[Code of Federal Regulations]
[Title 26, Volume 5]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.401(a)-4]

[Page 53-61]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.401(a)-4  Optional forms of benefit (before 1994).

    Q-1: How does section 401(a)(4) apply to optional forms of benefits?
    A-1: (a) In general--(1) Scope. The nondiscrimination requirements 
of section 401(a)(4) apply to the amount of contributions or benefits, 
optional forms of benefit, and other benefits, rights and features 
(e.g., actuarial assumptions, methods of benefit calculation, loans, 
social security supplements, and disability benefits) under a plan. This 
section addresses the application of section 401(a)(4) only to optional 
forms of benefit under a plan. Generally, the determination of whether 
an optional form is nondiscriminatory under section 401(a)(4) is made by 
reference to the availability of such optional form, and not by 
reference to the utilization or actual receipt of such optional form. 
See Q&A-2 of this section. Even though an optional form of

[[Page 54]]

benefit under a plan may be nondiscriminatory under section 401(a)(4) 
and this Sec. 1.401(a)-4 because the availability of such optional form 
does not impermissibly favor employees in the highly compensated group, 
such plan may fail to satisfy section 401(a)(4) with respect to the 
amount of contributions or benefits or with respect to other benefits, 
rights and features if, for example, the method of calculation or the 
amount or value of benefits payable under such optional form 
impermissibly favors the highly compensated group. See Sec. 1.411(d)-4, 
Q&A-1 for the definition of ``optional form of benefit.''
    (2) Nondiscrimination requirements. Each optional form of benefit 
provided under a plan is subject to the nondiscrimination requirement of 
section 401(a)(4) and thus the availability of each optional form of 
benefit must not discriminate in favor of the employees described in 
section 401(a)(4) in whose favor discrimination is prohibited (the 
``highly compensated group''). See paragraph (b) of this Q&A-1 for a 
description of the employees included in such group. This is true 
without regard to whether a particular optional form of benefit is the 
actuarial equivalent of any other optional form of benefit under the 
plan. Thus, for example, a plan may not condition, or otherwise limit, 
the availability of a single sum distribution of an employee's benefit 
in a manner that impermissibly favors the highly compensated group.
    (b) Highly compensated group. For plan years commencing prior to the 
applicable effective date for the amendment made to section 401(a)(4) by 
section 1114 of the Tax Reform Act of 1986 (TRA '86), the highly 
compensated group consists of those employees who are officers, 
shareholders, or highly compensated. For plan years beginning on or 
after the applicable effective date of the amendments to section 
401(a)(4) made by TRA '86, the highly compensated group consists of 
those employees who are highly compensated within the meaning of section 
414(q). The amendment to section 401(a)(4) made by section 1114 of TRA 
'86 is generally effective for plan years commencing after December 31, 
1988. See section 1114(a) of TRA '86.
    Q-2: How is it determined whether an optional form of benefit 
satisfies the nondiscrimination requirements of section 401(a)(4)?
    A-2: (a) Nondiscrimination requirement.--(1) In general. An optional 
form of benefit under a plan is nondiscriminatory under section 
401(a)(4) only if the requirements of paragraphs (a)(2) and (a)(3) of 
this Q&A-2 are satisfied with respect to such optional form. The 
determination of whether an optional form of benefit satisfies these 
requirements is made by reference to the availability of the optional 
form, and not by reference to the utilization or actual receipt of such 
optional form. Thus, an optional form of benefit that satisfies the 
requirements of paragraphs (a)(2) and (a)(3) of this Q&A-2 is 
nondiscriminatory under section 401(a)(2) even though the highly 
compensated group disproportionately utilizes such optional form. 
However, the composition of the group of employees who actually receive 
benefits in an optional form may be relevant in determining whether such 
optional form satisfies the requirement of paragraph (a)(3) of this Q&A-
2 with respect to effective availability.
    (2) Current availability--(i) Plan years prior to TRA '86 effective 
date. Except as provided in paragraph (a)(2)(iii) of this Q&A-2, for 
plan years prior to the effective date of the amendments made to section 
401(b) by section 1112(a) of TRA '86, the requirement of this paragraph 
(a)(2) is satisfied only if the group of employees to whom the optional 
form is currently available satisfies either the seventy percent test of 
section 410(b)(1)(A) or the nondiscriminatory classification test of 
section 410(b)(1)(B).
    (ii) Plan years commencing on or after TRA '86 effective date. 
Except as provided in paragraph (a)(2)(iii) of this Q&A-2, for plan 
years commencing on or after the effective date on which the amendments 
made to section 410(b) by section 1112(a) of TRA '86 first apply to a 
plan, the requirement of this paragraph (a)(2) is satisfied only if the 
group of employees to whom the optional form is currently available 
satisfies either the percentage test set forth in section 410(b)(1)(A), 
the ratio test set forth in section 410(b)(1)(B), or

[[Page 55]]

the nondiscriminatory classification test set forth in section 
410(b)(2)(A)(i). The employer need not satisfy the average benefit 
percentage test in section 410(b)(2)(A)(ii) in order for the optional 
form to be currently available to a nondiscriminatory group of 
employees.
    (iii) Special rule for certain governmental or church plans. Plans 
described in section 410(c) will be treated as satisfying the current 
availability test of this paragraph (a)(2) if the group of employees 
with respect to whom the optional form is currently available satisfies 
the requirements of section 401(a)(3) as in effect on September 1, 1974.
    (iv) Effective data for TRA '86 amendments to section 410(b). The 
amendments to section 410(b) made by section 1112(a) of TRA '86 are 
generally effective for plan years commencing after December 31, 1988. 
See section 1112(e)(1) of TRA '86.
    (v) Elimination of optional forms--(A) In general. Notwithstanding 
paragraphs (a)(2)(i) and (a)(2)(ii) of this Q&A-2, in the case of an 
optional form of benefit that has been eliminated under a plan with 
respect to specified employees for benefits accrued after the later of 
the eliminating amendment's adoption date or effective date, the 
determination of whether such optional form satisfies this paragraph 
(a)(2) with respect to such employees is to be made immediately prior to 
the elimination. Accordingly, if, as of the later of the adoption date 
or effective date of an amendment eliminating an optional form with 
respect to future benefit accruals, the current availability of such 
optional form immediately prior to such amendment satisfies this 
paragraph (a)(2), then the optional form will be treated as satisfying 
this paragraph (a)(2) for all subsequent years.
    (B) Example. A profit-sharing plan that provides for a single sum 
distribution available to all employees on termination of employment is 
amended January 1, 1990, to eliminate such single sum optional form of 
benefit with respect to benefits accrued after January 1, 1991. As of 
January 1, 1991, the single sum optional form of benefit is available to 
a group of employees that satisfies the percentage test of section 
410(b)(1)(A). As of January 1, 1995, all nonhighly compensated employees 
who were entitled to the single sum optional form of benefit have 
terminated from employment with the employer and taken a distribution of 
their benefits. The only remaining employees who have a right to take a 
portion of their benefits in the form of a single sum distribution on 
termination of employment are highly compensated employees. Because the 
availability of the single sum optional form of benefit satisfied the 
current availability test as of January 1, 1991, the availability of 
such optional form of benefit is deemed to continue to satisfy the 
current availability test of this paragraph (a)(2).
    (3) Effective availability--(i) In general. The requirement of this 
paragraph (a)(3) is satisfied only if, based on the facts and 
circumstances, the group of employees to whom the optional form is 
effectively available does not substantially favor the highly 
compensated group. This is the case even if the optional form is, or has 
been, currently available to a group of employees that satisfies the 
applicable requirements in paragraph (a)(2) (i) or (ii) of this Q&A-2.
    (ii) Examples. The provisions of paragraph (a)(3)(i) of this Q&A-2 
can be illustrated by the following examples:

    Example 1. Employer X maintains a defined benefit plan that covers 
both of the 2 highly compensated employees of the employer and 8 of the 
twelve nonhighly compensated employees of the employer. Plan X provides 
for a normal retirement benefit payable as an annuity and based on a 
normal retirement age of 65, and an early retirement benefit payable 
upon termination in the form of an annuity to employees who terminate 
from service with the employer on or after age 55 with 30 or more years 
of service. Each of the 2 employees of employer X who are in the highly 
compensated group currently meet the age and service requirement, or 
will have 30 years of service by the time they reach age 55. All but 2 
of the 8 nonhighly compensated employees of employer X who are covered 
by the plan were hired on or after age 35 and thus, cannot qualify for 
the early retirement benefit provision. Even though the group of 
employees to whom the early retirement benefit is currently available 
does not impermissibly favor the highly compensated group by reason of 
disregarding age and service, these facts and circumstances indicate 
that the effective availability of the early retirement benefit in

[[Page 56]]

plan X substantially favors the highly compensated group.
    Example 2. Assume the same facts as in Example 1 except that the 
early retirement benefit is added by a plan amendment first adopted, 
announced and effective December 1, 1991, and is available only to 
employees who terminate from employment with the employer prior to 
December 15, 1991. Further assume that all employees were hired prior to 
attaining age 25, and that the group of employees who have, or will have 
attained age 55 with 30 years of service, by December 15, 1991, 
satisfies the ratio test of section 410(b)(1)(B). Finally, assume that 
the only employees who terminate from employment with the employer 
during the two week period in which the early retirement benefit is 
available are employees in the highly compensated group. These facts and 
circumstances indicate that the effective availability of the early 
retirement benefit substantially favors the highly compensated group. 
This is the case even though the limitation of the early retirement 
benefit to a specified period satisfies section 411(d)(6).
    Example 3. Employer Y amends plan Y on June 30, 1990, to provide for 
a single sum distribution for employees who terminate from employment 
with the employer after June 30, 1990, and prior to January 1, 1991. The 
availability of this single sum distribution is conditioned on the 
employee having a particular disability at the time of termination of 
employment. The only employee of the employer who meets this disability 
requirement at the time of the amendment and thereafter through December 
31, 1990, is a highly compensated employee. Generally, a disability 
condition with respect to the availability of a single sum distribution 
may be disregarded in determining whether the current availability of 
such optional form of benefit is discriminatory. However, these facts 
and circumstances indicate that the effective availability of the 
optional form of benefit substantially favors the highly compensated 
group.
    Example 4. Employer Z maintains a money purchase pension plan that 
covers all employees of the employer. The plan provides for distribution 
in the form of a joint and survivor annuity, a life annuity, or equal 
installments over 10 years. During the 1992 calendar year the employer 
winds up his business. In December of 1992, only two employees remain in 
the employment of the employer, both of whom are highly compensated. 
Employer Z then amends the plan to provide for a single sum distribution 
to employees who terminate from employment on or after the date of the 
amendment. Both highly compensated employees terminate from employment 
on December 31, 1992, taking a single sum distribution of their 
benefits. These facts and circumstances indicate that the effective 
availability of the single sum optional form of benefit substantially 
favors the highly compensated group.

    (b) Application of tests--(1) Current availability--(i) In general. 
Except as otherwise provided in this paragraph (b), in determining 
whether an optional form of benefit that is subject to specified 
eligibility conditions is currently available to an employee for 
purposes of paragraph (a) of this Q&A-2, the determination of current 
availability generally is to be based on the current facts and 
circumstances with respect to the employee (e.g., the employee's current 
compensation or the employee's current net worth). Thus, for example, 
the fact that an employee may, in the future, satisfy an eligibility 
condition generally does not cause an optional form of benefit to be 
treated as currently available to such employee.
    (ii) Exceptions for age, service, employment termination and certain 
other conditions--(A) Age and service conditions. For purposes of 
applying paragraph (a)(2) of this Q&A-2, except as provided in paragraph 
(b)(1)(ii)(B) of this Q&A-2, an age condition, a service condition, or 
both are to be disregarded. For example, an employer that maintains a 
plan that provides for an early retirement benefit payable as an annuity 
for employees in division A, subject to a requirement that the employee 
has attained his or her 55th birthday and has at least twenty years of 
service with the employer, is to disregard the age and service 
conditions in determining the group of employees to whom the early 
retirement annuity benefit is currently available. Thus, the early 
retirement annuity benefit is treated as currently available to all 
employees of division A, without regard to their ages or years of 
service and without regard to whether they could potentially meet the 
age and service conditions prior to attaining the plan's normal 
retirement age.
    (B) Exception for certain age and service conditions. Age and 
service conditions that must be satisfied within a specified period of 
time may not be disregarded pursuant to paragraph (b)(1)(ii)(A) of this 
Q&A-2. However, in determining the current availability of an optional 
form of benefit subject to such an age condition, service condition, or 
both, an employer may project

[[Page 57]]

the age and service of employees to the last date on which the optional 
form of benefit subject to the age condition or service condition (or 
both) is available under the plan. An employer's ability to protect age 
and service to the last date on which the optional form of benefit is 
available under the plan is not cut off by a plan termination occurring 
prior to that date. Thus, for example, assume that an employer 
maintaining a plan that permits employees terminating from employment on 
or after age 55 between June 1, 1991 to May 31, 1992, to elect a single 
sum distribution, decides to terminate the plan on December 31, 1991. In 
determining the group of employees to whom the single sum optional form 
of benefit is currently available, this employer may project employees' 
ages through May 31, 1992.
    (C) Certain other conditions disregarded. Conditions on the 
availability of optional forms of benefit requiring termination of 
employment, death, satisfaction of a specified health condition (or 
failure to meet such condition), disability, hardship, marital status, 
default on a plan loan secured by a participant's account balance, or 
execution of a covenant not to compete may be disregarded in determining 
the group of employees to whom an optional form of benefit is currently 
available.
    (2) Employees taken into account. For purposes of applying paragraph 
(a) of this Q&A-2, the tests are to be applied on the basis of the 
employer's nonexcludable employees (whether or not they are participants 
in the plan) in the same manner as such tests would be applied in 
determining whether the plan providing the optional form of benefit 
satisfies the tests under section 410(b).
    (3) Definition of ``plan''. For purposes of applying paragraph (a) 
of this Q&A-2, the term ``plan'' has the meaning that such term has for 
purposes of determining whether the amount of contributions or benefits 
and whether other benefits, rights, and features are nondiscriminatory 
under section 401(a)(4).
    (4) Restructuring optional forms of benefit--(i) In general. For 
purposes of applying paragraph (a) of this Q&A-2, the availability of 
two or more optional forms of benefit under a plan may be tested by 
restructuring such benefits into two or more restructured optional forms 
of benefit and testing the availability of such restructured optional 
forms of benefit. If two or more optional forms of benefit under a plan 
contain both common and distinct components, such optional forms of 
benefit may be restructured as a single optional form of benefit 
comprising the common component, and one or more optional forms of 
benefit comprising each distinct component. Components of optional forms 
of benefit may be treated as common only if they are identical with 
respect to all characteristics taken into account under Q&A-1(b) of 
Sec. 1.411(d)-4. The availability of each restructured optional form of 
benefit must satisfy the applicable nondiscrimination requirements of 
paragraph (a) of this Q&A-2.
    (ii) Example. A profit-sharing plan covering all the employees of an 
employer provides a single sum distribution option upon termination from 
employment for all employees earning less than $50,000 and a single sum 
distribution option upon termination from employment after the 
attainment of age 55 for all employees earning $50,000 or more. These 
distribution options are identical in all other respects. For purposes 
of applying section 401(a)(4), such optional forms of benefit may be 
restructured into two different optional forms of benefit: (A) a single 
sum distribution option upon termination from employment after the 
attainment of age 55 for all employees (i.e., the common component), and 
(B) a single sum distribution option upon termination from employment 
before the attainment of age 55 for all employees earning less than 
$50,000. The availability of each of these restructured optional forms 
of benefit must satisfy section 401(a)(4).
    (c) Commissioner may provide additional tests. The Commissioner may 
provide such additional factors, tests, and safe harbors as are 
necessary or appropriate for purposes of determining whether the 
availability of an optional form of benefit is discriminatory under 
section 401(a)(4). In addition, the Commissioner may provide that 
additional

[[Page 58]]

eligibility conditions not related directly or indirectly to 
compensation or wealth may be disregarded under paragraph (b)(1)(ii)(C) 
of this Q&A-2 in determining the current availability of an optional 
form of benefit. The Commissioner may provide such additional guidance 
only through the publication of revenue rulings, notices or other 
documents of general applicability.
    Q-3: May a plan condition the availability of an optional form of 
benefit on employer discretion?
    A-3: No. Even if the availability of an optional form of benefit 
that is conditioned on employer discretion satisfies the 
nondiscrimination requirements of section 401(a)(4), the plan providing 
the optional form of benefit will fail to satisfy certain other 
requirements of section 401(a), including, in applicable circumstances, 
the definitely determinable requirement of section 401(a) and the 
requirements of section 401(a)(25) and section 411(d)(6). See Sec. 
1.411(d)-4.
    Q-4: Will a plan provision violate section 401(a)(4) merely because 
it requires that an employee who terminates from service with the 
employer receive a single sum distribution in the event that the present 
value of the employee's benefit is not more than $3,500, as permitted by 
sections 411(a)(11) and 417(e)?
    A-4: No. A plan will not be treated as discriminatory under section 
401(a)(4) merely because the plan mandates a single sum distribution 
when the present value of an employee's benefit is not more than $3,500, 
as permitted by sections 411(a)(11) and 417(e). This is an exception to 
the general principles of this section. (No similar provision exists 
excepting such single sum distributions from the limits on employer 
discretion under section 411(d)(6). See Sec. 1.411(d)-4 Q&A-4.)
    Q-5: If the availability of an optional form of benefit 
discriminates, or may reasonably be expected to discriminate, in favor 
of the highly compensated group, what acceptable alternatives exist for 
amending the plan without violating section 411(d)(6)?
    A-5: (a) Transitional rules--(1) In general. The following rules 
apply for purposes of making necessary amendments to existing plans (as 
defined in Q&A-6 of this section) under which the availability of an 
optional form of benefit violates the nondiscrimination requirements of 
section 401(a)(4) or may reasonably be expected to violate such 
requirements. These transitional rules are provided under the authority 
of section 411(d)(6), which allows the elimination of certain optional 
forms of benefit if permitted by regulations, and section 7805(b).
    (2) Nondiscrimination--(i) In general. The determination of whether 
the availability of an optional form of benefit violates section 
401(a)(4) is to be made in accordance with Q&A-2 of this section. In 
addition, the availability of a particular optional form of benefit may 
reasonably be expected to violate the nondiscrimination requirements of 
section 401(a)(4) if, under the applicable facts and circumstances, 
there is a significant possibility that the current availability of such 
optional form of benefit will impermissibly favor the highly compensated 
group. This determination must be made on the basis of the seventy 
percent test of section 410(b)(1)(A) or the nondiscriminatory 
classification test of section 410(b)(1)(B) as such tests existed prior 
to the effective date of the amendments made to section 410(b) by 
section 1112(a) of TRA '86. Thus, a condition may not reasonably be 
expected to discriminate for purposes of these rules merely because it 
results in a significant possibility that discrimination will result 
because of the amendments made to section 410(b) by section 1112(a) of 
TRA '86. In addition, the availability of an optional form of benefit 
may not reasonably be expected to discriminate merely because of an age 
or service condition that may be disregarded in determining the current 
availability of such optional form of benefit under paragraph 
(b)(1)(ii)(A) of Q&A-2 of this section. Similarly, the availability of 
an optional form of benefit may not reasonably be expected to 
discriminate merely because of an age or service condition that, after 
permitted projection, does not cause such optional form to fail to 
satisfy the requirement of this paragraph (a)(2).
    (ii) Examples. The provisions of paragraph (a)(2)(i) of this Q&A-5 
can be illustrated by the following examples:


[[Page 59]]


    Example (1). A plan provides that a single sum distribution option 
is available only to (A) employees earning $50,000 or more in the final 
year of employment, (B) employees who furnish evidence that they have a 
net worth above a certain specified amount, and (C) employees who 
present a letter from an accountant or attorney declaring that it is in 
the employee's best interest to receive a single sum distribution. 
Whether the availability of such optional form of benefit discriminates 
depends on whether it meets the requirements of Q&A-2 of this Sec. 
1.401(a)-4. However, each of the specified conditions limiting the 
availability of the optional form of benefit may reasonably be expected 
to discriminate in favor of the highly compensated group in operation 
because of the likelihood of a significant positive correlation between 
the ability to meet any of the specified conditions and membership in 
the highly compensated group.
    Example (2). A plan limits the availability of a single sum 
distribution option to employees employed in one particular division of 
the employer's company. All the employees of the company are 
participants in the plan. During the 1988 plan year, the division 
employs individuals who represent a nondiscriminatory classification of 
that company's employees (under section 410(b)(1)(B) prior to the 
effective date of the amendments made to section 410(b) by section 
1112(a) of TRA '86) and is unlikely to cease employing such a 
nondiscriminatory classification in the future. The availability of a 
single sum distribution under this plan does not result in 
discrimination during the 1988 plan year and may not reasonably be 
expected to do so.

    (b) Transitional alternatives. If the availability of an optional 
form of benefit under an existing plan is discriminatory under section 
401(a)(4), the plan must be amended either to eliminate the optional 
form of benefit or to make the availability of the optional form of 
benefit nondiscriminatory. For example, the availability of an optional 
form of benefit may be made nondiscriminatory by making such benefit 
available to sufficient additional employees who are not in the highly 
compensated group or by imposing nondiscriminatory objective criteria on 
its availability such that the group of employees to whom the benefit is 
available is nondiscriminatory. See Q&A-6 of Sec. 1.411(d)-4 for 
requirements with respect to such objective criteria. If, under an 
exisitng plan, the availability of an optional form of benefit may 
reasonably be expected to discriminate, the plan may be amended in the 
same manner permitted where the availability of an optional form of 
benefit is discriminatory. See paragraph (d) of this Q&A-5 for rules 
limiting the period during which the availability of optional forms of 
benefit may be eliminated or reduced under this paragraph.
    (c) Compliance and amendment date provisions--(1) Operational 
compliance requirement. On or before the applicable effective date for 
the plan (see Q&A-6 of this section), the plan sponsor must select one 
of the alternatives permitted under paragraph (b) of this Q&A-5 with 
respect to each affected optional form of benefit and the plan must be 
operated in accordance with this selection. This is an operational 
requirement and does not require a plan amendment prior to the period 
set forth in paragraph (c)(2) of this Q&A-5. There is no special 
reporting requirement under the Code or this section with respect to 
this selection.
    (2) Deferred amendment date. If paragraph (c)(1) of this Q&A-5 is 
satisfied, a plan amendment conforming the plan to the particular 
alternative selected under paragraph (b) of this Q&A-5 must be adopted 
within the time period permitted for amending plans in order to meet the 
requirements of section 410(b) as amended by TRA '86. Such conforming 
amendment must be consistent with the sponsor's selection as reflected 
by plan practice during the period from the effective date to the date 
the amendment is adopted. Thus, for example, if an existing calendar 
year noncollectively bargained defined benefit plan has a single sum 
distribution form subject to a discriminatory condition, that was 
available as of January 30, 1986 (subject to such condition), and such 
employer makes one or more single sum distributions available on or 
after the first day of the first plan year commencing on or after 
January 1, 1989, and before the plan amendment, then such employer may 
not adopt a plan amendment eliminating the single sum distribution form. 
Instead, such employer must adopt an amendment making the distribution 
form available to a nondiscriminatory group of employees while retaining 
the availability of such distribution form with respect to the

[[Page 60]]

group of employees to whom the benefit is already available. Similarly, 
any objective criteria that are adopted as part of such amendment must 
be consistent with the plan practice for the applicable period prior to 
the amendment. A conforming amendment under this paragraph (c)(2) must 
be made with respect to each optional form of benefit for which such 
amendment is required and must be retroactive to the applicable 
effective date.
    (d) Limitation on transitional alternatives. The transitional 
alternatives permitting the elimination or reduction of optional forms 
of benefit will not violate section 411(d)(6) during the period prior to 
the applicable effective date for the plan (see Q&A-6 of this section). 
After the applicable effective date, any amendment (other than one 
described in paragraph (c)(2) of this Q&A-5) that eliminates or reduces 
an optional form of benefit or imposes new objective criteria 
restricting the availability of such optional form of benefit will fail 
to qualify for the exception to section 411(d)(6) provided in this Q&A-
5. This is the case without regard to whether the availability of the 
optional form of benefit is discriminatory or may reasonably be expected 
to be discriminatory.
    Q-6: For what period are the rules of this section effective?
    A-6: (a) General effective date--(1) In general. Except as otherwise 
provided in this section, the provisions of this section are effective 
January 30, 1986, and do not apply to plan years beginning on or after 
January 1, 1994. For rules applicable to plan years beginning on or 
after January 1, 1994, see Sec. Sec. 1.401(a)(4)-1 through 1.401(a)(4)-
13.
    (2) Plans of tax-exempt organizations. In the case of plans 
maintained by organizations exempt from income taxation under section 
501(a), including plans subject to section 403(b)(12)(A)(i) (nonelective 
plans), except as otherwise provided in this section, the provisions of 
this section are effective January 30, 1986, and do not apply to plan 
years beginning on or after January 1, 1996. For rules applicable to 
plan years beginning on or after January 1, 1996, see Sec. Sec. 
1.401(a)(4)-1 through 1.401(a)(4)-13.
    (b) New plans--(1) In general. Unless otherwise provided in 
paragraph (b)(2) of this Q&A-6, plans that are either adopted or made 
effective on or after January 30, 1986, are ``new plans''. With respect 
to such new plans, this section is effective January 30, 1986. This 
effective date is applicable to such plans whether or not they are 
collectively bargained.
    (2) Exception with respect to certain new plans. Plans that are new 
plans as defined in paragraph (b)(1) of this Q&A-6, under which the 
availability of an optional form of benefit is discriminatory or may 
reasonably be expected to be discriminatory, and that receive a 
favorable determination letter that covered such plan provisions with 
respect to an application submitted prior to July 11, 1988, will be 
treated as existing plans with respect to such optional form of benefit 
for purposes of the transitional rules of this section. Thus, such plans 
are eligible for the compliance and amendment alternatives set forth in 
the transitional rule in Q&A-5 of this section.
    (c) Existing plans--(1) In general. Plans that are both adopted and 
in effect prior to January 30, 1986, are ``existing plans''. In 
addition, new plans described in paragraph (b)(2) of this Q&A-6 are 
treated as existing plans with respect to certain forms of benefit. 
Subject to the limitations in paragraph (d) of this Q&A-6, the effective 
dates set forth in paragraphs (c)(2) and (c)(3) of this Q&A-6 apply to 
these existing plans for purposes of this section.
    (2) Existing noncollectively bargained plans. With respect to 
existing noncollectively bargained plans, this section is effective for 
the first day of the first plan year commencing on or after January 1, 
1989.
    (3) Existing collectively bargained plans. With respect to existing 
collectively bargained plans, this section is effective for the later of 
the first day of the first plan year commencing on or after January 1, 
1989, or the first day of the first plan year that the requirements of 
section 410(b) as amended by TRA '86 apply to such plan.
    (d) Delayed effective dates not applicable to new optional forms of 
benefit or conditions--(1) In general. The delayed effective dates in 
paragraph (c) (2) and (3) of this Q&A-6 for existing plans are 
applicable with respect to an optional

[[Page 61]]

form of benefit only if both the optional form of benefit and any 
applicable condition either causing the availability of such optional 
form of benefit to be discriminatory or making it reasonable to expect 
that the availability of such optional form will be discriminatory were 
both adopted and in effect prior to January 30, 1986. If the preceding 
sentence is not satisfied with respect to an optional form of benefit, 
this section is effective with respect to such optional form of benefit 
as if the plan were a new plan.
    (2) Exception for certain amendments covered by a favorable 
determination letter. If a condition causing the availability of an 
optional form of benefit to be discriminatory, or to be reasonably 
expected to discriminate, was adopted or made effective on or after 
January 30, 1986, and a favorable determination letter that covered such 
plan provision is or was received with respect to an application 
submitted before July 11, 1988, the effective date of this section with 
respect to such provision is the applicable effective date determined 
under the rules with respect to existing plans, as though such provision 
had been adopted and in effect prior to January 30, 1986.
    (e) Transitional rule effective date. The transitional rule provided 
in Q&A-5 of this section is effective January 30, 1986.

[53 FR 26054, July 11, 1988, as amended by T.D. 8360, 56 FR 47536, Sept. 
19, 1991; T.D. 8485, 58 FR 46778, Sept. 3, 1993; T.D. 8212, 61 FR 14247, 
Apr. 1, 1996]