# Prop. Treas. Reg. § 1.401(a)(4)-8: Cross-testing. Proposed regulation, not in force. REG-125761-14, 81 FR 4976, published 2016-01-29 . Interprets 26 U.S.C. § 401. Par. 6. Section 1.401(a)(4)-8 is amended by: 1. Revising paragraphs (b)(1)(iii)(B) through (E). 2. Removing paragraph (b)(1)(iii)(F). 3. Adding paragraph (b)(1)(iv)(E). The revisions and additions read as follows: * * * * * (b) * * * (1) * * * (iii) * * * (B) Defined benefit replacement allocations disregarded. In determining whether a plan has broadly available allocation rates for the plan year within the meaning of paragraph (b)(1)(iii)(A) of this section, the following rules in paragraphs (b)(1)(iii)(B)( 1 ) and ( 2 ) of this section apply: ( 1 ) If an employee receives a defined benefit replacement allocation (within the meaning of paragraph (b)(1)(iii)(D) of this section) for the plan year in addition to the employee's otherwise applicable allocation under the plan for the plan year, then the employee's allocation rate is determined without regard to the defined benefit replacement allocation. ( 2 ) If an employee receives an allocation for the plan year that is the greater of the allocation for which the employee would otherwise be eligible and the defined benefit replacement allocation (within the meaning of paragraph (b)(1)(iii)(D) of this section), then the allocation for which the employee would otherwise be eligible is considered currently available to the employee, even if the employee's defined benefit replacement allocation is greater. See paragraph (b)(1)(iii)(C)( 2 ) of this section for additional rules relating to “greater-of” plan provisions. (C) Plan provisions —( 1 ) In general. Plan provisions providing for defined benefit replacement allocations (within the meaning of paragraph (b)(1)(iii)(D) of this section) for the plan year must specify both the group of employees who are eligible for the defined benefit replacement allocations and the amount of the defined benefit replacement allocations. ( 2 ) “Greater-of” plan provisions. An allocation does not fail to be a defined benefit replacement allocation within the meaning of paragraph (b)(1)(iii)(D) of this section merely because the plan provides that each employee who is eligible for a defined benefit replacement allocation receives the greater of that allocation and the allocation for which the employee would otherwise be eligible under the plan. ( 3 ) Limited plan amendments. Except as provided in paragraph (b)(1)(iii)(D)( 5 ) of this section, an allocation is not a defined benefit replacement allocation within the meaning of paragraph (b)(1)(iii)(D) of this section for the plan year if the plan provisions relating to the allocation are amended after the date those plan provisions are both adopted and effective. (D) Defined benefit replacement allocation —( 1 ) In general. A defined benefit replacement allocation is an allocation under a defined contribution plan provided only to a grandfathered group of employees with respect to a closed defined benefit plan. An allocation is treated as a defined benefit replacement allocation if— ( i ) The allocation satisfies the conditions to be a replacement allocation with respect to a closed defined benefit plan in paragraph (b)(1)(iii)(D)( 2 ) of this section; ( ii ) The closed defined benefit plan satisfies the conditions in paragraph (b)(1)(iii)(D)( 3 ) of this section; and ( iii ) For each plan year that begins before the fifth anniversary of the closure date of the closed defined benefit plan, the grandfathered group of employees is a nondiscriminatory group of employees within the meaning of paragraph (b)(1)(iii)(D)( 4 ) of this section. ( 2 ) Replacement allocation. An allocation is a replacement allocation with respect to a closed defined benefit plan under this paragraph (b)(1)(iii)(D)( 2 ) if— ( i ) The allocation is designed so that it is reasonably expected to replace some or all of the value of the benefit accruals that each employee in the grandfathered group of employees would have been provided under the closed defined benefit plan in the absence of a closure amendment (based on the terms of that plan and the section 415(b)(1)(A) dollar limit in effect immediately prior to the closure date); and ( ii ) The allocation is provided in a consistent manner to all similarly situated employees. ( 3 ) Closed defined benefit plan. A closed defined benefit plan satisfies the conditions in this paragraph (b)(1)(iii)(D)( 3 ) if— ( i ) The closed defined benefit plan's benefit formula applicable to the grandfathered group of employees generated equivalent normal allocation rates that increased from year to year as employees attained higher ages or were credited with additional years of service; ( ii ) The closed defined benefit plan satisfied the minimum coverage and nondiscrimination requirements under sections 410(b) and 401(a)(4) without regard to the special rules under section 410(b)(6)(C) and without aggregating with any other plan, for the plan year preceding the closure date; and ( iii ) The closed defined benefit plan was in effect for the 5-year period ending on the closure date and neither the benefit formula nor the coverage of the plan was significantly changed by plan amendment with an effective date during this period. ( 4 ) Nondiscriminatory group of employees. A group of employees is a nondiscriminatory group of employees for purposes of this paragraph (b)(1)(iii)(D)( 4 ) if the group of employees satisfies section 410(b) for the plan year (without regard to § 1.410(b)-5). ( 5 ) Certain amendments not taken into account. For purposes of determining whether the requirements of paragraphs (b)(1)(iii)(C)( 3 ) and (b)(1)(iii)(D)( 3 ) of this section are satisfied, the following plan amendments are not taken into account: ( i ) An amendment to the closed defined benefit plan adopted during the 5-year period ending on the closure date, provided that the accrued benefit or future accruals for any employee are not increased, coverage is not expanded, and the amendment is not discriminatory within the meaning of paragraph (b)(1)(iii)(D)( 6 ) of this section. ( ii ) An amendment to the defined contribution plan under which the defined benefit replacement allocation is provided that makes de minimis changes in the calculation of that allocation (such as a change in the definition of compensation to include section 132(f) elective reductions). ( iii ) An amendment to the defined contribution plan under which the defined benefit replacement allocation is provided that adds or removes a “greater-of” provision described under paragraph (b)(1)(iii)(C)( 2 ) of this section. ( iv ) An amendment to the defined contribution plan under which the defined benefit replacement allocation is provided that makes changes in the calculation of that allocation in a manner that is not discriminatory within the meaning of paragraph (b)(1)(iii)(D)( 6 ) of this section. ( v ) An amendment that guidance published by the Commissioner in the Internal Revenue Bulletin provides will not be taken into account. ( 6 ) Nondiscriminatory amendment —( i ) General rule. An amendment to a plan is not discriminatory if the ratio percentage of the plan is not decreased as a result of the amendment and, in the case of a plan that demonstrates compliance with the nondiscrimination in amount requirement of § 1.401(a)(4)-1(b)(2) using a method other than a safe harbor test under § 1.401(a)(4)-2(b), § 1.401(a)(4)-3(b), or paragraph (b)(3) or (c)(3) of this section, the ratio percentage for the rate group with respect to any HCE is not decreased as a result of the amendment. ( ii ) Timing of nondiscrimination testing. In determining whether the ratio percentage of the plan or the rate group is decreased as a result of an amendment, an amendment that is not in effect for an entire plan year is treated as if it were in effect for the entire plan year. In the case of an amendment that has separate portions with separate effective dates, each portion of the amendment is treated as a separate amendment that must satisfy the requirements of paragraph (b)(1)(iii)(D)( 6 )( i ) of this section for the plan year in which it takes effect. ( 7 ) Special rules for former employers and acquired employees. The following special rules apply in the case of former employers and acquired employees: ( i ) If the closed defined benefit plan was sponsored by a former employer and not by the employer, then the rules in paragraph (b)(1)(iii)(D)( 3 )( ii ) of this section do not apply and one year is substituted for 5 years with respect to paragraph (b)(1)(iii)(D)( 3 )( iii ) of this section; ( ii ) An amendment adopted during the 5-year period ending on the closure date that extends the coverage or benefit formula of the closed defined benefit plan to an acquired group of employees may be applied (in addition to the amendments described in paragraph (b)(1)(iii)(D)( 5 ) of this section) provided that all similarly situated employees within that group are treated in a consistent manner; and ( iii ) If the employees of a former employer become the employees of the new employer as a result of a transaction that is a merger, acquisition, or similar event, then the transaction is treated as a closure amendment with respect to the former employer's plan as of the effective date of the acquisition. (E) Effective/applicability date. See § 1.401(a)(4)-13(a)(4) for rules on the effective/applicability date of this section. (iv) * * * (E) Defined benefit replacement allocation may be disregarded. In determining whether a plan has a gradual age or service schedule for the plan year within the meaning of paragraph (b)(1)(iv)(A) of this section, if an employee receives a defined benefit replacement allocation (within the meaning of paragraph (b)(1)(iii)(D) of this section) for the plan year, then the plan's schedule is determined without regard to the defined benefit replacement allocation. For this purpose, the rules under paragraph (b)(1)(iii)(B) of this section apply. See § 1.401(a)(4)-13(a)(4) for rules on the effective/applicability date of this paragraph (b)(1)(iv)(E). * * * * *