FINAL IRS REGULATION ON CONTINUED BENEFIT ACCRUALS WILL DEPART FROM EEOC'S; PRE-1988 YEARS OF SERVICE MAY NOT BE IGNORED BECAUSE OF AGE.

Notice 88-126

The Internal Revenue Service will issue final regulations under the continued benefit accrual provisions of the Omnibus Budget Reconciliation Act of 1986, that will generally provide that no year of service (including years of service before 1988) may be disregarded because of age in determining a participant's benefit under a defined benefit pan for plan years beginning after 1987.

The Omnibus Budget Reconciliation Act of 1986 (OBRA 1986) amended section 411(b) of the Internal Revenue Code of 1986; section 4(i) of the Age Discrimination in Employment Act of 1967 (ADEA); and section 204(a) of the Employee Retirement Income Security Act of 1974 (ERISA) to, in general, prohibit employee benefit plans from reducing or discontinuing benefit accrual, or the rate of benefit accrual, on behalf of an employee because of the employee's attainment of any age. Under section 9204(a)(1) of OBRA 1986, these benefit accrual provisions "shall apply only with respect to plan years beginning on or after January 1, 1988, and only to employees who have 1 hour of service in any plan year to which such amendments apply."

The EEOC published proposed regulations under section 4(i) of the ADEA in the Federal Register on November 27, 1987 (52 FR 45360) and the IRS published proposed regulations under section 411(b) of the Code in the Federal Register on April 11, 1988 (53 FR 11867).

Effective for plan years beginning in 1988 and thereafter, the proposed IRS regulations provide, in general, that for a participant who has at least 1 hour of service for the plan sponsor in a plan year beginning in 1988 or thereafter, a defined benefit plan may not disregard any years of service, including years of service before 1988, because of age in determining the participant's plan benefit.

Effective for plan years beginning in 1988 and thereafter, the proposed EEOC regulations provide that years of service before 1988 may, in general, be disregarded because of age in determining such a participant's plan benefit.

The final regulations to be issued by the IRS under section 411(b)(1)(H) of the Code will adopt the position taken in the proposed IRS regulations with respect to years of service that may not be disregarded because of age in determining benefits under noncontributory defined benefit plans. Thus, the final regulations to be issued by the IRS will provide that the OBRA 1986 benefit accrual rules apply to all years of service (including years of service before January 1, 1988) completed by a participant in a noncontributory defined benefit plan who has at least 1 hour of service with the plan sponsor in a plan year beginning on or after January 1, 1988. For purposes of this notice, a noncontributory defined benefit plan is a defined benefit plan that does not provide for mandatory employee contributions within the meaning of section 411(c)(2)(C). No inference should be drawn as to the position that may be taken in final IRS regulations regarding defined benefit plans that provide for mandatory employee contributions.

With respect to defined contribution plans, the final regulations to be issued by the IRS will provide that the OBRA 1986 benefit accrual rules do not require that retroactive allocations be made to the accounts of participants for plan years beginning before January 1, 1988. However, such final regulations will provide that if a defined contribution plan allocates amounts to the accounts of participants under a formula that takes prior service into account, no year of service (including years of service before January 1, 1988) may be disregarded because of age in determining allocations to the accounts of participants for plan years beginning on or after January 1, 1988.

The January 1, 1988 effective date described above is deferred to a later date in the case of certain plans maintained pursuant to 1 or more collective bargaining agreements.

EQUAL EMPLOYMENT OPPORTUNITY COMMISSION

The EEOC has advised the IRS that the EEOC will publish a notice consistent with the above.

RELIANCE

This document serves as an "administrative pronouncement" as that term is described in section 1.6661-3(b)(2) of the Income Tax Regulations and may be relied upon to the same extent as a revenue ruling or revenue procedure. Taxpayers may rely on this notice until the final regulations are published. No inference should be drawn, however, regarding any issue not specifically addressed in this notice.

DRAFTING INFORMATION

The principal author of this notice is Michael C. Garvey of the Office of Assistant Chief Counsel (Employee Benefits and Exempt Organizations). For further information regarding this notice, please contact the Employee Plans Technical and Actuarial Division's taxpayer assistance telephone service between the hours of 1:30 p.m. and 4:00 p.m., Eastern Time, Monday through Friday, on (202) 566- 6783/6784 (not a toll-free call). Mr. Garvey may be reached at (202) 566-3251 (not a toll-free call).