Nondiscrimination Rule


DEFINITION of 'Nondiscrimination Rule'

A clause found in qualified retirement plans stating that all employees of a company must be eligible for the same benefits, regardless of position within the company. The rule keeps plans from being discriminatory toward highly-compensated employees and company executives. Nondiscrimination rules are required for a plan to be considered qualified under the Employee Retirement Income Security Act (ERISA).

BREAKING DOWN 'Nondiscrimination Rule'

A company may offer non-qualified plans (meaning that contributions are not tax deductible) that are discriminatory or selective in nature, in addition to standard qualified plans.

Nondiscrimination rules must be kept up even when retirement plans such as 401(k)s are amended or transferred to another trustee, according to ERISA guidelines.

  1. Qualified Retirement Plan

    A plan that meets requirements of the Internal Revenue Code and ...
  2. Plan Sponsor

    A designated party, usually a company or employer, that sets ...
  3. 401(k) Plan

    A qualified plan established by employers to which eligible employees ...
  4. Employee Retirement Income Security ...

    The Employee Retirement Income Security Act of 1974 (ERISA) protects ...
  5. Defined-Benefit Plan

    An employer-sponsored retirement plan where employee benefits ...
  6. Qualified Longevity Annuity Contract

    A Qualified Longevity Annuity Contract (QLAC) is a deferred annuity ...
Related Articles
  1. Entrepreneurship

    401(k) Plans For The Small Business Owner

    If you own a business, this may be the plan for you! Find out about its benefits and eligibility requirements.
  2. Options & Futures

    Retirement Planning Basics

    Realizing your post-work goals need not be daunting. We'll tell you everything you need to know to get - and stay - on track.
  3. Taxes

    Learn about eligibility requirements, contributions and distribution rules for these retirement plans.
  4. Retirement

    5 Reasons to Leave Retirement Planning to Your Wife

    Wives live longer than their husbands, so their retirement stakes are higher. Luckily, certain qualities make women especially good at long-term planning
  5. Professionals

    Are ETFs a Good Fit for 401(k) Plans?

    The popularity of ETFs among investors and advisors continues to grow. But are they a good fit for 401(k) plans?
  6. Professionals

    How to Create a Client Investment Policy Statement

    Investment policy statements are vital for financial advisors and their clients. Here are some tips for creating them.
  7. Retirement

    Using Your 401(k) to Pay Off a Mortgage: The Pros and Cons

    Learn the advantages and drawbacks of using assets accumulated within a 401(k) retirement savings plan to pay down a mortgage balance.
  8. Investing

    2 Common Ways to Misuse Target Date Funds

    The world of asset classes is just as complicated as taking vitamins. How much should you take of small caps? Intermediate bonds? Emerging market stocks?
  9. Mutual Funds & ETFs

    What Target-Date Funds Can Teach About Investing

    Target-date funds are a popular way to invest for retirement. Here's what they can teach the novice investor.
  10. Stock Analysis

    3 Stocks that Are Top Bets for Retirement

    These three stocks are resilient, fundamentally sound and also pay generous dividends.
  1. How is an SBO-401(k) set up?

    Small Business Owner 401(k) plans have grown in popularity following changes enacted through the Economic Growth and Tax ... Read Full Answer >>
  2. I make over $100,000/yr and my adjusted gross income precludes standard IRA contributions. ...

    With an adjusted gross income (AGI) of more than $100,000, only your eligibility to deduct contributions to a Traditional ... Read Full Answer >>
  3. What is the size of the average retirement nest egg?

    According to a 2015 Government Accountability Office (GAO) study, people between the ages of 55 and 64 with any retirement ... Read Full Answer >>
  4. What are the risks of rolling my 401(k) into an annuity?

    Though the appeal of having guaranteed income after retirement is undeniable, there are actually a number of risks to consider ... Read Full Answer >>
  5. How does a Roth IRA grow over time?

    Your Roth IRA account grows over time thanks to two funding sources: contributions and earnings. While your contributions ... Read Full Answer >>
  6. Can my 401(k) be seized or garnished?

    As long as your retirement funds are held in your 401(k) and you do not take them as distributions, your 401(k) cannot be ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Ex Works (EXW)

    An international trade term requiring the seller to make goods ready for pickup at his or her own place of business. All ...
  2. Letter of Intent - LOI

    A document outlining the terms of an agreement before it is finalized. LOIs are usually not legally binding in their entirety. ...
  3. Purchasing Power

    The value of a currency expressed in terms of the amount of goods or services that one unit of money can buy. Purchasing ...
  4. Real Estate Investment Trust - REIT

    A REIT is a type of security that invests in real estate through property or mortgages and often trades on major exchanges ...
  5. Section 1231 Property

    A tax term relating to depreciable business property that has been held for over a year. Section 1231 property includes buildings, ...
  6. Term Deposit

    A deposit held at a financial institution that has a fixed term, and guarantees return of principal.
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!