Final Rules for DB Minimum Required Contributions Issued

The Internal Revenue Service (IRS) has issued final regulations providing guidance on the determination of minimum required contributions for single-employer defined benefit (DB) plans, as well as final regulations regarding the excise tax for failure to satisfy the minimum funding requirements for defined benefit plans. 

The regulations apply to plan years beginning on or after January 1, 2016.

The document contains final income tax regulations under sections 430 and 436 as added to the Internal Revenue Code by the Pension Protection Act of 2006 (PPA) and amended by the Worker, Retiree, and Employer Recovery Act of 2008 (WRERA); the Moving Ahead for Progress in the 21st Century Act of 2012 (MAP-21); and the Highway and Transportation Funding Act of 2014 (HATFA). In addition, it contains final excise tax regulations under section 4971 applicable to both single-employer and multiemployer defined benefit plans.

According to the document, if the value of plan assets (less the sum of the plan’s prefunding balance and funding standard carryover balance) is less than the funding target, section 430(a)(1) defines the minimum required contribution as the sum of the plan’s target normal cost and the shortfall and waiver amortization charges for the plan year. If the value of plan assets (less the sum of the plan’s prefunding balance and funding standard carryover balance) equals or exceeds the funding target, section 430(a)(2) defines the minimum required contribution as the plan’s target normal cost for the plan year reduced (but not below zero) by the amount of the excess. 

The regulations discuss the determination of the shortfall amortization base, as well as the interest rates that must be used in determining a plan's target normal cost and funding target.

Section 4971(a) imposes an excise tax on the employer for a failure to meet applicable minimum funding requirements. In the case of a single-employer plan (other than a CSEC plan), the tax is 10% of the aggregate unpaid minimum required contributions for all plan years remaining unpaid as of the end of any plan year ending with or within a taxable year. In the case of a multiemployer plan, the tax is 5% of the accumulated funding deficiency as of the end of any plan year ending with or within the taxable year. In the case of a CSEC plan, the tax is 10% of the CSEC accumulated funding deficiency. Section 4971(b) provides an additional excise tax that applies if the applicable minimum funding requirements remain unsatisfied for a specified period.

These regulations finalize proposed regulations that were published April 15, 2008.