial amendment period, retroactive to the first day of such plan year, to eliminate its family aggregation provisions. Therefore, in an application for a determination letter (other than with respect to an M&P or regional prototype plan) that is filed on or after April 27, 1998, an employer may not designate a plan as one that is intended to satisfy a nondiscrimination in amount safe harbor if the family aggregation rules continue to apply under the plan. Instead, the employer must either demonstrate that the plan satisfies the general test for nondiscrimination in amount or request a letter that contains a caveat regarding the nondiscrimination in amount requirement.