29 USC 1085 - Minimum funding standards

View all text of Part 3 [§ 1081 - § 1086]

§ 1085a. Minimum funding standards

(a) General rule

(b) Funding standard account

(1) Account required

(2) Charges to accountFor a plan year, the funding standard account shall be charged with the sum of—

(A) the normal cost of the plan for the plan year,

(B) the amounts necessary to amortize in equal annual installments (until fully amortized)—

(i) in the case of a plan in existence on January 1, 1974, the unfunded past service liability under the plan on the first day of the first plan year to which section 1082 of this title applies, over a period of 40 plan years,

(ii) in the case of a plan which comes into existence after January 1, 1974, but before the first day of the first plan year beginning after December 31, 2013, the unfunded past service liability under the plan on the first day of the first plan year to which section 1082 of this title applies, over a period of 30 plan years,

(iii) separately, with respect to each plan year, the net increase (if any) in unfunded past service liability under the plan arising from plan amendments adopted in such year, over a period of 15 plan years,

(iv) separately, with respect to each plan year, the net experience loss (if any) under the plan, over a period of 5 plan years, and

(v) separately, with respect to each plan year, the net loss (if any) resulting from changes in actuarial assumptions used under the plan, over a period of 10 plan years,

(C) the amount necessary to amortize each waived funding deficiency (within the meaning of section 1082(c)(3) of this title) for each prior plan year in equal annual installments (until fully amortized) over a period of 5 plan years,

(D) the amount necessary to amortize in equal annual installments (until fully amortized) over a period of 5 plan years any amount credited to the funding standard account under paragraph (3)(D), and

(E) the amount necessary to amortize in equal annual installments (until fully amortized) over a period of 20 years the contributions which would be required to be made under the plan but for the provisions of section 1082(c)(7)(A)(i)(I) of this title (as in effect on the day before August 17, 2006).

(3) Credits to accountFor a plan year, the funding standard account shall be credited with the sum of—

(A) the amount considered contributed by the employer to or under the plan for the plan year,

(B) the amount necessary to amortize in equal annual installments (until fully amortized)—

(i) separately, with respect to each plan year, the net decrease (if any) in unfunded past service liability under the plan arising from plan amendments adopted in such year, over a period of 15 plan years,

(ii) separately, with respect to each plan year, the net experience gain (if any) under the plan, over a period of 5 plan years, and

(iii) separately, with respect to each plan year, the net gain (if any) resulting from changes in actuarial assumptions used under the plan, over a period of 10 plan years,

(C) the amount of the waived funding deficiency (within the meaning of section 1082(c)(3) of this title) for the plan year, and

(D) in the case of a plan year for which the accumulated funding deficiency is determined under the funding standard account if such plan year follows a plan year for which such deficiency was determined under the alternative minimum funding standard, the excess (if any) of any debit balance in the funding standard account (determined without regard to this subparagraph) over any debit balance in the alternative minimum funding standard account.

(4) Combining and offsetting amounts to be amortizedUnder regulations prescribed by the Secretary of the Treasury, amounts required to be amortized under paragraph (2) or paragraph (3), as the case may be—

(A) may be combined into one amount under such paragraph to be amortized over a period determined on the basis of the remaining amortization period for all items entering into such combined amount, and

(B) may be offset against amounts required to be amortized under the other such paragraph, with the resulting amount to be amortized over a period determined on the basis of the remaining amortization periods for all items entering into whichever of the two amounts being offset is the greater.

(5) Interest

(A) In general

(B) ExceptionThe interest rate used for purposes of computing the amortization charge described in subsection (b)(2)(C) or for purposes of any arrangement under subsection (d) for any plan year shall be the greater of—

(i) 150 percent of the Federal mid-term rate (as in effect under section 1274 of title 26 for the 1st month of such plan year), or

(ii) the rate of interest determined under subparagraph (A).

(6) Amortization schedules in effect

(1) Determinations to be made under funding method

(2) Valuation of assets

(A) In general

(B) Dedicated bond portfolio

(3) Actuarial assumptions must be reasonableFor purposes of this section, all costs, liabilities, rates of interest, and other factors under the plan shall be determined on the basis of actuarial assumptions and methods—

(A) each of which is reasonable (taking into account the experience of the plan and reasonable expectations), and

(B) which, in combination, offer the actuary’s best estimate of anticipated experience under the plan.

(4) Treatment of certain changes as experience gain or lossFor purposes of this section, if—

(A) a change in benefits under the Social Security Act [42 U.S.C. 301 et seq.] or in other retirement benefits created under Federal or State law, or

(B) a change in the definition of the term “wages” under section 3121 of title 26 or a change in the amount of such wages taken into account under regulations prescribed for purposes of section 401(a)(5) of such title,

results in an increase or decrease in accrued liability under a plan, such increase or decrease shall be treated as an experience loss or gain.

(5) Funding method and plan year

(A) Funding methods available

(B) Changes

(C) Approval required for certain changes in assumptions by certain single-employer plans subject to additional funding requirement

(i) In general

(ii) Plans to which subparagraph appliesThis subparagraph shall apply to a plan only if—(I) the plan is a CSEC plan,(II) the aggregate unfunded vested benefits as of the close of the preceding plan year (as determined under section 1306(a)(3)(E)(iii) of this title) of such plan and all other plans maintained by the contributing sponsors (as defined in section 1301(a)(13) of this title) and members of such sponsors’ controlled groups (as defined in section 1301(a)(14) of this title) which are covered by subchapter III (disregarding plans with no unfunded vested benefits) exceed $50,000,000, and(III) the change in assumptions (determined after taking into account any changes in interest rate and mortality table) results in a decrease in the funding shortfall of the plan for the current plan year that exceeds $50,000,000, or that exceeds $5,000,000 and that is 5 percent or more of the current liability of the plan before such change.

(6) Full fundingIf, as of the close of a plan year, a plan would (without regard to this paragraph) have an accumulated funding deficiency (determined without regard to the alternative minimum funding standard account permitted under subsection (e)) in excess of the full funding limitation—

(A) the funding standard account shall be credited with the amount of such excess, and

(B) all amounts described in paragraphs (2)(B), (C), and (D) and (3)(B) of subsection (b) which are required to be amortized shall be considered fully amortized for purposes of such paragraphs.

(7) Full-funding limitationFor purposes of paragraph (6), the term “full-funding limitation” means the excess (if any) of—

(A) the accrued liability (including normal cost) under the plan (determined under the entry age normal funding method if such accrued liability cannot be directly calculated under the funding method used for the plan), over

(B) the lesser of—

(i) the fair market value of the plan’s assets, or

(ii) the value of such assets determined under paragraph (2).

(C)Minimum amount.—

(i)In general.—In no event shall the full-funding limitation determined under subparagraph (A) be less than the excess (if any) of—(I) 90 percent of the current liability (determined without regard to paragraph (4) of subsection (h)) of the plan (including the expected increase in such current liability due to benefits accruing during the plan year), over(II) the value of the plan’s assets determined under paragraph (2).

(ii)Assets.—For purposes of clause (i), assets shall not be reduced by any credit balance in the funding standard account.

(8) Annual valuation

(A) In general

(B) Valuation date

(i) Current year

(ii) Use of prior year valuation

(iii) Adjustments

(iv) Limitation

(9) Time when certain contributions deemed madeFor purposes of this section, any contributions for a plan year made by an employer during the period—

(A) beginning on the day after the last day of such plan year, and

(B) ending on the day which is 8½ months after the close of the plan year,

shall be deemed to have been made on such last day.

(10) Anticipation of benefit increases effective in the future

(d) Extension of amortization periodsThe period of years required to amortize any unfunded liability (described in any clause of subsection (b)(2)(B)) of any plan may be extended by the Secretary of the Treasury for a period of time (not in excess of 10 years) if such Secretary determines that such extension would carry out the purposes of this chapter and provide adequate protection for participants under the plan and their beneficiaries, and if such Secretary determines that the failure to permit such extension would result in—

(1) a substantial risk to the voluntary continuation of the plan, or

(2) a substantial curtailment of pension benefit levels or employee compensation.

(e) Alternative minimum funding standard

(1) In general

(2) Charges and credits to accountFor a plan year the alternative minimum funding standard account shall be—

(A) charged with the sum of—

(i) the lesser of normal cost under the funding method used under the plan or normal cost determined under the unit credit method,

(ii) the excess, if any, of the present value of accrued benefits under the plan over the fair market value of the assets, and

(iii) an amount equal to the excess (if any) of credits to the alternative minimum standard account for all prior plan years over charges to such account for all such years, and

(B) credited with the amount considered contributed by the employer to or under the plan for the plan year.

(3) Interest

(f) Quarterly contributions required

(1) In general

(A) 175 percent of the Federal mid-term rate (as in effect under section 1274 of title 26 for the 1st month of such plan year), or

(B) the rate of interest used under the plan in determining costs.

(2) Amount of underpayment, period of underpaymentFor purposes of paragraph (1)—

(A) AmountThe amount of the underpayment shall be the excess of—

(i) the required installment, over

(ii) the amount (if any) of the installment contributed to or under the plan on or before the due date for the installment.

(B) Period of underpayment

(3) Number of required installments; due datesFor purposes of this subsection—

(A) Payable in 4 installments

(B) Time for payment of installments

(4) Amount of required installmentFor purposes of this subsection—

(A) In general

(B) Required annual paymentFor purposes of subparagraph (A), the term “required annual payment” means the lesser of—

(i) 90 percent of the amount required to be contributed to or under the plan by the employer for the plan year under section 1082 of this title (without regard to any waiver under subsection (c) thereof), or

(ii) 100 percent of the amount so required for the preceding plan year.

Clause (ii) shall not apply if the preceding plan year was not a year of 12 months.

(5) Liquidity requirement

(A) In general

(B) Plans to which paragraph appliesThis paragraph shall apply to a CSEC plan other than a plan described in section 1082(d)(6)(A) of this title (as in effect on the day before August 17, 2006) which—

(i) is required to pay installments under this subsection for a plan year, and

(ii) has a liquidity shortfall for any quarter during such plan year.

(D) Limitation on increase

(E) DefinitionsFor purposes of this paragraph—

(i) Liquidity shortfall

(ii) Base amount(I) In general(II) Special rule

(iii) Disbursements from the plan

(iv) Adjusted disbursementsThe term “adjusted disbursements” means disbursements from the plan reduced by the product of—(I) the plan’s funded current liability percentage for the plan year, and(II) the sum of the purchases of annuities, payments of single sums, and such other disbursements as the Secretary of the Treasury shall provide in regulations.

(v) Liquid assets

(vi) Quarter

(F) Regulations

(6) Fiscal years and short years

(A) Fiscal years

(B) Short plan year

(g) Imposition of lien where failure to make required contributions

(1) In generalIn the case of a plan to which this section applies, if—

(A) any person fails to make a required installment under subsection (f) or any other payment required under this section before the due date for such installment or other payment, and

(B) the unpaid balance of such installment or other payment (including interest), when added to the aggregate unpaid balance of all preceding such installments or other payments for which payment was not made before the due date (including interest), exceeds $1,000,000,

then there shall be a lien in favor of the plan in the amount determined under paragraph (3) upon all property and rights to property, whether real or personal, belonging to such person and any other person who is a member of the same controlled group of which such person is a member.

(2) Plans to which subsection applies

(3) Amount of lienFor purposes of paragraph (1), the amount of the lien shall be equal to the aggregate unpaid balance of required installments and other payments required under this section (including interest)—

(A) for plan years beginning after 1987, and

(B) for which payment has not been made before the due date.

(4) Notice of failure; lien

(A) Notice of failure

(B) Period of lien

(5) Enforcement

(6) DefinitionsFor purposes of this subsection—

(A) Due date; required installment

(B) Controlled group

(h) Current liabilityFor purposes of this section—

(1) In general

(2) Treatment of unpredictable contingent event benefits

(A) In general

(B) Unpredictable contingent event benefitThe term “unpredictable contingent event benefit” means any benefit contingent on an event other than—

(i) age, service, compensation, death, or disability, or

(ii) an event which is reasonably and reliably predictable (as determined by the Secretary of the Treasury).

(3) Interest rate and mortality assumptions used

(A) Interest rate

(B) Mortality tables

(i) Secretarial authority

(ii) Periodic review

(i) In general

(ii) Special rule for disabilities occurring after 1994

(4) Certain service disregarded

(A) In general

(B) Applicable percentage

(C) Participants to whom paragraph appliesThis subparagraph shall apply to any participant who, at the time of becoming a participant—

(i) has not accrued any other benefit under any defined benefit plan (whether or not terminated) maintained by the employer or a member of the same controlled group of which the employer is a member,

(ii) who first becomes a participant under the plan in a plan year beginning after December 31, 1987, and

(iii) has years of service greater than the minimum years of service necessary for eligibility to participate in the plan.

(D) Election

(i) Funded current liability percentageFor purposes of this section, the term “funded current liability percentage” means, with respect to any plan year, the percentage which—

(1) the value of the plan’s assets determined under subsection (c)(2), is of

(2) the current liability under the plan.

(j) Funding restoration statusNotwithstanding any other provisions of this section—

(1) Normal cost payment

(A) In generalIn the case of a CSEC plan that is in funding restoration status for a plan year, for purposes of section 1082 of this title, the term “accumulated funding deficiency” means, for such plan year, the greater of—

(i) the amount described in subsection (a), or

(ii) the excess of the normal cost of the plan for the plan year over the amount actually contributed to or under the plan for the plan year.

(B) Normal cost

(2) Plan amendments

(3) Funding restoration plan

(4) Annual certification by plan actuaryNot later than the 90th day of each plan year of a CSEC plan, the plan actuary shall certify to the plan sponsor whether or not the plan is in funding restoration status for the plan year, based on the plan’s funded percentage as of the beginning of the plan year. For this purpose, the actuary may conclusively rely on an estimate of—

(A) the plan’s funding liability, based on the funding liability of the plan for the preceding plan year and on reasonable actuarial estimates, assumptions, and methods, and

(B) the amount of any contributions reasonably anticipated to be made for the preceding plan year.

Contributions described in subparagraph (B) shall be taken into account in determining the plan’s funded percentage as of the beginning of the plan year.

(5) DefinitionsFor purposes of this subsection—

(A) Funding restoration status

(B) Funded percentageThe term “funded percentage” means the ratio (expressed as a percentage) which—

(i) the value of plan assets (as determined under subsection (c)(2)), bears to

(ii) the plan’s funding liability.

(D) Spread gain funding method

(Pub. L. 93–406, title I, § 306, as added Pub. L. 113–97, title I, § 102(a), Apr. 7, 2014, 128 Stat. 1102.)