IRS Provides Sample Plan Amendment for Underfunded Pension Plan Limitations

The notice also extends both the deadline to amend a plan to satisfy § 436 and the period during which such an amendment is eligible for relief from the anti-cutback requirements of § 411(d)(6).  

Section 436, which was added by Pension Protection Act, sets forth a series of limitations on the accrual and payment of benefits under an underfunded plan (see IRS Issues Guidance on Benefit Limits for Underfunded DB Plans). In general, when a plan’s adjusted funding target attainment percentage (AFTAP) for the plan year is less than 60%, § 436(d)(1) prohibits the payment of prohibited payments (as defined in § 436(d)(5)), including single sum distributions, and § 436(e)(1) requires benefit accruals under the plan to cease. Section 436(b)(1) prohibits the payment of an unpredictable contingent event benefit if the plan’s AFTAP for the plan year is less than 60% or would be less than 60% taking into account the occurrence of the event.  

When a plan’s AFTAP for the plan year is less than 80%, but not less than 60%, § 436(d)(3) generally limits the portion of a benefit that may be paid in a single sum or other prohibited payment. Section 436(c)(1) generally prohibits a plan amendment from taking effect if the amendment increases the liabilities of the plan by increasing benefits and the plan’s AFTAP for the plan year is less than 80% or would be less than 80% taking into account the amendment.   

Section 436(d)(2) generally prohibits the payment of prohibited payments from a plan while the plan’s sponsor is in bankruptcy unless the plan’s AFTAP is certified to be at least 100%.  

The limitations under § 436 (other than the limitations on prohibited payments under § 436(d)) do not apply to a plan for the first five plan years of the plan, taking into account any predecessor plan.  

The requirement to apply a limitation under § 436(b), (c), or (e) to a plan ceases if the plan sponsor makes a contribution, in the amount specified in the relevant subsection, that is not counted toward satisfaction of the minimum contribution requirement under § 430. Section 436(f) sets forth rules relating to those contributions and other methods that a plan sponsor may use to avoid the limitations under § 436.  

Notice 2011-96 is available at http://www.irs.gov/pub/irs-drop/n-11-96.pdf.