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).
Investopedia explains '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.