How do coverage requirements benefit retirement plans under IRS rules?

Coverage requirements are designed to create equality in benefit distribution among employees within retirement plans, particularly under IRS regulations. These requirements ensure that a broad spectrum of employees, including those who are not highly compensated, have access to retirement benefits.

By mandating that plans must cover a specific percentage of non-highly compensated employees, IRS rules aim to prevent discrimination and ensure that all employees have equitable access to the retirement benefits provided by their employer. This is significant for fostering workplace morale and encouraging savings for retirement across all levels of the organization, not just among higher-paid staff.

In contrast, focusing solely on highly compensated employees would perpetuate inequality in benefit distribution, which is contrary to the IRS’s goals of promoting fair and balanced retirement plans.