53004 Federal Register / Vol. 74, No. 198 / Thursday, October 15, 2009 / Rules and Regulations 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Parts 1 and 602 

[TD 9467] 

RIN 1545–BG72; RIN 1545–BH07 

Measurement of Assets and Liabilities 

for Pension Funding Purposes; Benefit 

Restrictions for Underfunded Pension 

Plans 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Final regulations. 

SUMMARY: This document contains final 

regulations providing guidance 

regarding the determination of the value 

of plan assets and benefit liabilities for 

purposes of the funding requirements 

that apply to single employer defined 

benefit plans, regarding the use of 

certain funding balances maintained for 

those plans, and regarding benefit 

restrictions for certain underfunded 

defined benefit pension plans. These 

regulations reflect provisions added by 

the Pension Protection Act of 2006, as 

amended by the Worker, Retiree, and 

Employer Recovery Act of 2008. These 

regulations affect sponsors, 

administrators, participants, and 

beneficiaries of single employer defined 

benefit pension plans. 

DATES: Effective Date: These regulations 

are effective on October 15, 2009. 

Applicability Date: These regulations 

apply to plan years beginning on or after 

January 1, 2010. 

FOR FURTHER INFORMATION CONTACT: 

Michael P. Brewer, Lauson C. Green, or 

Linda S.F. Marshall at (202) 622–6090 

(not a toll-free number). 

SUPPLEMENTARY INFORMATION: 

Paperwork Reduction Act 

The collections of information 

contained in these final regulations have 

been reviewed and approved by the 

Office of Management and Budget in 

accordance with the Paperwork 

Reduction Act of 1995 (44 U.S.C. 

3507(d)) under control number 1545– 

2095. The collections of information in 

this final regulation are in §§ 1.430(f)– 

1(f), 1.430(h)(2)–1(e), 1.436–1(f), and 

1.436–1(h). The information required 

under § 1.430(f)–1(f) is required in order 

for plan sponsors to make elections 

regarding a plan’s credit balances upon 

occasion. The information required 

under § 1.430(h)(2)–1(e) is required in 

order for a plan sponsor to make an 

election to use an alternative interest 

rate for purposes of determining a plan’s 

funding obligations under § 1.430(h)(2)– 

1. The information required under 

§§ 1.436–1(f) and 1.436–1(h) is required 

in order for a qualified defined benefit 

plan’s enrolled actuary to provide a 

timely certification of the plan’s 

adjusted funding target attainment 

percentage (AFTAP) for each plan year 

to avoid certain benefit restrictions. 

An agency may not conduct or 

sponsor, and a person is not required to 

respond to, a collection of information 

unless it displays a valid control 

number. 

Books or records relating to a 

collection of information must be 

retained as long as their contents may 

become material in the administration 

of any internal revenue law. Generally, 

tax returns and tax return information 

are confidential, as required by 26 

U.S.C. 6103. 

Background 

This document contains final Income 

Tax Regulations (26 CFR part 1) under 

sections 430(d), 430(f), 430(g), 430(h)(2), 

430(i), and 436, as added to the Internal 

Revenue Code (Code) by the Pension 

Protection Act of 2006 (PPA ’06), Public 

Law 109–280 (120 Stat. 780), and 

amended by the Worker, Retiree, and 

Employer Recovery Act of 2008 

(WRERA ’08), Public Law 110–458 (122 

Stat. 5092). 

Section 412 provides minimum 

funding requirements that generally 

apply for pension plans (including both 

defined benefit pension plans and 

money purchase pension plans). PPA 

’06 makes extensive changes to those 

minimum funding requirements for 

defined benefit plans that generally 

apply for plan years beginning on or 

after January 1, 2008. Section 430, 

which was added by PPA ’06, specifies 

the minimum funding requirements that 

apply to single employer defined benefit 

pension plans (including multiple 

employer plans) pursuant to section 

412. Section 436, which was also added 

by PPA ’06, sets forth certain limitations 

on benefits that may apply to a single 

employer defined benefit plan based on 

its funded status. Neither section 430 

nor section 436 applies to 

multiemployer plans. 

Section 302 of the Employee 

Retirement Income Security Act of 1974, 

as amended (ERISA), sets forth funding 

rules that are parallel to those in section 

412 of the Code, and section 303 of 

ERISA sets forth additional funding 

rules for single employer plans that are 

parallel to those in section 430 of the 

Code. In addition, section 206(g) of 

ERISA sets forth benefit limitations that 

are parallel to those in section 436 of the 

Code. Under section 101 of 

Reorganization Plan No. 4 of 1978 (43 

FR 47713) and section 3002(c) of ERISA, 

the Secretary of the Treasury has 

interpretive jurisdiction over the subject 

matter addressed in these regulations for 

purposes of ERISA, as well as the Code. 

Thus, these final Treasury Department 

regulations issued under sections 430 

and 436 of the Code apply for purposes 

of sections 206(g) and 303 of ERISA. 

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. 

Under section 430(d), except as 

otherwise provided in section 430(i)(1) 

(regarding at-risk status), a plan’s 

funding target for a plan year is the 

present value of all benefits accrued or 

earned under the plan as of the 

beginning of the plan year. 

Prior to amendment by WRERA ’08, 

section 430(b) defined a plan’s target 

normal cost for a plan year as the 

present value of all benefits expected to 

accrue or be earned under the plan 

during the plan year (with any increase 

in any benefit attributable to services 

performed in a preceding plan year by 

reason of a compensation increase 

during the current plan year treated as 

having accrued during the current plan 

year). Section 101(b)(2) of WRERA ’08 

amended section 430(b) to modify the 

definition of a plan’s target normal cost 

by adding the amount of plan-related 

expenses expected to be paid from plan 

assets during the plan year, and by 

subtracting the amount of mandatory 

employee contributions expected to be 

made during the plan year. This 

modification applies to plan years 

beginning after December 31, 2008; 

however, a plan sponsor is permitted to 

elect to apply this modification 

beginning with the first plan year 

beginning after December 31, 2007. 

Under section 430(f)(3), certain 

funding balances—referred to as the 

prefunding balance and the funding 

standard carryover balance—are 

permitted to be used to reduce the 

otherwise applicable minimum required 

contribution for a plan year in certain 

situations. Under section 430(f)(6), the 

prefunding balance represents the 

accumulation of the contributions that 


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Federal Register / Vol. 74, No. 198 / Thursday, October 15, 2009 / Rules and Regulations 53005 

an employer makes for a plan year that 

exceed the minimum required 

contribution for the year. An employer 

that makes contributions for a plan year 

that exceed the minimum required 

contribution for the year is permitted in 

certain circumstances to use those 

excess contributions in order to satisfy 

the minimum funding requirement in a 

subsequent plan year. However, section 

430(f)(6)(iii) provides that contributions 

required to avoid a benefit restriction 

under section 436 are disregarded for 

purposes of determining the extent to 

which contributions for a plan year 

exceed the minimum required 

contribution for the plan year. Under 

section 430(f)(7), the funding standard 

carryover balance is based on the 

funding standard account credit balance 

as determined under section 412 for a 

plan as of the last day of the last plan 

year beginning in 2007. 

The treatment of these balances under 

section 430 reflects Congressional 

concern with the treatment of a funding 

standard account credit balance under 

the section 412 rules in effect prior to 

PPA ’06. Accordingly, section 430(f)(3) 

sets forth a new restriction on the ability 

of a poorly funded plan to use the 

prefunding balance and the funding 

standard carryover balance as a credit 

against the minimum required 

contribution for a plan year. Under 

section 430(f)(3)(C), the prefunding 

balance or funding standard carryover 

balance can only be used for a plan year 

if the value of plan assets for the 

preceding plan year (after subtracting 

the prefunding balance) was at least 80 

percent of the funding target 

(determined without regard to the atrisk rules of section 430(i)) for that 

preceding plan year. In addition, section 

430(f)(4) requires that the prefunding 

balance and the funding standard 

carryover balance be subtracted from the 

value of plan assets for certain purposes 

(including the determination of the 

plan’s funding target attainment 

percentage (FTAP), as defined under 

section 430(d)(2)), and section 430(f)(8) 

requires that the prefunding balance and 

the funding standard carryover balance 

be adjusted for actual investment return 

on plan assets. In order to give 

employers the opportunity to minimize 

the impact of the requirement to 

subtract the prefunding balance and 

funding standard carryover balance 

from plan assets, section 430(f)(5) 

permits an employer to elect to reduce 

those balances. 

Section 430(g)(1) provides that all 

determinations made with respect to 

minimum required contributions for a 

plan year (such as the value of plan 

assets and liabilities) are made as of the 

plan’s valuation date. Section 430(g)(2) 

provides that, other than for plans with 

100 or fewer participants (determined as 

provided in section 430(g)(2)(B) and 

(C)), the valuation date for a plan year 

must be the first day of the plan year. 

Under section 430(g)(2)(B), all defined 

benefit pension plans (other than 

multiemployer plans) maintained by the 

employer, a predecessor employer, or by 

any member of the employer’s 

controlled group are treated as a single 

plan for this purpose, but only 

participants with respect to the 

employer or member of the controlled 

group are taken into account. 

Section 430(g)(3) provides rules 

regarding the determination of the value 

of plan assets for purposes of section 

430. Under section 430(g)(3)(A), except 

as otherwise provided in section 

430(g)(3)(B), the fair market value of 

plan assets must be used for this 

purpose. As an alternative to the use of 

fair market value, section 430(g)(3)(B) 

permits the use of an actuarial value of 

assets based on the average of fair 

market values, but only if such method 

is permitted under regulations 

prescribed by the Secretary, does not 

provide for averaging of such values 

over more than the period beginning on 

the last day of the 25th month preceding 

the month in which the valuation date 

occurs and ending on the valuation date 

(or a similar period in the case of a 

valuation date that is not the 1st day of 

a month), and does not result in a 

determination of the actuarial value of 

plan assets that, at any time, is lower 

than 90 percent or greater than 110 

percent of the fair market value of plan 

assets as of the valuation date. 

Under section 430(g)(4), if a 

contribution made after the valuation 

date for the current plan year is a 

contribution for a preceding plan year, 

the contribution is taken into account in 

determining the value of plan assets for 

the current plan year. For 2009 and 

future plan years, only the present value 

(determined as of the valuation date for 

the current plan year, using the plan’s 

effective interest rate for the preceding 

plan year) of the contributions made for 

the preceding plan year is taken into 

account. If any contributions for the 

current plan year are made before the 

valuation date (which could only occur 

for a small plan with a valuation date 

that is not the first day of the plan year), 

plan assets as of the valuation date must 

exclude those contributions and also 

must exclude interest on those 

contributions (determined at the plan’s 

effective interest rate for the plan year) 

for the period between the date of the 

contribution and the valuation date. 

Under section 430(h)(2)(A), a plan’s 

effective interest rate for a plan year is 

defined as the single interest rate that, 

if used to determine the present value 

of the benefits taken into account in 

determining the plan’s funding target for 

the plan year in lieu of the interest rates 

under section 430(h)(2), would result in 

an amount equal to the plan’s funding 

target determined for the plan year 

under section 430(d). 

Under section 430(h)(1), the 

determination of any present value or 

other computation under section 430 is 

to be made on the basis of actuarial 

assumptions and methods each of 

which is reasonable (taking into account 

the experience of the plan and 

reasonable expectations) and which, in 

combination, offer the actuary’s best 

estimate of anticipated experience 

under the plan. 

Section 430(h)(2) specifies the interest 

rates that must be used in determining 

a plan’s target normal cost and funding 

target. Under section 430(h)(2)(B), 

present value is determined using three 

interest rates (segment rates) for the 

applicable month, each of which applies 

to benefit payments expected to be paid 

during a certain period. The first 

segment rate applies to benefits 

reasonably determined to be payable 

during the 5-year period beginning on 

the first day of the plan year. The 

second segment rate applies to benefits 

reasonably determined to be payable 

during the 15-year period following the 

initial 5-year period. The third segment 

rate applies to benefits reasonably 

determined to be payable after the end 

of that 15-year period. 

Section 430(h)(2)(C) defines each 

segment rate as a single interest rate 

determined for a month by the Treasury 

Department on the basis of the corporate 

bond yield curve for the month. Under 

section 430(h)(2)(D), the corporate bond 

yield curve for a month is to be 

prescribed by the Treasury Department 

and is to reflect the average, for the 24- 

month period ending with the preceding 

month, of yields on investment grade 

corporate bonds with varying maturities 

that are in the top three quality levels 

available. Section 430(h)(2)(D)(ii) 

provides an alternative to the use of the 

three segment rates, under which the 

corporate bond yield curve (determined 

without regard to the 24 month average) 

is substituted for the segment rates. 

Section 430(h)(2)(G) provides a 

transition rule for plan years beginning 

in 2008 and 2009 (other than for plans 

where the first plan year begins on or 

after January 1, 2008). Under this 

transition rule, the interest rates to be 

used in the valuation are based on a 

blend of the segment rates and the longterm corporate bond rates used for plan 


srobinson on DSKHWCL6B1PROD with RULES2
53006 Federal Register / Vol. 74, No. 198 / Thursday, October 15, 2009 / Rules and Regulations 

years prior to the effective date of PPA 

’06. Under section 430(h)(2)(G)(iv), a 

plan sponsor may elect to have this 

transition rule not apply. 

Section 430(i) sets forth special rules 

that apply to a plan that is in at-risk 

status. If a plan is in at-risk status, then 

special assumptions must be used in 

determining the plan’s funding target 

and target normal cost, a loading factor 

is applied to the plan’s liabilities in 

certain cases, and, under section 

409A(b)(3), restrictions apply to the 

employer’s ability to set aside assets for 

purposes of paying deferred 

compensation to a covered employee 

under a nonqualified deferred 

compensation plan. 

Under section 430(i)(4), a plan is in 

at-risk status for a year if, for the 

preceding year: (1) The plan’s FTAP, 

determined without regard to the at-risk 

assumptions, was less than 80 percent 

(with a transition rule discussed in the 

next sentence); and (2) the plan’s FTAP, 

determined using the at-risk 

assumptions (without regard to whether 

the plan was in at-risk status for the 

preceding year), was less than 70 

percent. Under a transition rule, 

reduced percentages apply for plan 

years beginning before 2011 instead of 

80 percent in the first part of the test for 

determining at-risk status. Under 

section 430(i)(4), in the case of plan 

years beginning in 2008, the plan’s 

FTAP for the preceding plan year is to 

be determined under rules provided by 

the Treasury Department. 

Under section 430(i)(6), the at-risk 

rules do not apply if a plan had 500 or 

fewer participants on each day during 

the preceding plan year. For this 

purpose, the number of participants is 

determined using the same rules as 

apply for determining whether a plan is 

a small plan for purposes of eligibility 

for the use of a valuation date other than 

the first day of the plan year. If a plan 

is in at-risk status, the plan’s funding 

target and target normal cost are 

determined (under section 430(i)(1) and 

(2)) using special actuarial assumptions. 

Under these assumptions, all employees 

who are not otherwise assumed to retire 

as of the valuation date, but who will be 

eligible to elect to commence benefits in 

the current and 10 succeeding plan 

years, are assumed to retire at the 

earliest retirement date under the plan, 

but not before the end of the current 

plan year. In addition, all employees are 

assumed to elect the form of retirement 

benefit available under the plan for each 

assumed retirement age that results in 

the highest present value. 

The funding target of a plan in at-risk 

status for a plan year is generally the 

sum of: (1) The present value of all 

benefits accrued or earned as of the 

beginning of the plan year determined 

using the special assumptions described 

in this preamble; and (2) in the case of 

a plan that has been in at-risk status for 

at least 2 of the 4 preceding plan years, 

a loading factor. That loading factor is 

equal to the sum of: (1) $700 multiplied 

by the number of participants in the 

plan; plus (2) 4 percent of the funding 

target determined as if the plan were not 

in at-risk status. The target normal cost 

of a plan in at-risk status for a plan year 

is generally the sum of: (1) The present 

value of benefits expected to accrue or 

be earned under the plan during the 

plan year; determined using the special 

assumptions described in this preamble; 

and (2) in the case of a plan that has 

been in at-risk status for at least 2 of the 

4 preceding plans years, a loading factor 

of 4 percent of the present value of all 

benefits under the plan that accrue, are 

earned, or are otherwise allocated to 

service for the plan year (determined as 

if the plan were not in at-risk status). 

The target normal cost of a plan in atrisk status is adjusted for plan-related 

expenses expected to be paid from plan 

assets during the plan year and 

mandatory employee contributions 

expected to be made during the plan 

year under the same rules that apply to 

plans that are not in at-risk status. 

Under section 430(i)(3), the funding 

target of a plan in at-risk status and the 

target normal cost of a plan in at-risk 

status are never less than the respective 

funding target and target normal cost 

determined without regard to the at-risk 

rules. In addition, if a plan has been in 

at-risk status for fewer than 5 

consecutive plan years, a phase-in rule 

applies to the determination of the 

funding target and the target normal cost 

under section 430(i)(5). 

Section 401(a)(29) requires that a 

defined benefit plan (other than a 

multiemployer plan) satisfy the 

requirements of section 436. Section 436 

sets forth a series of limitations on the 

accrual and payment of benefits under 

an underfunded plan. Under section 

436(g), these limitations (other than the 

limitations on accelerated benefit 

payments under section 436(d)) do not 

apply to a plan for the first 5 plan years 

of the plan, taking into account any 

predecessor plan. 

Section 436(b) sets forth a limitation 

on plant shutdown and other 

unpredictable contingent event benefits 

in situations where the plan’s adjusted 

funding target attainment percentage 

(AFTAP) for the plan year is less than 

60 percent or would be less than 60 

percent taking into account the 

occurrence of the event. For this 

purpose, an unpredictable contingent 

event benefit means any benefit payable 

solely by reason of (1) a plant shutdown 

(or a similar event), or (2) an event other 

than attainment of age, performance of 

service, receipt or derivation of 

compensation, or the occurrence of 

death or disability. Under section 

436(b)(2), the limitation does not apply 

for a plan year if the plan sponsor makes 

a specified contribution (in addition to 

any minimum required contribution). If 

the AFTAP for a plan year is less than 

60 percent, then the specified 

contribution is equal to the amount of 

the increase in the plan’s funding target 

for the plan year attributable to the 

occurrence of the event. If the AFTAP 

for a plan year is 60 percent or more but 

would be less than 60 percent taking 

into account the occurrence of the 

event, then the specified contribution is 

the amount sufficient to result in an 

AFTAP of 60 percent taking into 

account the occurrence of the event. 

Under section 436(c), a plan 

amendment that has the effect of 

increasing the liabilities of the plan by 

reason of any increase in benefits 

(including changes in vesting) may not 

take effect if the plan’s AFTAP for the 

plan year is less than 80 percent or 

would be less than 80 percent taking 

into account the amendment. Under 

section 436(c)(2), the limitation does not 

apply for a plan year if the plan sponsor 

makes a specified contribution (in 

addition to any minimum required 

contribution). If the plan’s AFTAP for 

the plan year is less than 80 percent, 

then the specified contribution is equal 

to the amount of the increase in the 

plan’s funding target for the plan year 

attributable to the amendment. If the 

plan’s AFTAP for the plan year is 80 

percent or more but would be less than 

80 percent taking into account the 

amendment, then the specified 

contribution is the amount sufficient to 

result in an AFTAP of 80 percent taking 

into account the amendment. In 

addition, under section 436(c)(3), the 

limitation does not apply to an 

amendment that provides for a benefit 

increase under a formula that is not 

based on compensation, but only if the 

rate of increase does not exceed the 

contemporaneous rate of increase in 

average wages of participants covered 

by the amendment. 

Under section 436(d), a plan is 

required to set forth certain limitations 

on accelerated benefit distributions. If 

the plan’s AFTAP for a plan year is less 

than 60 percent, the plan must not make 

any prohibited payments after the 

valuation date for the plan year. If the 

plan’s AFTAP for a plan year is at least 

60 percent but is less than 80 percent, 

the plan must not pay any prohibited 


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Federal Register / Vol. 74, No. 198 / Thursday, October 15, 2009 / Rules and Regulations 53007 

1Pursuant to section 203 of WRERA, for the first 

plan year beginning during the period beginning on 

October 1, 2008, and ending on September 30, 2009, 

section 436(e)(1) is applied by substituting the 

plan’s adjusted funding target attainment 

percentage for the preceding plan year for such 

percentage for such plan year but only if the 

adjusted funding target attainment percentage for 

the preceding plan year is greater. 

payment to the extent the payment 

exceeds the lesser of (1) 50 percent of 

the amount otherwise payable under the 

plan and (2) the present value of the 

maximum PBGC guarantee with respect 

to a participant. In addition, if the plan 

sponsor is in bankruptcy proceedings, 

the plan may not pay any prohibited 

payment unless the plan’s enrolled 

actuary certifies that the AFTAP of the 

plan is at least 100 percent. However, 

section 436(d) does not apply to a plan 

for a plan year if the terms of the plan 

provide for no benefit accruals with 

respect to any participant for the period 

beginning on September 1, 2005, and 

extending throughout the plan year. 

Under section 436(d)(5), a prohibited 

payment is (1) any payment in excess of 

the monthly amount paid under a single 

life annuity (plus any social security 

supplements that are provided under 

the plan) to a participant or beneficiary, 

(2) any payment for the purchase of an 

irrevocable commitment from an insurer 

to pay benefits, or (3) any other payment 

specified by the Secretary by 

regulations. 

Under section 436(e), a plan is 

required to provide that if the plan’s 

AFTAP is less than 60 percent for a plan 

year, all benefit accruals under the plan 

must cease as of the valuation date for 

the plan year.1 Under section 436(e)(2), 

the limitation ceases to apply with 

respect to any plan year, effective as of 

the first day of the plan year, if the plan 

sponsor makes a contribution (in 

addition to any minimum required 

contribution for the plan year) equal to 

the amount sufficient to result in an 

AFTAP of 60 percent. 

Section 436(f) sets forth a series of 

rules relating to contributions required 

to avoid benefit restrictions. Under 

section 436(f)(1), an employer is 

permitted to provide security to the plan 

(in the form of a surety bond, cash, 

United States obligations that mature in 

3 years or less, or other form satisfactory 

to the Treasury Department and the 

parties involved) that is treated as an 

asset of the plan for purposes of 

determining the plan’s AFTAP. Under 

section 436(f)(2), if an employer uses the 

option in section 436(b)(2), 436(c)(2), or 

436(e)(2) to make the specified 

contribution that would avoid a 

limitation under section 436, the 

specified contribution must be an actual 

contribution and the employer may not 

use a prefunding balance or funding 

standard carryover balance in lieu of 

making the specified contribution. 

Section 436(f)(3) describes certain 

situations in which an employer is 

deemed to have made the election in 

section 430(f)(5) to reduce the plan’s 

funding standard carryover balance or 

prefunding balance. Such an election 

has the effect of increasing the plan’s 

AFTAP to avoid a benefit limitation 

under section 436 (because the result of 

the election is a higher asset value used 

to determine the AFTAP). In particular, 

if the limitation under section 436(d) 

would otherwise apply to a plan, the 

plan sponsor is treated as having made 

an election (a deemed election) to 

reduce any prefunding balance or 

funding standard carryover balance by 

the amount necessary to prevent the 

benefit limitation from applying. A 

comparable rule applies to the other 

benefit limitations under sections 

436(b), 436(c), and 436(e), but only in 

the case of a plan maintained pursuant 

to a collective bargaining agreement. In 

any of these cases (the election with 

respect to the limitations under section 

436(d) or a deemed election in the case 

of a plan maintained pursuant to a 

collective bargaining agreement), the 

deeming rule applies only if the 

prefunding balance and funding 

standard carryover balances are large 

enough to avoid the application of the 

section 436 limitation. 

Section 436(h) sets forth a series of 

presumptions that apply during the 

portion of the plan year that is before 

the plan’s enrolled actuary has certified 

the plan’s AFTAP for the year. Under 

section 436(h)(1), if a plan was subject 

to a limitation under section 436(b), 

436(c), 436(d), or 436(e) for the plan 

year preceding the current plan year, the 

plan’s AFTAP for the current year is 

presumed to be the same as for the 

preceding year until the plan’s enrolled 

actuary certifies the plan’s AFTAP for 

the current year (or until the first day of 

the 10th month, if earlier). Under 

section 436(h)(3), if any of these 

limitations did not apply to the plan for 

the preceding year, but would have 

applied if the plan’s AFTAP for the 

preceding year was 10 percentage points 

lower, the plan’s AFTAP is presumed to 

be 10 percentage points lower than the 

AFTAP for the prior plan year as of the 

first day of the 4th month of the current 

plan year (and that day is deemed to be 

the plan’s valuation date for purposes of 

applying the benefit limitations), unless 

the plan’s enrolled actuary has certified 

the plan’s AFTAP for the current year 

by that day. If the plan’s enrolled 

actuary has not certified the plan’s 

AFTAP by the first day of the 10th 

month of the current plan year, section 

436(h)(2) provides that the plan’s 

AFTAP is conclusively presumed to be 

less than 60 percent as of that day (and 

that day is deemed to be the valuation 

date for purposes of applying the benefit 

limitations). 

Under section 436(i), unless the plan 

provides otherwise, if a limitation on 

prohibited payments or future benefit 

accruals under section 436(d) or (e) 

ceases to apply to a plan, those 

payments and benefit accruals resume, 

effective as of the day following the 

close of the limitation period. 

Section 436(j) provides definitions 

that are used under section 436, 

including the definition of AFTAP. In 

general, a plan’s AFTAP is based on the 

plan’s FTAP for the plan year. However, 

the plan’s AFTAP is determined by 

adding the aggregate amount of 

purchases of annuities for employees 

other than highly compensated 

employees (within the meaning of 

section 414(q)) made by the plan during 

the two preceding plan years to the 

numerator and the denominator of the 

fraction used to determine the FTAP. In 

addition, section 436(j)(3) provides a 

special rule which applies to certain 

well-funded plans under which the 

plan’s FTAP for purposes of section 436 

(and hence the plan’s AFTAP) is 

determined by using the plan’s assets 

without reduction for the prefunding 

balance and the funding standard 

carryover balance. Section 436(j)(3)(B) 

sets forth a transition rule for 

determining eligibility for this special 

rule. 

Section 436(k), as added by WRERA 

’08, provides the Secretary with 

authority to issue special rules for the 

application of section 436 in the case of 

a plan that uses a valuation date other 

than the first day of the plan year. 

Section 436(m) (designated section 

436(k) prior to amendment by WRERA 

’08) provides that, for plan years that 

begin in 2008, the determination of the 

plan’s FTAP for the preceding year is to 

be made pursuant to guidance issued by 

the Secretary. 

Under section 101(j) of ERISA, as 

amended by PPA ’06, the plan 

administrator of a single employer plan 

is required to provide a written notice 

to participants and beneficiaries within 

30 days after certain specified dates. 

These dates include the date the plan 

has become subject to a restriction 

described in the ERISA provisions that 

are parallel to Code sections 436(b) and 

436(d) and, in the case of a plan that is 

subject to the ERISA provisions that are 

parallel to Code section 436(e), the 

valuation date for the plan year for 


srobinson on DSKHWCL6B1PROD with RULES2
53008 Federal Register / Vol. 74, No. 198 / Thursday, October 15, 2009 / Rules and Regulations 

which the plan’s AFTAP is less than 60 

percent (or, if earlier, the date the 

AFTAP is presumed to be less than 60 

percent under the ERISA provisions that 

parallel the presumption rules in Code 

section 436(h)). Under section 101(j) of 

ERISA, the Secretary of the Treasury can 

specify other dates under which notice 

is to be provided. Any notice under 

section 101(j) of ERISA must be 

provided in writing, except that the 

notice may be in electronic or other 

form to the extent that such form is 

reasonably accessible to the recipient. 

Sections 430 and 436 generally apply 

to plan years beginning on or after 

January 1, 2008. The applicability of 

section 430 for purposes of determining 

the minimum required contribution and 

the application of section 436 is delayed 

for certain plans in accordance with 

sections 104 through 106 of PPA ’06. 

Under section 1107 of PPA ’06, a plan 

sponsor is permitted to delay adopting 

a plan amendment pursuant to statutory 

provisions under PPA ’06 (or pursuant 

to any regulation issued under PPA ’06) 

until the last day of the first plan year 

beginning on or after January 1, 2009 

(January 1, 2011, in the case of 

governmental plans). If section 1107 of 

PPA ’06 applies to an amendment of a 

plan, section 1107 provides that the 

plan does not fail to meet the anticutback requirements of section 

411(d)(6) by reason of such amendment, 

except as otherwise provided by the 

Secretary of the Treasury. 

Proposed regulations regarding the 

rules for funding balances under section 

430(f) and the benefit restrictions for 

underfunded plans under section 436 

were published on August 31, 2007 

(REG–113891–07, 72 FR 50544). The 

regulations were proposed to apply to 

plan years beginning on or after January 

1, 2008. Comments were received 

regarding the regulations, and a public 

hearing was held on January 28, 2008. 

Proposed regulations regarding the 

measurement of assets and liabilities for 

pension funding purposes (generally 

covering the rules of sections 430(d), (g), 

(h)(2), and (i)) were published on 

December 31, 2007 (REG–139236–07, 72 

FR 74215). The regulations were 

proposed to apply to plan years 

beginning on or after January 1, 2009. 

Comments were received regarding the 

regulations, and a public hearing was 

held on May 29, 2008. 

Notice 2008–21 (2008–1 CB 431) 

provides that the regulations under 

section 430(f) and 436 will not apply to 

plan years beginning before January 1, 

2009. See § 601.601(d)(2) relating to 

objectives and standards for publishing 

regulations, revenue rulings and 

revenue procedures in the Internal 

Revenue Bulletin. Notice 2008–21 also 

provides that the IRS will not challenge 

a reasonable interpretation of an 

applicable provision under section 430 

or 436 for a plan year beginning in 2008 

and provides transitional guidance with 

respect to years before the regulations 

are effective. 

On December 23, 2008, WRERA ’08 

was enacted. WRERA ’08 contains 

technical corrections and other changes 

to the rules of sections 430 and 436, 

including a modification to the asset 

valuation method set forth in section 

430(g)(3)(B). Notice 2009–22 (2009–14 

IRB 741) provides interim rules 

regarding the asset valuation method as 

modified by WRERA ’08. 

Explanation of Provisions 

I. Overview 

These regulations finalize the rules 

proposed in REG–113891–07 (published 

August 31, 2007), regarding funding 

balances and benefit restrictions for 

underfunded plans, and the rules 

proposed in REG–139236–07 (published 

December 31, 2007), regarding 

measurement of assets and liabilities for 

pension funding purposes, with certain 

revisions. The Treasury Department and 

the IRS published proposed regulations 

relating to other portions of the rules 

under section 430 (including sections 

430(a), (c), and (j)) on April 15, 2008 

(REG–108508–08, 72 FR 20203). Those 

regulations will be finalized separately. 

II. Section 1.430(d)–1 Determination of 

Funding Target and Target Normal Cost 

Section 1.430(d)–1 generally adopts 

the rules set forth in the proposed 

regulations for determining the funding 

target and the target normal cost under 

sections 430(b) and 430(d) for a plan 

that is not in at-risk status, including 

rules relating to the application of 

actuarial assumptions described in 

sections 430(h)(1) and 430(h)(4). 

The final regulations generally adopt 

the definition of target normal cost for 

a plan that is not in at-risk status that 

was set forth in the proposed 

regulations. However, the final 

regulations contain modifications to this 

definition to reflect amendments made 

by WRERA ’08. Under the proposed 

regulations, plan administrative 

expenses would not have been taken 

into account in determining a plan’s 

target normal cost or funding target for 

the plan year. Under the final 

regulations, the target normal cost of a 

plan for the plan year is the present 

value (determined as of the valuation 

date) of all benefits under the plan that 

accrue during, are earned during, or are 

otherwise allocated to service for the 

plan year, subject to certain special 

adjustments as added by section 

101(b)(2) of WRERA ’08. These special 

adjustments are optional for plan years 

beginning during 2008, but are required 

to be made for later plan years. 

Under the special adjustments, the 

target normal cost of the plan for the 

plan year is adjusted (not below zero) by 

adding the amount of plan-related 

expenses expected to be paid from plan 

assets during the plan year, and by 

subtracting the amount of any 

mandatory employee contributions 

expected to be made during the plan 

year. For this purpose, the final 

regulations reserve the issue of the 

definition of plan-related expenses, 

which is expected to be addressed in 

forthcoming proposed regulations. 

The regulations clarify that the 

benefits taken into account in 

determining target normal cost are the 

benefits that are accrued, earned, or 

otherwise allocated to service beginning 

with the first day of the plan year 

through the valuation date, plus benefits 

that are expected to accrue, be earned, 

or otherwise allocated to service during 

the remainder of the plan year. Thus, for 

a plan with a valuation date other than 

the first day of the plan year, the actual 

benefits earned during the part of the 

year before the valuation date must be 

included in the target normal cost. The 

final regulations generally adopt the 

definition of the funding target for a 

plan that is not in at-risk status as set 

forth in the proposed regulations, but 

with a few clarifications that take into 

account comments received on the 

proposed regulations. Under the 

regulations, the funding target of a plan 

for the plan year is the present value 

(determined as of the valuation date) of 

all benefits under the plan that have 

been accrued, earned, or are otherwise 

allocated to years of service prior to the 

first day of the plan year. 

Under the proposed regulations, the 

definition of a plan’s FTAP was set forth 

in proposed § 1.430(i)–1. These final 

regulations include this definition in 

§ 1.430(d)–1, and the definition is crossreferenced in §§ 1.430(i)–1 and 1.436–1. 

Under the final regulations, except as 

otherwise provided in a transition rule, 

the FTAP of a plan for a plan year is a 

fraction (expressed as a percentage), the 

numerator of which is the value of plan 

assets for the plan year after subtraction 

of the plan’s funding balances under 

section 430(f)(4)(B) and § 1.430(f)–1, and 

the denominator of which is the funding 

target of the plan for the plan year 

(determined without regard to the atrisk rules under section 430(i) and 

§ 1.430(i)–1). 


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Federal Register / Vol. 74, No. 198 / Thursday, October 15, 2009 / Rules and Regulations 53009 

2Section 430(i)(4) provides for special rules to 

apply in determining a plan’s FTAP only for plan 

years beginning during 2008. Accordingly, the 

regulations limit the use of the special rule under 

which the plan’s FTAP is determined based on the 

plan’s current liability to the determination of the 

plan’s FTAP for the 2007 plan year, even for a plan 

described in sections 104 through 106 of PPA ’06 

for which section 430 does not apply for purposes 

of determining a plan’s minimum required 

contribution until a plan year after the 2008 plan 

year. 

The regulations provide transition 

rules for determining a plan’s FTAP for 

the 2007 plan year. These rules are 

generally the same as the rules set forth 

in the proposed regulations under 

section 430(i) for determining a plan’s 

FTAP for the last plan year before 

section 430 applies to the plan. 

However, the final regulations differ 

from the proposed regulations in the 

transition rules that apply for the 

determination of a plan’s FTAP for a 

plan year that begins on or after January 

1, 2008, but for which section 430 does 

not apply for purposes of determining 

the plan’s minimum required 

contribution. In such a case, the FTAP 

is determined for that plan year in the 

same manner as for a plan to which 

section 430 applies to determine the 

plan’s minimum required contribution, 

except that the value of plan assets that 

forms the FTAP numerator is 

determined without subtraction of the 

funding standard carryover balance or 

the credit balance under the funding 

standard account. These rules are 

needed to enable a plan described in 

sections 104 through 106 of PPA ’06 to 

disclose its FTAP for purposes of the 

annual funding notice under section 

101(f) of ERISA.2

The regulations adopt the special rule 

set forth in the proposed regulations for 

determining the FTAP for a new plan. 

Under the final regulations, if the 

funding target of the plan is equal to 

zero for the plan year, the FTAP is equal 

to 100 percent for the plan year. Unlike 

the proposed regulations, the final 

regulations do not limit the application 

of this rule to a plan that has no 

predecessor plan because of concerns 

that it is not always appropriate to carry 

over the FTAP from the predecessor 

plan. 

The final regulations contain rules 

regarding the determination of present 

value in order to clarify the application 

of various rules that were set forth in the 

proposed regulations. Under the 

regulations, the present value of a 

benefit with respect to a participant that 

is taken into account under the 

regulations is determined as of the 

valuation date by multiplying the 

amount of that benefit by the probability 

that the benefit will be paid at a future 

date and then discounting the resulting 

product using the appropriate interest 

rate. The probability that the benefit 

will be paid with respect to the 

participant at that future date is 

determined using actuarial assumptions 

as to the probability of future service, 

advancement in age, and other events 

(such as death, disability, termination of 

employment, and selection of an 

optional form of benefit) that affect 

whether the participant or beneficiary 

will be eligible for the benefit and 

whether the benefit will be paid at that 

future date. 

As under the proposed regulations, 

these regulations provide that the 

benefits taken into account in 

determining the funding target and the 

target normal cost are all benefits earned 

or accrued under the plan that have not 

yet been paid as of the valuation date, 

including retirement-type and ancillary 

benefits. The benefits taken into account 

are based on the participant’s or 

beneficiary’s status (such as active 

employee, vested or partially vested 

terminated employee, or disabled 

participant) as of the valuation date, and 

those benefits are allocated to funding 

target or target normal cost. 

In order to determine a plan’s funding 

target and target normal cost, the future 

benefits to be paid from the plan must 

be allocated among prior plan years (in 

which case they will be taken into 

account in determining the funding 

target for the current plan year), the 

current plan year (in which case they 

will be taken into account in 

determining the target normal cost for 

the current plan year), and future plan 

years (in which case they will not be 

taken into account in determining either 

the funding target or the target normal 

cost for the current plan year). The final 

regulations adopt the rules set forth in 

the proposed regulations for this 

allocation of benefits where benefits are 

a function of the accrued benefit and 

where benefits are a function of service, 

but the final regulations modify those 

rules for benefits in other 

circumstances. 

To the extent that the amount of a 

benefit that is expected to be paid is a 

function of the accrued benefit, the 

amount of the benefit taken into account 

in determining the funding target for a 

plan year under the final regulations is 

determined by applying that function to 

the accrued benefit as of the first day of 

the plan year, and the portion of the 

benefit that is taken into account in the 

target normal cost for the plan year is 

determined by applying that function to 

the increase in the accrued benefit 

during the plan year. To the extent that 

the amount of a benefit that is expected 

to be paid is not a function of the 

accrued benefit but is a function of the 

participant’s service, the portion of the 

benefit that is taken into account in 

determining the funding target for the 

plan year under the final regulations is 

determined by applying that function to 

the participant’s service as of the first 

day of the plan year, and the portion of 

the benefit that is taken into account in 

determining the target normal cost for 

the plan year is determined by applying 

that function to the increase in the 

participant’s years of service during the 

plan year. For a benefit that is 

determined as the excess of a function 

of the participant’s service over a 

function of the participant’s accrued 

benefit, the amount of the funding target 

and the target normal cost attributable to 

the portion of the benefit that is a 

function of the accrued benefit is 

determined pursuant to the rules that 

apply to such benefits and the amount 

of the funding target and the target 

normal cost attributable to the net 

benefit (the excess of the benefit that is 

a function of service over the benefit 

that is a function of accrued benefit) is 

determined pursuant to the rules that 

apply to a benefit that is a function of 

service. 

The proposed regulations included 

rules for allocating benefits where the 

amount of a benefit that is expected to 

be paid is neither a function of the 

accrued benefit at the time the benefit 

is expected to be paid nor a function of 

the participant’s service at that time. 

Under those rules, the benefit would 

have been allocated proportionately 

over the years until the participant met 

the age and service conditions for 

eligibility for the benefit. A number of 

commenters suggested that this 

allocation yielded inappropriate results 

in certain cases. In response to these 

comments, the final regulations provide 

that, to the extent the amount of a 

benefit that is expected to be paid is 

neither a function of the accrued benefit 

nor a function of the participant’s 

service (and is not the excess of a 

function of the participant’s service over 

a function of the accrued benefit), the 

portion of the participant’s benefit that 

is taken into account in determining the 

funding target for a plan year is equal 

to the total benefit multiplied by the 

ratio of the participant’s years of service 

as of the first day of the plan year to the 

years of service the participant will have 

at the time of the event that causes the 

benefit to be payable (whether the 

benefit is expected to be paid at the time 

of that decrement or at a future time), 

and the portion of the benefit that is 

taken into account in determining the 


srobinson on DSKHWCL6B1PROD with RULES2
53010 Federal Register / Vol. 74, No. 198 / Thursday, October 15, 2009 / Rules and Regulations 

3The PBGC has informed the IRS and Treasury 

Department that this inclusion of insurance 

contracts in plan assets and the associated benefit 

liabilities in the funding target does not apply for 

purposes of Title IV of ERISA and its regulations, 

which generally require that, if an insurer makes an 

irrevocable commitment to provide all benefit 

liabilities with respect to an individual, those 

benefits cease to be benefit liabilities of the plan, 

the individual is no longer a plan participant, and 

the irrevocable commitment is excluded from plan 

assets. 

target normal cost for the plan year is 

the increase in the proportionate benefit 

attributable to the increase in the 

participant’s years of service during the 

plan year. 

Under the proposed regulations, the 

determination of the funding target and 

the target normal cost would not have 

taken into account any benefit 

limitations or anticipated benefit 

limitations under section 436. The 

reason for this provision was to avoid 

the circularity in calculations that 

would result from calculating the 

funding target based on the imposition 

of benefit restrictions for purposes of 

determining whether the benefit 

restrictions need to be imposed. In 

response to comments, the final 

regulations contain modifications to the 

rules regarding recognition of the 

section 436 benefit restrictions. In 

particular, the final regulations provide 

that benefits that were not paid or 

accrued prior to the valuation date as a 

result of the benefit limitations are 

generally not included in the funding 

target and the target normal cost, but 

that the determination of the funding 

target and the target normal cost is not 

permitted to anticipate any future 

applications of the section 436 benefit 

restrictions. 

The final regulations retain the 

treatment from the proposed regulations 

regarding the non-recognition of the 

benefit accrual limitations of section 

436(e) in determining target normal 

cost. This has the effect of requiring an 

employer sponsoring a plan that 

provides for ongoing benefit accruals to 

include the present value of those 

accruals in the target normal cost, even 

if the plan is temporarily not permitted 

to provide for accruals, with the goal of 

improving the plan’s funded status. 

However, if the plan sponsor actually 

adopts a plan freeze, the target normal 

cost will reflect that plan freeze. In 

connection with this provision, the final 

regulations provide that if the plan 

contains a provision under which 

missed benefit accruals are 

automatically restored once the plan’s 

AFTAP is above 60 percent (taking into 

account the missed benefit accruals), 

then any missed benefit accruals for the 

prior plan year are taken into account in 

determining the funding target if, as of 

the valuation date, the period of the 

missed benefit accruals is 12 months or 

less. The final regulations also contain 

rules regarding restrictions that arise as 

a result of benefit limitations that are 

imposed under section 401(a)(32) as a 

result of a liquidity shortfall and benefit 

limitations that are imposed under 

§ 1.401(a)(4)–5(b) with respect to certain 

highly compensated employees. 

As under the proposed regulations, 

these regulations provide that a plan 

generally is required to reflect in the 

plan’s funding target and target normal 

cost the liability for benefits that are 

funded through insurance contracts 

held by the plan, and to include the 

corresponding insurance contracts in 

plan assets.3 As an alternative treatment 

of benefits that are funded through 

insurance contracts, the regulations 

provide that the plan is permitted to 

exclude benefits provided under such 

contracts from the plan’s funding target 

and target normal cost and to exclude 

the corresponding insurance contracts 

from plan assets. This treatment is only 

available with respect to insurance 

purchased from an insurance company 

licensed under the laws of a State and 

only to the extent that a participant’s or 

beneficiary’s right to receive those 

benefits is an irrevocable contractual 

right under the insurance contract, 

based on premiums paid to the 

insurance company prior to the 

valuation date under the insurance 

contracts. Thus, the alternative 

treatment is not available if the plan 

trustee can surrender a contract to the 

insurer for its cash value because the 

participant’s or beneficiary’s rights to 

receive those benefits is not an 

irrevocable contractual right. A plan’s 

treatment of benefits funded through 

insurance contracts pursuant to either of 

these methods is part of the plan’s 

funding method. Accordingly, that 

treatment can be changed only with the 

consent of the Commissioner. 

Except as otherwise provided, the 

determination under the regulations of a 

plan’s funding target and target normal 

cost for a plan year are determined 

based on plan provisions that are 

adopted no later than the valuation date 

for the plan year and that take effect 

during that plan year. For example, a 

plan amendment adopted on or before 

the valuation date for the plan year that 

has an effective date occurring in the 

current plan year is taken into account 

in determining the funding target and 

the target normal cost for the current 

plan year if it is permitted to take effect 

under the rules of section 436(c) for the 

current plan year; however, an 

amendment is not taken into account if 

it does not take effect until a future plan 

year. 

The regulations apply the rules under 

section 436(c) (as described in section 

VII.C of this preamble) to determine 

when an amendment that increases 

benefits takes effect. For an amendment 

that decreases benefits, the amendment 

takes effect under a plan on the first 

date on which the benefits of any 

individual who is or could be a 

participant or beneficiary under the 

plan would be decreased due to the 

amendment if the individual were on 

that date to satisfy the applicable 

conditions for the benefits. 

The regulations provide that section 

412(d)(2) applies for purposes of 

determining whether a plan amendment 

is treated as having been adopted on the 

first day of the plan year (including a 

plan amendment adopted no later than 

21⁄2 months after the close of the plan 

year). This is consistent with the IRS’s 

prior interpretations of the pre-PPA ’06 

counterpart to section 412(d)(2) (section 

412(c)(8) as in effect prior to 

amendments made by PPA ’06) as set 

forth in Rev. Rul. 79–325 (1979–2 CB 

190), which provides that section 

412(c)(8) applies to plan amendments 

made during the plan year (as well as to 

plan amendments made within 21⁄2

months after the end of the plan year). 

Thus, if an amendment is adopted after 

the valuation date for a plan year (and 

no later than 21⁄2 months after the close 

of the plan year) but takes effect during 

that plan year, the full increase in 

liability is taken into account as of the 

valuation date for that plan year if a 

section 412(d)(2) election is made, and 

none of the increase in liability is taken 

into account as of the valuation date for 

that plan year if no section 412(d)(2) 

election is made. 

Accordingly, the rule in section 2.02 

of Revenue Ruling 77–2 (1977–1 CB 

120) under which the charges for a plan 

year are based on a blend of the charges 

determined with and without regard to 

the plan amendment, and the alternative 

to that rule in section 3 of Revenue 

Ruling 77–2, no longer apply. However, 

the rule in section 2.01 of Revenue 

Ruling 77–2 (under which a change in 

benefit structure that does not become 

effective until a future plan year is 

disregarded) continues to apply. This is 

because section 430 does not contain 

any provision that corresponds to 

section 412(c)(12) as in effect prior to 

amendments made by PPA ’06 (under 

which the provisions of a collective 

bargaining agreement were taken into 

account for funding purposes before the 

corresponding plan amendments 

became effective). 


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Federal Register / Vol. 74, No. 198 / Thursday, October 15, 2009 / Rules and Regulations 53011 

4The regulations do not address the effect on the 

determination of a plan’s funding shortfall of an 

amendment that is permitted to take effect on 

account of a contribution under section 436(c)(2). 

The regulations clarify that if an 

amendment is taken into account for a 

plan year, then the allocation of benefits 

that is used for purposes of determining 

the funding target and the target normal 

cost for the plan year is based on the 

plan as amended. Thus, the present 

value of the increase in the participant’s 

accrued benefit attributable to service 

before the beginning of the plan year is 

taken into account in the funding target 

for the year.4

To address a concern regarding 

avoidance of the benefit restrictions 

under section 436(c), the final 

regulations contain a new rule regarding 

amendments adopted after the valuation 

date that increase the target normal cost 

for the plan year. Under this rule, in any 

case in which an increase in the target 

normal cost as the result of a plan 

amendment made after the valuation 

date would have caused the benefit 

restrictions of section 436(c) to apply if 

the increase were included in the plan’s 

funding target (after taking into account 

all unpredictable contingent event 

benefits permitted to be paid for 

unpredictable contingent events that 

occurred during the current plan year 

and plan amendments that went into 

effect in the current plan year), the 

amendment must be taken into account 

in determining the plan’s funding target 

and target normal cost for the plan year. 

This rule is necessary to prevent the 

avoidance of the benefit restrictions of 

section 436(c) by means of a mid-year 

plan amendment that purports not to 

increase benefits earned prior to the 

beginning of the plan year (so that the 

amendment does not increase the 

funding target for the plan year and the 

amount required to ‘‘buy up’’ the 

amendment under section 436(c)(2) by 

paying the increase to the funding target 

on account of the amendment would be 

zero). 

Like the proposed regulations, the 

regulations require all currently 

employed plan participants, formerly 

employed plan participants (including 

retirees and terminated vested 

participants), and other individuals 

currently entitled to benefits under the 

plan to be included in the valuation. 

Unlike § 1.412(c)(3)–1(c)(3)(ii), the 

regulations do not permit exclusion 

from the valuation of those plan 

participants who could have been 

excluded from participation in the plan 

under the rules of section 410(a). 

However, the final regulations adopt the 

rules of § 1.412(c)(3)–1(c)(3)(iii) (relating 

to the exclusion of terminated 

employees who do not have a vested 

benefit under the plan and whose 

service might be taken into account in 

future years upon return to service, but 

only if the plan’s experience as to 

separated employees returning to 

service has been such that the exclusion 

would not be unreasonable) and the 

rules of § 1.412(c)(3)–1(d)(2) (under 

which the future participation in the 

plan of current employees who are not 

yet participants is permitted to be 

anticipated). Whether former employees 

who are terminated with partially 

vested benefits are assumed to return to 

service is determined under the same 

rules that apply to former employees 

without vested benefits. 

The regulations provide that the 

determination of any present value or 

other computation under section 430 

must be made on the basis of actuarial 

assumptions and a funding method. 

Except as specifically provided, the 

same actuarial assumptions and funding 

method must be used for all 

computations under sections 430 and 

436. 

The final regulations cross reference 

other regulations for the details of the 

statutorily specified interest rates, 

mortality tables, and actuarial 

assumptions that apply to plans in atrisk status. Under the final regulations, 

with respect to the actuarial 

assumptions used for the plan other 

than those that are specified by statute, 

each of those actuarial assumptions 

must be reasonable (taking into account 

the experience of the plan and 

reasonable expectations). In addition, 

the actuarial assumptions (other than 

the statutorily specified assumptions), 

in combination, must offer the plan’s 

enrolled actuary’s best estimate of 

anticipated experience under the plan. 

The final regulations provide that, in the 

case of a plan which has fewer than 100 

participants and beneficiaries who are 

not in pay status, the actuarial 

assumptions are permitted to assume no 

pre-retirement mortality, but only if that 

assumption would be a reasonable 

assumption. 

The regulations provide that actuarial 

assumptions established for a plan year 

cannot subsequently be changed for that 

plan year unless the Commissioner 

determines that the assumptions that 

were used are unreasonable. Similarly, 

the regulations provide that a funding 

method established for a plan year 

cannot subsequently be changed for that 

plan year unless the Commissioner 

determines that the use of that funding 

method for that plan year is 

impermissible. For this purpose, 

actuarial assumptions and funding 

methods are established by the timely 

completion (and filing, if required) of 

the actuarial report (Schedule SB, 

‘‘Single-Employer Defined Benefit Plan 

Actuarial Information’’ of Form 5500, 

‘‘Annual Return/Report of Employee 

Benefit Plan’’) for a plan year under 

section 6059. If the Schedule SB is not 

completed (and filed, if required) by the 

deadline, then the prior plan year 

actuarial assumptions and methods will 

continue to apply, unless the 

Commissioner permits or requires other 

actuarial assumptions or another 

funding method permitted under 

section 430 to be used for the current 

plan year. 

The regulations provide that a plan’s 

funding method includes not only the 

overall funding method used by the 

plan, but also each specific method of 

computation used in applying the 

overall method. However, the choice of 

which actuarial assumptions are 

appropriate to the overall method or to 

the specific method of computation is 

not a part of the funding method. The 

assumed earnings rate used for purposes 

of determining the actuarial value of 

assets under section 430(g)(3)(B) is 

treated as an actuarial assumption, 

rather than as part of the funding 

method. 

In accordance with section 430(h)(4), 

the regulations provide rules relating to 

the probability that benefit payments 

will be paid as single sums or other 

optional forms under a plan and the 

impact of that probability on the 

determination of the present value of 

those benefit payments under section 

430. In general, any determination of 

present value or any other computation 

under the regulations must take into 

account the probability that future 

benefit payments under the plan will be 

made in the form of optional forms of 

benefits provided under the plan 

(including single-sum distributions), 

determined on the basis of the plan’s 

experience and other related 

assumptions, and any difference in the 

present value of future benefit payments 

that results from the use of actuarial 

assumptions in determining benefit 

payments in any such optional form of 

benefits that are different from those 

prescribed by section 430(h). 

The proposed regulations would have 

provided that, in the case of a 

distribution that is subject to section 

417(e)(3) and that is determined using 

the applicable interest rates and 

applicable mortality table under section 

417(e)(3), the computation of the 

present value of that distribution is 

treated as having taken into account any 

difference in present value that results 

from the use of actuarial assumptions 


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53012 Federal Register / Vol. 74, No. 198 / Thursday, October 15, 2009 / Rules and Regulations 

that are different from those prescribed 

by section 430(h) if the present value of 

the distribution is determined by 

valuing, using special actuarial 

assumptions, the annuity (either the 

deferred or immediate annuity) that is 

used under the plan to determine the 

amount of the distribution. The final 

regulations adopt that method and 

clarify that its use is mandatory for 

benefits determined using the section 

417(e) actuarial assumptions. 

Under this special computation, for 

the period beginning with the annuity 

starting date for the distribution, the 

applicable mortality table under section 

417(e)(3) that would apply to a 

distribution with an annuity starting 

date occurring on the valuation date is 

substituted for the mortality table under 

section 430(h)(3) that would otherwise 

be used. In determining the present 

value of a distribution, the final 

regulations adopt the rules in the 

proposed regulations and provide that if 

a plan uses the generational mortality 

tables under § 1.430(h)(3)–1(a)(4) or 

§ 1.430(h)(3)–2, the plan is permitted to 

use a 50–50 male-female blend of the 

annuitant mortality rates under the 

§ 1.430(h)(3)–1(a)(4) generational 

mortality tables in lieu of the applicable 

mortality table under section 417(e)(3) 

that would apply to a distribution with 

an annuity starting date occurring on 

the valuation date. 

In addition, under this special 

computation, the valuation interest rates 

under section 430(h)(2) are used for 

purposes of discounting the projected 

annuity payments from their expected 

payment dates to the valuation date 

(rather than the interest rates under 

section 417(e)(3) which the plan uses to 

determine the amount of the benefit). 

However, a plan is permitted to make 

adjustments to the interest rates in order 

to reflect differences between the phasein of the section 430(h)(2) segment rates 

under section 430(h)(2)(G) and the 

adjustments to the segment rates under 

section 417(e)(3)(D)(iii). 

The proposed regulations would have 

provided that, in the case of a 

distribution that is subject to section 

417(e)(3) but is determined as the 

greater of the benefit determined using 

the assumptions required under section 

417(e)(3) and some other actuarial basis, 

the computation of present value must 

take into account the extent to which 

the present value of the distribution is 

greater than the present value 

determined using this annuity 

substitution method. Commenters 

requested a similar rule where the value 

of the distribution is lower because of 

the use of different actuarial 

assumptions that are not more favorable, 

citing the situation where section 415 

may require the use of less favorable 

actuarial assumptions. In response to 

these concerns, the final regulations 

provide that, if a distribution that is 

subject to section 417(e)(3) is 

determined on a basis other than using 

the applicable interest rates and the 

applicable mortality table under section 

417(e)(3), then the computation of 

present value must take into account the 

extent to which the present value of the 

distribution is different from the present 

value determined using this annuity 

substitution method. 

As under the proposed regulations, 

the final regulations provide that, in the 

case of an applicable defined benefit 

plan described in section 411(a)(13)(C), 

the amount of a future distribution is 

based on the amount determined by 

projecting the future interest credits or 

equivalent amounts under the plan’s 

interest crediting rules using actuarial 

assumptions that satisfy the 

requirements of the regulations. Thus, 

the present value of a future distribution 

is not necessarily the current amount of 

a participant’s hypothetical account 

balance. Commenters requested that 

various safe harbors be provided for 

making this determination. The IRS and 

the Treasury Department believe that 

this determination should be made 

using the actuary’s best estimate of the 

projected future interest credits, and 

that the use of broadly applicable safe 

harbors for this purpose is not 

appropriate. 

In the case of a single-sum 

distribution determined under the rules 

of section 411(a)(13)(A), the amount of 

the future distribution is equal to the 

projected account balance at the 

expected date of payment calculated in 

accordance with the regulations. In the 

case of a distribution determined as an 

annuity, the regulations provide that the 

amount of the future distribution must 

be determined by converting the 

projected account balance to an annuity 

using the plan’s annuity conversion 

provisions and actuarial assumptions 

that satisfy the requirements of the 

regulations. 

The regulations provide that, if the 

plan bases the conversion of the 

projected account balance to an annuity 

using the applicable interest rates and 

applicable mortality table under section 

417(e)(3), the future annuity is 

determined by dividing the projected 

account balance (or accumulated 

percentage of final average 

compensation) by an annuity factor 

corresponding to the assumed form of 

payment using, for the period beginning 

with the annuity starting date, the 

current applicable mortality table under 

section 417(e)(3) that would apply to a 

distribution with an annuity starting 

date occurring on the valuation date (in 

lieu of the mortality table under section 

430(h)(3) that would otherwise be used) 

and the valuation interest rates under 

section 430(h)(2) (as opposed to the 

interest rates under section 417(e)(3) 

which the plan uses to determine the 

amount of the benefit). In determining 

the amount of a future annuity for this 

purpose, if a plan uses the generational 

mortality tables under § 1.430(h)(3)– 

1(a)(4) or § 1.430(h)(3)–2, the plan is 

permitted to use a 50–50 male-female 

blend of the annuitant mortality rates 

under the § 1.430(h)(3)–1(a)(4) 

generational mortality tables in lieu of 

the applicable mortality table under 

section 417(e)(3) that would apply to a 

distribution with an annuity starting 

date occurring on the valuation date. In 

the case of a plan that determines an 

annuity under the regulations using a 

variable interest rate or rates other than 

the applicable interest rates under 

section 417(e)(3), the amount of the 

annuity must be based on actuarial 

assumptions that satisfy the 

requirements of the regulations. 

Some commenters maintained that 

unpredictable contingent event benefits 

should not be taken into account for 

minimum funding purposes before the 

occurrence of the unpredictable 

contingent event. The final regulations 

provide that any determination of 

present value or any other computation 

under this section must take into 

account, based on information as of the 

valuation date, the probability that 

future benefits (or increased benefits) 

under the plan will become payable due 

to the occurrence of an unpredictable 

contingent event (as described in 

§ 1.436–1(j)(9)). However, if, as of the 

valuation date, the likelihood of the 

occurrence of the event is de minimis, 

the regulations permit the use of a zero 

probability of the occurrence of the 

event. 

The regulations provide that any 

reasonable technique can be used to 

determine the present value of the 

benefits expected to be paid during a 

plan year, based on the interest rates 

and mortality assumptions applicable 

for the plan year. For example, the 

present value of a monthly retirement 

annuity payable at the beginning of each 

month can be determined using 

estimating techniques such as the 

standard actuarial approximation that 

reflects 13/24ths of the discounted 

expected payments for the year as of the 

beginning of the year and 11/24ths of 

the discounted expected payments for 

the year as of the end of the year; or by 

assuming that the payment is made in 


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Federal Register / Vol. 74, No. 198 / Thursday, October 15, 2009 / Rules and Regulations 53013 

the middle of the year. In the case of a 

participant for whom there is a less than 

100 percent probability that the 

participant will terminate employment 

during the plan year, for purposes of 

determining the benefits expected to 

accrue, be earned, or otherwise 

allocated to service during the plan year 

(which are used to determine the target 

normal cost), it is permissible to assume 

the participant will not terminate during 

the plan year, unless using this method 

of calculation would be unreasonable. 

Like the proposed regulations, the 

final regulations reflect the provisions of 

section 430(h)(5), requiring approval of 

the Commissioner for changes in 

actuarial assumptions for certain large 

plans. Under the regulations, except as 

otherwise provided, any change in 

actuarial assumptions used to determine 

a plan’s funding target for a plan year 

cannot be changed from the actuarial 

assumptions that were used for the 

preceding year without the approval of 

the Commissioner if the plan is 

sponsored by a member of a controlled 

group which maintains plans with over 

$50 million in unfunded vested benefits 

and the change in assumptions results 

in a decrease in the plan’s funding 

shortfall (within the meaning of section 

430(c)(4)) for the current plan year 

(disregarding the effect on the plan’s 

funding shortfall resulting from changes 

in interest and mortality assumptions) 

that exceeds $50,000,000, or that 

exceeds $5,000,000 and is 5 percent or 

more of the funding target of the plan 

before such change. 

The proposed regulations did not 

contain an exception to this rule for a 

plan exiting at-risk status. Commenters 

maintained that a plan exiting at-risk 

status should be able to resume use of 

its previously used actuarial 

assumptions without obtaining the 

Commissioner’s approval. To address 

these concerns, the final regulations 

provide that a plan that is not in at-risk 

status for the current plan year and that 

was in at-risk status for the prior plan 

year (but not for a period of 5 or more 

consecutive plan years) is granted 

automatic approval to use the actuarial 

assumptions that were applied before 

the plan entered at-risk status and that 

were used in combination with the 

required at-risk assumptions during the 

period the plan was in at-risk status. 

These regulations provide automatic 

approval for changes in funding method 

for the first plan year section 430 

applies to determine the minimum 

required contribution for the plan (the 

first plan year beginning in 2008, or a 

later year for plans described in sections 

104 through 106 of PPA ’06). The 

regulations also provide automatic 

approval for changes in funding method 

for the first plan year that a plan applies 

all the provisions of the regulations 

under section 430(d), section 430(f), 

section 430(g), section 430(i), and 

section 436 (which could be the first 

plan year beginning on or after January 

1, 2010 or an earlier plan year). Thus, 

a plan can receive automatic approval 

for a change in funding method for the 

first plan year beginning on or after 

January 1, 2009, if it applies all of these 

regulation provisions, without regard to 

whether it applies the provisions of 

§ 1.430(h)(2)–1 for that plan year. In 

addition, the regulations provide 

automatic approval for a change of 

funding method that is necessary to 

reflect the new allocation rules for 

benefits under § 1.430(d)–1(c)(1)(ii). 

III. Section 1.430(f)–1 Effect of 

Prefunding Balance and Funding 

Standard Carryover Balance 

Section 1.430(f)–1 of these regulations 

provides rules relating to the 

application of prefunding and funding 

standard carryover balances under 

section 430(f). The regulations generally 

adopt the rules that were set forth in the 

corresponding proposed regulations. 

Subject to the limitations otherwise 

provided, the regulations provide that in 

the case of any plan year with respect 

to which the plan sponsor elects to use 

all or a portion of the prefunding 

balance or the funding standard 

carryover balance to offset the minimum 

required contribution for the plan year, 

the minimum required contribution for 

the plan year (determined after taking 

into account any waiver under section 

412(c)) is offset as of the valuation date 

for the plan year by the amount so used. 

The regulations also provide rules that 

apply where the plan sponsor elects to 

use all or a portion of the prefunding 

balance or the funding standard 

carryover balance to satisfy the 

requirement to make quarterly 

contributions under section 430(j)(3) 

that are due after the valuation date. 

Rules with respect to use of the 

prefunding balance or funding standard 

carryover balance to satisfy quarterly 

contribution requirements with respect 

to installments due before the valuation 

date are expected to be addressed in 

future proposed regulations. 

Under the regulations, a plan sponsor 

is permitted to elect to maintain a 

prefunding balance for a plan. A 

prefunding balance maintained for a 

plan consists of a beginning balance of 

zero, increased by the amount of excess 

contributions to the extent the employer 

elects to do so, and decreased (but not 

below zero) by the sum of, as of the first 

day of a plan year, any amount of the 

prefunding balance that was used to 

offset the minimum required 

contribution of the plan for the 

preceding plan year and any reduction 

in the prefunding balance for the plan 

year. The plan sponsor’s initial election 

to add to the prefunding balance 

constitutes an election to maintain a 

prefunding balance (so that no special 

election is necessary to establish a 

prefunding balance). The prefunding 

balance is adjusted further for actual 

investment return for the plan year. 

The regulations provide that if the 

plan sponsor elects to add to the plan’s 

prefunding balance, as of the first day of 

a plan year, the prefunding balance is 

increased by the amount so elected by 

the plan sponsor. The amount added to 

the prefunding balance cannot exceed 

the present value of the excess 

contribution for the preceding plan year 

increased for interest. 

The present value of the excess 

contribution for the preceding plan is 

the excess, if any, of the present value 

of the employer contributions (other 

than contributions to avoid or terminate 

section 436 benefit limitations) to the 

plan for such preceding plan year over 

the minimum required contribution for 

such preceding plan year. In addition, a 

contribution for a plan year to correct an 

unpaid minimum required contribution 

for a prior plan year is not treated as 

part of the present value of excess 

contributions. This present value is 

increased with interest from the 

valuation date for the preceding plan 

year to the first day of the current plan 

year. The regulations provide that the 

plan’s effective interest rate under 

section 430(h)(2)(A) for the preceding 

plan year is generally used to calculate 

the present value of the contributions 

for the preceding plan year and for 

adjusting the excess amount. 

The proposed regulations would have 

prohibited an employer from adding to 

the prefunding balance any amount of 

contributions that are excess 

contributions for a plan year solely by 

reason of a reduction in the minimum 

required contribution for the year 

through the use of the prefunding 

balance or funding standard carryover 

balance. This rule was intended to 

preclude an employer from avoiding the 

requirement to adjust the prefunding 

balance and funding standard carryover 

balance by the actual rate of return on 

plan assets in the situation where the 

plan assets have experienced a loss (or 

a rate of return that is lower than the 

effective interest rate that is used for 

interest adjustment with respect to 

minimum required contributions for the 

plan year). Commenters argued that this 

rule was unwarranted and would 


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53014 Federal Register / Vol. 74, No. 198 / Thursday, October 15, 2009 / Rules and Regulations 

prevent plan sponsors from adding 

excess contributions to the prefunding 

balance in situations where balance 

amounts were used to offset minimum 

contributions earlier for reasons other 

than interest arbitrage. The final 

regulations permit an excess 

contribution to be added to the 

prefunding balance for a plan year 

notwithstanding that the amount is an 

excess contribution solely because an 

election is made for that plan year to use 

the funding standard carryover balance 

or prefunding balance to offset 

minimum required contributions (or 

required installments), but provide that 

the interest adjustment with respect to 

such a contribution is made using the 

plan’s actual investment experience for 

the plan year, rather than the effective 

interest rate under section 430(h)(2)(A). 

Thus, the funding standard carryover 

balance and prefunding balance are 

adjusted with the plan’s actual 

investment return when the balances are 

not actually used to satisfy the 

minimum contribution requirement for 

a plan year, regardless of whether the 

plan sponsor makes an election to use 

the balance to offset the minimum 

contribution requirement and 

subsequently replenishes the 

prefunding balance. 

The proposed regulations would have 

provided that the plan sponsor is 

permitted to maintain a funding 

standard carryover balance for a plan 

that had a positive balance in the 

funding standard account under section 

412(b) (as in effect prior to PPA ’06) as 

of the end of the plan’s pre-effective 

plan year (the plan year immediately 

preceding the first plan year that section 

430 applies for purposes of determining 

the minimum required contribution for 

the plan). Some commenters suggested 

that no formal election should be 

required in order to maintain a funding 

standard carryover balance. In response, 

the regulations provide that a funding 

standard carryover balance is 

automatically established for a plan that 

had a positive balance in the funding 

standard account under section 412(b) 

(as in effect prior to PPA ’06) as of the 

end of the pre-effective plan year for the 

plan. A plan sponsor that does not wish 

to have the funding standard carryover 

balance established can elect to reduce 

it to zero. 

The final regulations provide that the 

plan’s funding standard carryover 

balance as of the beginning of the first 

effective plan year (the first plan year 

beginning on or after the date section 

430 applies for purposes of determining 

the minimum required contribution for 

the plan) is the positive balance in the 

funding standard account under section 

412(b) (as in effect prior to PPA ’06) as 

of the end of the pre-effective plan year 

for the plan. For subsequent plan years, 

the funding standard carryover balance 

is decreased (but not below zero) by the 

sum of, as of the first day of each plan 

year, any amount of the funding 

standard carryover balance that was 

used to offset the minimum required 

contribution of the plan for the 

preceding plan year and any reduction 

in the funding standard carryover 

balance for the plan year. The 

regulations also provide that the 

funding standard carryover balance is 

adjusted further to reflect the actual rate 

of return on plan assets for the 

preceding plan year. 

For both the funding standard 

carryover balance and the prefunding 

balance, the regulations provide that the 

adjustment for investment return is 

applied to the balance as of the 

beginning of the preceding plan year 

after subtracting amounts used to offset 

the minimum required contribution for 

the preceding plan year and after any 

reduction of balances for that preceding 

plan year. For this purpose, the actual 

rate of return on plan assets for the 

preceding plan year is determined on 

the basis of fair market value and must 

take into account the amount and timing 

of all contributions, distributions, and 

other plan payments made during that 

period. 

If a plan’s valuation date is not the 

first day of the plan year, then, for 

purposes determining a plan’s 

prefunding balance and funding 

standard carryover balance as of the 

valuation date, the plan’s prefunding 

balance and funding standard carryover 

balance (if any) are increased to the 

valuation date using the plan’s effective 

interest rate under section 430(h)(2)(A) 

for the plan year. Any elections to 

reduce the prefunding balance and 

funding standard carryover balance, to 

use the prefunding balance and funding 

standard carryover balance to offset the 

minimum required contribution for the 

year, or to add to the prefunding balance 

occur as of the valuation date for the 

plan year. After the elections are 

applied as of the valuation date, the 

resulting amount of the prefunding 

balance and funding standard carryover 

balance is adjusted to the first day of the 

plan year (discounted using the effective 

interest rate under section 430(h)(2)(A) 

for that year) before applying the 

adjustments for investment experience 

for the plan year. 

The regulations provide that, in the 

case of any plan with a prefunding 

balance or a funding standard carryover 

balance, the amount of those balances 

must be subtracted from the value of 

plan assets for purposes of sections 430 

and 436, except as otherwise provided 

in the regulations. For purposes of 

determining whether a plan is exempt 

from the requirement to establish a new 

shortfall amortization base under 

section 430(c)(5), the amount of the 

prefunding balance is subtracted from 

the value of plan assets only if an 

election to use all or any portion of the 

prefunding balance to offset the 

minimum required contribution is made 

for the plan year. In addition, for this 

purpose, the funding standard carryover 

balance is not subtracted from the value 

of plan assets regardless of whether any 

portion of either the funding standard 

carryover balance or the prefunding 

balance is used to offset the minimum 

required contribution for the plan year. 

If there is in effect for a plan year a 

binding written agreement with the 

Pension Benefit Guaranty Corporation 

(PBGC) which provides that all or a 

portion of the prefunding balance or 

funding standard carryover balance (or 

both balances) is not available to offset 

the minimum required contribution for 

a plan year, the regulations provide that 

the specified amount is not subtracted 

from the value of plan assets for 

purposes of determining the funding 

shortfall under section 430(c)(4). For 

this purpose, an agreement with the 

PBGC is taken into account with respect 

to a plan year only if the agreement was 

executed prior to the valuation date for 

the plan year. 

To address questions raised by 

commenters, the final regulations 

provide ordering rules regarding the 

application of use and reduction 

elections with respect to prefunding and 

funding standard carryover balances. 

The regulations provide that the amount 

of prefunding balance or funding 

standard carryover balance that may be 

used to offset the minimum required 

contribution for the plan year must take 

into account any decrease in those 

balances which result from a prior 

election either to use the prefunding 

balance or funding standard carryover 

balance under section 430(f) or to 

reduce those balances under section 

430(f) (including deemed elections 

under section 436(f)(3) and § 1.436– 

1(a)(5)). 

The regulations describe the 

application of the ordering rules of 

section 430(f)(5)(A). Under these rules, 

an election to reduce the funding 

standard carryover balance or 

prefunding balance is deemed to occur 

on the valuation date for the plan before 

any election to use the balance to offset 

the minimum required contribution for 

the current year. Thus, if an election to 

use the prefunding balance or funding 


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Federal Register / Vol. 74, No. 198 / Thursday, October 15, 2009 / Rules and Regulations 53015 

standard carryover balance to offset the 

minimum required contribution for the 

plan year (including an election to 

satisfy the quarterly contribution 

requirement) has been made prior to the 

election to reduce the prefunding 

balance or funding standard carryover 

balance, then the amount available for 

use to offset the otherwise applicable 

minimum required contribution for the 

plan year will be retroactively reduced 

and may result in a missed quarterly 

contribution. 

If an election is made to reduce the 

prefunding balance or funding standard 

carryover balance or to use the 

prefunding balance or funding standard 

carryover balance to offset the minimum 

required contribution with respect to a 

plan year, a special rule applies to 

determine the amount of remaining 

prefunding balance or funding standard 

carryover balance that may be used to 

offset the minimum required 

contribution for the prior plan year. 

Under this special rule, an election to 

reduce the prefunding balance or the 

funding standard carryover balance that 

is made with respect to the later plan 

year is taken into account by decreasing 

the funding standard carryover balance 

or prefunding balance as of the 

valuation date for the prior plan year by 

the prior plan year equivalent of the 

current year election. The prior plan 

year equivalent of the current year 

election is determined by dividing the 

amount of the current year election by 

a number equal to 1 plus the rate of 

investment return for the prior plan 

year. The funding standard carryover 

balance and prefunding balance are 

nonetheless adjusted in accordance with 

the rules described above, after 

adjusting for all elections for that prior 

year. Thus, the amount used to offset 

the minimum required contribution for 

the earlier plan year is subtracted from 

the prefunding balance or funding 

standard carryover balance as of the 

valuation date for that year prior to the 

adjustment for investment return for 

that plan year, and the amount by which 

the prefunding balance or funding 

standard carryover balance is decreased 

for the second year is based on the 

elections made for the second year. 

Accordingly, under the final 

regulations, a prefunding balance or a 

funding standard carryover balance is 

maintained in a manner that tracks the 

way the balances are reported on 

Schedule SB, ‘‘Single-Employer Defined 

Benefit Plan Actuarial Information’’ of 

Form 5500, ‘‘Annual Return/Report of 

Employee Benefit Plan’’. Thus, the 

balances at the beginning of the year are 

increased (by investment experience or 

by addition to the prefunding balance) 

or decreased (by elections to use or 

reduce the balances or by investment 

experience) at the first day of the next 

plan year. These increases and 

decreases are made before any elections 

(whether made or deemed) are applied 

for the next plan year. 

To the extent that a plan has a 

funding standard carryover balance 

greater than zero, the regulations 

provide that no amount of the plan’s 

prefunding balance may be used to 

offset the minimum required 

contribution. Thus, a plan’s funding 

standard carryover balance must be 

exhausted before the plan’s prefunding 

balance may be used to offset the 

minimum required contribution. 

The regulations provide that an 

election to use the prefunding balance 

or funding standard carryover balance to 

offset the minimum required 

contribution is not available for a plan 

year if the plan’s prior plan year funding 

ratio is less than 80 percent. The plan’s 

prior plan year funding ratio generally 

is equal to the fraction (expressed as a 

percentage), the numerator of which is 

the value of plan assets on the valuation 

date for the preceding plan year, 

reduced by the amount of any 

prefunding balance (but not the amount 

of any funding standard carryover 

balance), and the denominator of which 

is the funding target of the plan for the 

preceding plan year (determined 

without regard to the at-risk rules of 

section 430(i)(1)). 

If the prior plan year was the first year 

of a new plan and the funding target for 

the prior plan year was zero, the 

regulations provide that the prior plan 

year’s funding ratio is deemed to be 80 

percent for purposes of this limitation 

on the use of the prefunding or funding 

standard carryover balances. Thus, the 

sponsor of a new plan that has no 

funding target in its first year can use a 

prefunding balance that resulted from 

first year contributions in excess of the 

target normal cost in order to offset the 

otherwise minimum required 

contribution in the second year of the 

plan. Commentators requested rules 

with respect to plan mergers and spinoffs. The IRS and the Treasury 

Department expect to address these 

issues in future proposed regulations. 

The regulations provide that a plan 

sponsor may make an election for a plan 

year to reduce any portion of a plan’s 

prefunding balance and funding 

standard carryover balance. If such an 

election is made, the amount of those 

balances that must be subtracted from 

the value of plan assets will be smaller 

and, accordingly, the value of plan 

assets taken into account for purposes of 

sections 430 and 436 will be larger. This 

election to reduce a plan’s prefunding 

balance and funding standard carryover 

balance is taken into account in the 

determination of plan assets for the plan 

year and applies for all purposes under 

sections 430 and 436, including for 

purposes of determining the plan’s prior 

plan year funding ratio for the following 

plan year. Section 436(f)(3) and § 1.436– 

1(a)(5) provide a rule under which the 

plan sponsor is deemed to make this 

election. To the extent that a plan has 

a funding standard carryover balance 

greater than zero, no election is 

permitted to be made that reduces the 

plan’s prefunding balance. Thus, a plan 

must exhaust its funding standard 

carryover balance before it is permitted 

to make an election to reduce its 

prefunding balance. 

Like the proposed regulations, these 

regulations provide that any election 

under this section by the plan sponsor 

must be made by providing written 

notification of the election to the plan’s 

enrolled actuary and the plan 

administrator. The written notification 

must set forth the relevant details of the 

election, including the specific dollar 

amounts involved in the election. Thus, 

a conditional or formula-based election 

generally does not satisfy the 

requirements. 

The final regulations provide rules 

regarding the timing of elections to use 

or reduce the prefunding balance or 

funding standard carryover balance that 

are generally the same as under the 

proposed regulations. Under the final 

regulations, any election to add to the 

prefunding balance or to use the 

prefunding balance or funding standard 

carryover balance to offset the minimum 

required contribution for a plan year 

must be made no later than the last date 

for making the minimum required 

contribution for the plan year as 

described in section 430(j)(1). Any 

election to reduce the prefunding 

balance or funding standard carryover 

balance for a plan year (for example, in 

order to avoid a benefit restriction under 

section 436) must be made by the end 

of the plan year to which the election 

relates. These timing rules establish the 

latest date that an election can be made. 

An employer is permitted to make an 

earlier election, and, in certain 

circumstances, may need to make such 

an earlier election in order to timely 

satisfy a quarterly contribution 

requirement under section 430(j). 

In response to comments received on 

the desirability of standing elections, 

the final regulations permit a plan 

sponsor to provide a standing election 

in writing to the plan’s enrolled actuary 

to use the funding standard carryover 

balance and the prefunding balance to 


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5The regulations do not provide for a standing 

election to be made with respect to quarterly 

contributions. The issue of standing elections with 

respect to quarterly contributions will be 

considered in conjunction with future regulations 

regarding quarterly contributions. 

the extent needed to avoid an unpaid 

minimum required contribution under 

section 4971(c)(4) taking into account 

any contributions that are or are not 

made. In addition, the regulations allow 

a plan sponsor to provide a standing 

election in writing to the plan’s enrolled 

actuary to add the maximum amount 

possible each year to the prefunding 

balance.5 Any election made pursuant 

to a standing election is deemed to 

occur on the last day available to make 

the election for the plan year. The 

regulations provide that any standing 

election remains in effect for the plan 

with respect to the enrolled actuary 

named in the election, unless the 

standing election is revoked by notice to 

the plan’s enrolled actuary and the plan 

administrator on or before the date the 

corresponding election is deemed to 

occur, or the plan’s enrolled actuary 

who signs the Schedule SB is not the 

enrolled actuary named in the standing 

election. If there is a change in enrolled 

actuary for the plan year which would 

result in a revocation of the standing 

election, then the plan sponsor may 

reinstate the revoked standing election 

by providing a replacement to the new 

enrolled actuary by the due date of the 

Schedule SB of Form 5500. 

In general, a plan sponsor’s election 

with respect to the plan’s prefunding 

balance or funding standard carryover 

balance is irrevocable (and must be 

unconditional). However, an election to 

use the prefunding balance or funding 

standard carryover balance to offset the 

minimum required contribution for a 

plan year (including an election to 

satisfy the quarterly contribution 

requirements for a plan year) is 

permitted to be revoked to the extent the 

amount the plan sponsor elected to use 

to offset the minimum contribution 

requirements exceeds the minimum 

required contribution for a plan year 

(determined without regard to the 

offset), if and only if the election is 

revoked by providing written 

notification of the revocation to the 

plan’s enrolled actuary and the plan 

administrator by the end of the plan 

year (or, for plans with a valuation date 

other than the first day of the plan year, 

the deadline for contributions for the 

plan year as described in section 

430(j)(1)). The final regulations defer the 

deadline for making this revocation for 

the first plan year beginning in 2008 

until the due date (including 

extensions) of the Schedule SB, ‘‘SingleEmployer Defined Benefit Plan 

Actuarial Information’’ of Form 5500, 

‘‘Annual Return/Report of Employee 

Benefit Plan.’’ Thus, a plan sponsor that 

made an election to use the funding 

standard carryover balance for the first 

plan year beginning in 2008 to offset the 

minimum required contribution for that 

plan year determined prior to the 

enactment of WRERA ’08 has an 

opportunity to revoke that election to 

the extent it exceeds the minimum 

required contribution for that plan year 

taking into account WRERA ’08. 

However, plan sponsors should note 

that any such revocation made after the 

enrolled actuary has certified the 

AFTAP for the plan year, could result in 

a change in the AFTAP for that plan 

year, which could be a material change. 

If such an excess election is not timely 

revoked, it has the same effect as an 

election to reduce the applicable 

balance to the extent of the excess. 

The proposed regulations provided a 

transition rule for determining a plan’s 

funding ratio for the pre-effective plan 

year (that is, the plan’s prior year 

funding ratio with respect to the plan’s 

first effective plan year). These 

regulations adopt this transition rule, 

but limit its application to the 2007 plan 

year (rather than apply it to a later plan 

year for a plan described in sections 104 

through 106 of PPA ’06). Under the 

regulations, a plan’s funding ratio for 

the plan year preceding the first plan 

year beginning on or after January 1, 

2008 (the ‘‘2007 plan year’’) is generally 

the same as the computation of FTAP 

for the 2007 plan year. However, the 

assets are determined without 

subtracting the funding standard 

account balance from the plan assets. 

IV. Section 1.430(g)–1 Valuation Date 

and Valuation of Plan Assets 

Section 1.430(g)–1 provides rules 

relating to a plan’s valuation date and 

the valuation of a plan’s assets for a plan 

year under section 430(g). The rules 

under the regulations relating to 

valuation dates do not reflect significant 

changes from those under the proposed 

regulations. The regulations provide 

that the determination of the funding 

target, target normal cost, and value of 

plan assets for a plan year is made as of 

the valuation date of the plan for that 

plan year. 

Except in the case of a small plan, the 

valuation date of a plan for any plan 

year is the first day of the plan year. For 

this purpose, a small plan is defined as 

a plan that, on each day during the 

preceding plan year, had 100 or fewer 

participants (including active and 

inactive participants and all other 

individuals entitled to future benefits). 

For purposes of making this 

determination, all defined benefit plans 

(other than multiemployer plans as 

defined in section 414(f)) maintained by 

an employer or members of the 

controlled group are treated as one plan, 

but only participants with respect to 

that employer are taken into account. 

The regulations provide that, in the case 

of the first plan year of any plan, this 

exception for small plans is applied by 

taking into account the number of 

participants that the plan is reasonably 

expected to have on each day during the 

first plan year. 

The regulations provide that the 

selection of a plan’s valuation date is 

part of the plan’s funding method and, 

accordingly, may only be changed with 

the consent of the Commissioner. 

However, a change of a plan’s valuation 

date that is required by section 430 is 

treated as having been approved by the 

Commissioner and does not require the 

Commissioner’s prior specific approval. 

Under the regulations, the value of 

plan assets for purposes of section 430 

is determined in one of two ways: As 

the fair market value of plan assets on 

the valuation date, or as the average of 

the fair market values of assets on the 

valuation date and the adjusted fair 

market value of assets determined for 

one or more earlier determination dates, 

subject to a 90 to 110 percent corridor. 

The method of determining the value of 

assets is part of the plan’s funding 

method and, accordingly, may only be 

changed with the consent of the 

Commissioner. 

The regulations provide that the fair 

market value of an asset is determined 

as the price at which the asset would 

change hands between a willing buyer 

and a willing seller, neither being under 

any compulsion to buy or sell and both 

having reasonable knowledge of 

relevant facts. Except as otherwise 

provided by the Commissioner, any 

guidance on the valuation of insurance 

contracts under Subchapter D of 

Chapter 1 of the Internal Revenue Code 

applies for purposes of the regulations. 

Such guidance has been issued in 

Revenue Procedure 2005–25 (2005–1 CB 

962) and Revenue Procedure 2006–13 

(2006–1 CB 315). See § 601.601(d)(2) 

relating to objectives and standards for 

publishing regulations, revenue rulings 

and revenue procedures in the Internal 

Revenue Bulletin. 

The regulations provide rules for the 

treatment of contributions that are made 

after the valuation date for a plan year 

that are attributable to a prior plan year. 

These rules are generally the same as 

under the proposed regulations. Under 

these rules, only the present value of the 

contributions (discounted using the 


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effective interest rate for the prior plan 

year) is included in the value of plan 

assets. The final regulations clarify that 

a contribution for a prior plan year is 

taken into account only if the 

contribution is made by the deadline for 

contributions for the immediately 

preceding plan year under section 

430(j). However, for the first plan year 

that begins on or after January 1, 2008, 

any such prior plan year contribution is 

taken into account at the full value 

without a present value discount, 

provided it is made by the deadline for 

contributions under section 412(c)(10), 

as in effect before amendment by PPA 

’06. 

The regulations also provide rules for 

the treatment of a contribution that is 

made before the valuation date of the 

plan year to which it is attributable. 

Such a contribution (and any interest on 

the contribution for the period between 

the contribution date and the valuation 

date, determined using the effective 

interest rate under section 430(h)(2)(A) 

for the plan year) must be subtracted 

from plan assets in determining the 

value of plan assets as of the valuation 

date. If the result of this subtraction is 

a number less than zero, the value of 

plan assets as of the valuation date is 

equal to zero. 

Subject to the plan asset corridor 

rules, a plan is permitted to determine 

the value of plan assets on the valuation 

date as the average of the fair market 

value of assets on the valuation date and 

the adjusted fair market value of assets 

determined for one or more earlier 

determination dates. The regulations 

require that the period of time between 

each determination date (treating the 

valuation date as a determination date) 

must be equal and that the period of 

time cannot exceed 12 months. In 

addition, the earliest determination date 

with respect to a plan year cannot be 

earlier than the last day of the 25th 

month before the valuation date of the 

plan year (or a similar period in the case 

of a valuation date that is not the first 

day of a month). In a typical situation, 

the earlier determination dates will be 

the two immediately preceding 

valuation dates. However, these rules 

also permit the use of more frequent 

determination dates (for example, 

monthly or quarterly determination 

dates). 

The regulations provide that the 

adjusted fair market value of plan assets 

for a prior determination date is the fair 

market value of plan assets on that date, 

increased for contributions included in 

the plan’s asset balance on the valuation 

date that were not included in the plan’s 

asset balance on the earlier 

determination date, reduced for benefits 

and all other amounts paid from plan 

assets during the period beginning with 

the prior determination date and ending 

immediately before the valuation date, 

and adjusted for expected earnings. The 

fair market value of assets as of a 

determination date includes any 

contribution for a plan year that ends 

with or prior to the determination date 

that is receivable as of the determination 

date (but only if the contribution is 

actually made within 81⁄2 months after 

the end of the applicable plan year). For 

this purpose, the present value of a 

contribution receivable for the 

applicable plan year is determined 

using the effective interest rate under 

section 430(h)(2)(A) for the applicable 

plan year. For purposes of determining 

the value of plan assets for the first plan 

year that begins in 2008, if the plan 

sponsor makes a contribution to the 

plan after the valuation date for that 

plan year but by the deadline for 

contributions under section 412(c)(10) 

as in effect before the effective date of 

PPA ’06 and the contribution is for the 

preceding plan year, then the 

contribution is taken into account as a 

plan asset without applying any present 

value discount. 

The final regulations provide that, for 

purposes of determining the adjusted 

fair market value of plan assets, assets 

spun off from a plan as a result of a 

spin-off described in § 1.414(l)–1(b)(4) 

are treated as an amount paid from plan 

assets. In addition, except as otherwise 

provided by the Commissioner, for 

purposes of this determination, assets 

that are added to a plan as a result of 

a plan-to-plan transfer are treated in the 

same manner as contributions. It is 

expected that future proposed 

regulations will provide additional 

rules, including rules relating to plan 

mergers. 

The regulations provide that if the 

value of plan assets determined under 

the averaging method would otherwise 

be less than 90 percent of the fair market 

value of plan assets, then the value of 

plan assets is equal to 90 percent of the 

fair market value of plan assets. If the 

value of plan assets determined under 

the averaging method would otherwise 

be greater than 110 percent of the fair 

market value of plan assets, then the 

value of plan assets is equal to 110 

percent of the fair market value of plan 

assets. The rules for accounting for 

contribution receipts are applied prior 

to the application of this 90 to 110 

percent corridor. 

To reflect changes to the rules 

regarding determination of average plan 

assets made by WRERA ’08, portions of 

the regulations have been reserved to 

provide rules regarding adjustments for 

expected earnings that are applied in 

determining average plan assets. These 

issues are expected to be addressed in 

future proposed regulations. In the 

interim, Notice 2009–22 (2009–14 IRB 

741) provides guidance regarding these 

issues. See § 601.601(d)(2) relating to 

objectives and standards for publishing 

regulations, revenue rulings and 

revenue procedures in the Internal 

Revenue Bulletin. As provided under 

that guidance, the final regulations 

permit the use of an assumed earnings 

rate of zero for purposes of determining 

the actuarial value of assets for a plan 

year beginning during 2008 using the 

averaging rules (even if zero is not the 

actuary’s best estimate of the anticipated 

annual rate of return on plan assets). 

The regulations provide that any 

change in a plan’s valuation date or 

asset valuation method that is made for 

the first plan year beginning in 2008, the 

first plan year beginning in 2009, or the 

first plan year beginning in 2010 is 

automatically approved and does not 

require the Commissioner’s specific 

prior approval. In addition, the 

regulations provide that a change in a 

plan’s valuation date or asset valuation 

method for the first plan year to which 

section 430 applies to determine the 

plan’s minimum required contribution 

(even if that plan year begins after 

December 31, 2010) that satisfies the 

requirements of the regulations is 

automatically approved and does not 

require the Commissioner’s specific 

prior approval. 

V. Section 1.430(h)(2)–1 Interest Rates 

Used To Determine Present Value 

Section 1.430(h)(2)–1 provides rules 

relating to the interest rates used in 

determining the present value of the 

benefits that are included in the target 

normal cost and the funding target for 

the plan for a plan year. These rules 

follow the rules set forth in the 

proposed regulations except for a few 

changes that are noted in this preamble. 

The interest rates used under the 

regulations are generally based on the 

24-month moving averages of 3 separate 

segment rates for the month that 

includes the valuation date (which are 

determined based on the monthly 

corporate bond yield curves for the 

preceding 24 months). The first segment 

rate, which is based on the portion of 

the corporate bond yield curve over the 

period from 0 to 5 years, applies for 

purposes of discounting benefits that are 

expected to be paid during the 5-year 

period beginning on the valuation date 

for the plan year in the case of a plan 

with a beginning of year valuation date. 

The second segment rate, which is 

based on the portion of the corporate 


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53018 Federal Register / Vol. 74, No. 198 / Thursday, October 15, 2009 / Rules and Regulations 

bond yield curve over the period 

between 5 and 20 years, applies for 

purposes of discounting benefits that are 

expected to be paid within 15 years after 

that initial 5 year-period. The third 

segment rate, which is based on the 

portion of the corporate bond yield 

curve over the period between 20 years 

and 60 years, applies to benefit 

payments that are expected to be paid 

after the 20-year period. For example, if 

a series of monthly payments is 

assumed to be made beginning on the 

valuation date, the second segment rate 

will apply beginning with the 61st such 

payment and the third segment rate will 

apply beginning with the 241st such 

payment. Except in the case of a new 

plan, a transition rule applies for plan 

years beginning in 2008 and 2009 under 

which these segment rates are blended 

with the long-term corporate bond rate 

that applies under pre-PPA ’06 law. 

The monthly corporate bond yield 

curve is, with respect to any month, a 

yield curve that is prescribed by the 

Commissioner for that month based on 

yields for that month on investment 

grade corporate bonds with varying 

maturities that are in the top three 

quality levels available. Notice 2007–81 

(2007–2 CB 899) provides guidance on 

the monthly corporate bond yield curve 

and the related first, second, and third 

segment rates, including a description of 

the methodology for determining the 

monthly corporate bond yield curve. 

See § 601.601(d)(2) relating to objectives 

and standards for publishing 

regulations, revenue rulings and 

revenue procedures in the Internal 

Revenue Bulletin. 

The proposed regulations would have 

used the rules for applying the first 

segment rate as stated in this preamble 

to all plans, regardless of the valuation 

date for the plan. Some commenters 

noted that section 430(h)(2)(B)(i) applies 

the first segment rates to benefits 

expected to be paid in the 5 years from 

the beginning of the plan year rather 

than the valuation date. These 

commenters argued that the regulations 

should likewise base the period to 

which the first segment rate applies on 

the beginning of the plan year rather 

than the valuation date. The IRS and the 

Treasury Department continue to 

believe that the position set forth in the 

proposed regulations remains the best 

method of valuing assets and liabilities 

as of the valuation date. Accordingly, 

the final regulations reserve the issue of 

guidance on the interest rates to be used 

by plans with valuation dates other than 

the first day of the plan year. A 

technical correction to the statute may 

address this in the future. 

The regulations reflect the special 

interest rate for determining a plan’s 

funding target in the case of airlines that 

make the 10-year amortization election 

described in section 402(a)(2) of PPA 

’06, in accordance with section 6615 of 

the U.S. Troop Readiness, Veterans’ 

Care, Katrina Recovery, and Iraq 

Accountability Appropriations Act, 

2007, Public Law 110–28 (121 Stat. 

112). This special interest rate does not 

apply for other purposes such as the 

determination of the plan’s target 

normal cost. 

The regulations provide for elections 

that a plan sponsor can make to use 

alternative interest rates rather than the 

segment rates for the month that 

includes the valuation date. These 

elections are made by providing written 

notification of the election to the plan’s 

enrolled actuary. These elections may 

be adopted for a plan year without 

obtaining the consent of the 

Commissioner but, once adopted, they 

will apply for that plan year and all 

future plan years and may be changed 

only with the consent of the 

Commissioner. Under one such election, 

a plan sponsor that is using segment 

rates may elect the use of an alternative 

month as the applicable month, 

provided that the alternative month is 

one of the 4 months preceding that 

month that as the applicable month. In 

such a case, the segment rates for an 

applicable month are based upon data 

through the end of the immediately 

preceding month. Under another 

election, for purposes of determining 

the funding target, target normal cost, 

shortfall amortization installments, 

waiver amortization installments, and 

the present value of those installments, 

the plan sponsor may elect to use 

interest rates under the monthly 

corporate bond yield curve—which is a 

set of spot rates for the month preceding 

the valuation date rather than a 24- 

month moving average for that month— 

in lieu of the segment rates. The target 

normal cost and funding target 

determined using the monthly corporate 

bond yield curve will also be used for 

purposes of sections 404 and 436. 

Some commenters have maintained 

that the rules under which an applicable 

month earlier than the month before the 

valuation date can be used should be 

permitted to be applied when the plan 

sponsor elects to use the monthly 

corporate bond yield curve. The IRS and 

the Treasury Department believe that, 

while this is a reasonable interpretation 

of the statute, the better view is that this 

option should not be available when the 

plan elects to use the monthly corporate 

bond yield curve. Accordingly, this 

interpretation can be used for plan years 

beginning during 2008 and 2009 (so, for 

example, for a plan year beginning on 

January 1, 2009, the plan sponsor could 

elect to use the monthly corporate bond 

yield curve for September, October, 

November 2008, or December 2008, or 

January 2009, based on data for that 

month), but such an election is not 

permitted for plan years beginning on or 

after the regulations become effective. 

The proposed regulations would have 

required plan sponsors to obtain 

approval for an election to use 

alternative interest rates as described 

above that is made for a plan year after 

the first plan year for which section 430 

applies to the plan. Some commenters 

argued that the statute permits these 

elections to be made without approval, 

with approval required only for a later 

change or revocation of election. In 

response to the comments, the final 

regulations do not require approval for 

the initial adoption of these elections for 

any year. For example, a plan sponsor 

that was using segment rates for the 

plan year beginning in 2010 can elect to 

switch to use the monthly corporate 

bond yield curve for the plan year 

beginning in 2011 and subsequent years 

without approval of the Commissioner 

(and, in such a case, if the plan had been 

using a different month for the segment 

rates, then the change to use the yield 

curve makes the applicable month 

election irrelevant). However, once an 

election has been made, any change 

requires the approval of the 

Commissioner. 

The final regulations provide that, in 

the case of a plan sponsor using the 

monthly corporate bond yield curve, if 

with respect to a decrement the benefit 

is only expected to be paid for one-half 

of a year (because the decrement was 

assumed to occur in the middle of the 

year), the interest rate for that year can 

be determined as if the benefit were 

being paid for the entire year. 

The final regulations provide that the 

interest rate elections are made by the 

plan sponsor, which is generally the 

employer or employers responsible for 

making contributions to or under the 

plan. In the case of plans that are 

multiple employer plans to which 

section 413(c)(4)(A) does not apply, the 

regulations provide that any reference to 

the plan sponsor means the plan 

administrator within the meaning of 

section 414(g). 

The regulations provide that, except 

as otherwise provided, the effective 

interest rate determined under section 

430(h)(2)(A) for the plan year is the 

single interest rate that, if used to 

determine the present value of the 

benefits that are taken into account in 

determining the plan’s funding target for 


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Federal Register / Vol. 74, No. 198 / Thursday, October 15, 2009 / Rules and Regulations 53019 

the plan year, would result in an 

amount equal to the plan’s funding 

target determined for the plan year 

under section 430(d) (without regard to 

calculations for plans in at-risk status 

under section 430(i)). 

Some commenters asked how to 

determine the effective interest rate for 

a plan year for which a plan’s funding 

target is equal to zero. The final 

regulations provide that if, for the plan 

year, the plan’s funding target is equal 

to zero, then the effective interest rate 

determined under section 430(h)(2)(A) 

for the plan year is the single interest 

rate that, if used to determine the 

present value of the benefits that are 

taken into account in determining the 

plan’s target normal cost for the plan 

year, would result in an amount equal 

to the plan’s target normal cost 

determined for the plan year under 

section 430(b) (without regard to 

calculations for plans in at-risk status 

under section 430(i)). 

The final regulations provide that the 

interest rates used to determine the 

amount of shortfall amortization 

installments and waiver amortization 

installments and the present value of 

those installments are determined based 

on the dates those installments are 

assumed to be paid, using the same 

timing rules that apply in determining 

target normal cost. Thus, for a plan that 

uses the segment rates, the first segment 

rate applies to installments assumed to 

be paid during the first five plan years, 

and the second segment rate applies to 

any installments assumed to be paid 

during the subsequent 15-year period. 

For this purpose, the shortfall 

amortization installments for a plan year 

are assumed to be paid on the valuation 

date for that plan year. 

Under the regulations, 

notwithstanding the general rules for 

determination of segment rates, for plan 

years beginning in 2008 or 2009, the 

first, second, or third segment rate for a 

plan with respect to any month is equal 

to the sum of the product of that rate for 

that month, multiplied by the applicable 

percentage and the product of the 

weighted average interest rate 

determined under the rules of section 

412(b)(5)(B)(ii)(II) (as that provision was 

in effect for plan years beginning in 

2007), multiplied by a percentage equal 

to 100 percent minus the applicable 

percentage. This transition rule does not 

apply to a plan if the first plan year of 

the plan begins on or after January 1, 

2008. A plan sponsor may elect not to 

apply the transition rule, but once an 

election has been made any change to 

that election requires the approval of the 

Commissioner. 

The proposed regulations would have 

required that the pre-PPA ’06 weighted 

average be determined as of the same 

month as the segment rates. In response 

to comments, the final regulations 

provide that this weighted average 

interest rate can be determined for the 

same month that is used to determine 

the segment rates, or for the month that 

contains the first day of the plan year 

(that is, the month that was used under 

section 412(b)(5)(B)(ii)(II) as in effect 

before amendment by PPA ’06). 

The final regulations provide that any 

change to any interest rate election that 

is made for the first plan year beginning 

in 2009 or 2010 is automatically 

approved by the Commissioner and 

does not require the Commissioner’s 

specific prior approval. 

VI. Section 1.430(i)–1 Special Rules for 

Plans in At-Risk Status 

Section 1.430(i)–1 of the final 

regulations provides special rules 

related to determining the funding target 

and making other computations for 

certain defined benefit plans that are in 

at-risk status for the plan year due to 

their significantly underfunded status. 

The at-risk rules do not apply to small 

plans. For this purpose, a small plan is 

defined as a plan sponsored by an 

employer that had 500 or fewer 

participants (including both active and 

inactive participants) in defined benefit 

plans (other than multiemployer plans) 

sponsored by the employer or any 

member of the employer’s controlled 

group on each day during the preceding 

plan year. 

The regulations generally adopt the 

rules set forth in the proposed 

regulations, with a few modifications 

that are noted in this preamble. In 

general, the regulations provide that a 

plan is in at-risk status for a plan year 

if the FTAP for the preceding plan year 

is less than 80 percent (65, 70, and 75 

percent, respectively, for plan years 

beginning in 2008, 2009, and 2010), and 

the at-risk FTAP for the preceding plan 

year is less than 70 percent. For this 

purpose, the FTAP is defined in the 

same manner as under § 1.430(d)–1. The 

at-risk FTAP of a plan for a plan year 

is a fraction (expressed as a percentage) 

the numerator of which is the value of 

plan assets for the plan year after 

subtraction of the prefunding balance 

and the funding standard carryover 

balance under section 430(f)(4)(B), and 

the denominator of which is the at-risk 

funding target of the plan for the plan 

year (determined using the special 

actuarial assumptions that apply to 

plans in at-risk status, but without 

regard to the loading factor that is 

imposed with respect to certain plans in 

at-risk status). 

In the case of a new plan that was 

neither the result of a merger nor 

involved in a spin-off, the FTAP and the 

at-risk FTAP are equal to 100 percent for 

years before the plan exists. As a result, 

such a plan will not be in at-risk status 

in its first year. In addition, if the 

funding target of the plan is equal to 

zero for a plan year, the FTAP and the 

at-risk FTAP are equal to 100 percent for 

that plan year. Accordingly, a plan that 

is established without benefits accruing 

for periods prior to establishment will 

not be in at-risk status in its second 

year. The final regulations reserve a 

place for rules regarding a plan that is 

involved in a merger or a spin-off and 

a newly established plan with a 

predecessor plan that was in at-risk 

status. 

In accordance with section 430(i)(1), 

the final regulations provide that the atrisk funding target and the at-risk target 

normal cost of the plan for the plan year 

are generally determined in the same 

manner as for plans not in at-risk status, 

but using special actuarial assumptions. 

In addition, the at-risk funding target 

and the at-risk target normal cost are 

increased to take into account a loading 

factor if the plan has been in at-risk 

status for at least 2 out of the preceding 

4 plan years. In any case, the at-risk 

funding target and the at-risk target 

normal cost of a plan for a plan year 

cannot be less than the plan’s funding 

target and target normal cost determined 

without regard to the at-risk rules. This 

minimum value is determined on a 

plan-wide (rather than a participant-byparticipant) basis. 

The actuarial assumptions used to 

determine a plan’s at-risk funding target 

for a plan year are the actuarial 

assumptions that are applied under 

section 430, with certain modifications 

as set forth in the final regulations. 

Under the proposed regulations, if by 

the end of the plan year that begins 10 

years after the end of the current plan 

year (that is, the end of the 11th plan 

year beginning with the current plan 

year) an employee would be eligible to 

commence an immediate distribution 

upon termination of employment, then 

the employee would be assumed to 

terminate and commence an immediate 

distribution at the earliest retirement 

date under the plan, or, if later, at the 

end of the current plan year. For this 

purpose, the proposed regulations 

defined the earliest retirement age under 

the plan as the earliest age at which a 

participant could terminate employment 

and receive an immediate distribution. 

The proposed regulations provided that, 

under the special at-risk actuarial 


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assumptions, all employees who are 

subject to the special early retirement 

assumption are also assumed to elect 

the optional form of benefit available 

under the plan at the assumed 

retirement age that would result in the 

highest present value of benefits. 

In response to comments, the final 

regulations clarify that the special early 

retirement assumption applies to all 

participants (employees, terminated 

vested participants, and beneficiaries) 

who have not commenced payment and 

is not limited to employees. In addition, 

the final regulations provide that the 

earliest retirement age is not earlier than 

the age at which the participant’s 

benefit is fully vested. The regulations 

also provide that, under the special atrisk actuarial assumptions, all 

participants and beneficiaries (not just 

the participants who are subject to the 

special early retirement assumption) 

who are assumed to retire on a 

particular date are assumed to elect the 

optional form of benefit available under 

the plan that would result in the highest 

present value of benefits commencing at 

that date. 

If a plan that is in at-risk status for the 

plan year has not been in at-risk status 

for one or more of the preceding 4 plan 

years, the plan’s funding target for the 

plan year is determined as a blend of the 

funding target determined as if the plan 

were not in at-risk status and the 

funding target determined as if the plan 

had been in at-risk status for each of the 

preceding 4 plan years. For this 

purpose, the funding target determined 

as if the plan had been in at-risk status 

for each of the preceding 4 plan years 

is determined without applying the 

loading factor if the plan has not been 

in at-risk status for two of the preceding 

four plan years. The increase in the 

funding target to reflect the at-risk rules 

is phased in over 5 years at 20 percent 

per year. The final regulations provide 

similar rules for determining the at-risk 

target normal cost of a plan that has 

been in at-risk status for fewer than 5 

consecutive plan years. 

For purposes of applying the rules 

under section 430(i), the regulations set 

forth rules for making certain 

calculations with respect to the first 

plan year to which section 430 applies 

to the plan. These rules are generally the 

same as the rules that apply for that 

plan year for purposes of section 436. 

There is no special rule for 

determining the at-risk funding target 

for the plan year preceding the plan year 

section 430 first applies to the plan. 

This is because, for a plan to which 

section 430 applies beginning in 2008, 

if the plan’s FTAP for the preceding 

plan year was less than the 65 percent 

needed to be in at-risk status (pursuant 

to the transition rule described in 

section 430(i)(4)(B)), then the at-risk 

FTAP would necessarily be below the 

70 percent needed for the plan to be in 

at-risk status (because the at-risk 

funding target cannot be less than the 

funding target for a plan that is not in 

at-risk status). However, plans for which 

the effective date of section 430 is 

delayed for purposes of determining the 

minimum required contribution will 

have to determine the at-risk funding 

target for the plan year that precedes the 

plan year for which section 430 is first 

effective with respect to the plan. 

VII. Section 1.436–1 Limits on Benefits 

and Benefit Accruals Under Single 

Employer Defined Benefit Plans 

A. Overview and General Rules 

1. In general. 

The final regulations set forth the rule 

that a defined benefit pension plan that 

is subject to section 412 and that is not 

a multiemployer plan is a qualified plan 

only if it satisfies the requirements of 

section 436. This requirement is a 

qualification requirement. A plan 

satisfies the requirements of section 436 

only if the plan meets the requirements 

of these regulations. The final 

regulations generally adopt the rules set 

forth in the proposed regulations, but 

with a number of modifications that are 

discussed in this preamble. 

2. New plans. 

In accordance with section 436(g), the 

final regulations provide that the 

limitations described in sections 436(b), 

436(c), and 436(e) do not apply to a plan 

for the first five plan years of the plan. 

Thus, the only benefit limitation under 

section 436 that could apply under a 

plan that is not a successor plan during 

the first five years of its existence is the 

section 436(d) limitation applicable to 

accelerated benefit payments (such as 

single-sum distributions). Except as 

otherwise provided by the 

Commissioner in guidance of general 

applicability, plan years of the plan 

include the following (in addition to 

plan years during which the plan was 

maintained by the employer or plan 

sponsor): (1) Plan years when the plan 

was maintained by a predecessor 

employer within the meaning of 

§ 1.415(f)–1(c)(1); (2) plan years of 

another defined benefit plan maintained 

by a predecessor employer within the 

meaning of § 1.415(f)–1(c)(2) within the 

preceding five years if any participants 

in the plan participated in that other 

defined benefit plan (even if the plan 

maintained by the employer is not the 

plan that was maintained by the 

predecessor employer); and (3) plan 

years of another defined benefit plan 

maintained by the employer within the 

preceding five years if any participants 

in the plan participated in that other 

defined benefit plan. 

3. Terminated plans. 

The proposed regulations did not 

contain any special rules regarding 

terminated plans. Commenters asked 

whether, upon plan termination, the 

benefit restrictions under section 436(d) 

operate to prevent the purchase of 

annuities to satisfy plan benefits or the 

distribution of single sums. In response, 

these regulations contain special rules 

for plan terminations. Under the final 

regulations, in general, any section 436 

limitations in effect immediately before 

the termination of a plan continue to 

apply. However, the limitations under 

section 436(d) do not apply to 

prohibited payments that are made to 

carry out the termination of a plan in 

accordance with applicable law. For 

example, a plan sponsor’s purchase of 

an irrevocable commitment from an 

insurer to pay benefit liabilities with 

respect to participants in connection 

with the standard termination of a plan, 

in accordance with 4041(b)(3) of ERISA 

and 29 CFR 4041.28, does not violate 

section 436(d). 

4. Multiple employer plans. 

The regulations under section 436 

apply to plans maintained by one 

employer (including a controlled group 

of employers) and to multiple employer 

plans (within the meaning of section 

413(c)). In the case of a multiple 

employer plan to which section 

413(c)(4)(A) applies, the rules under the 

regulations apply separately with 

respect to each employer under the 

plan, as if each employer maintained a 

separate plan. Thus, the benefit 

limitations under section 436 can apply 

differently to employees of different 

employers under such a multiple 

employer plan. In the case of a multiple 

employer plan to which section 

413(c)(4)(A) does not apply (that is, a 

plan described in section 413(c)(4)(B) 

that has not made the election for 

section 413(c)(4)(A) to apply), the 

regulations apply as if all participants in 

the plan were employed by a single 

employer. Some commenters objected to 

the separate application of the rules of 

section 436 for a multiple employer 

plan to which section 413(c)(4)(A) 

applies. These commenters argued that, 

because it is impossible for an employer 

to make a contribution that inures only 

to the benefit of its employees in the 

event of plan termination, it is 

inappropriate to apply the requirements 

of section 436 separately for each 

employer. No change has been made to 

reflect this comment because the IRS 


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6The PBGC has informed the IRS and the 

Treasury Department that it expects similarly to 

treat such an automatic restoration of missed 

benefit accruals as a plan amendment, unless it is 

covered by the 12-month exception. 

7Pursuant to section 436(j)(3), for any plan year, 

if the FTAP is 100 percent or more (or at a lower 

transition threshold for 2008 through 2010) 

determined without subtracting the prefunding 

balance and funding standard carryover balance 

from the value of plan assets, then the AFTAP is 

determined without regard to that subtraction. The 

deemed election under section 436(f)(3) is 

irrelevant in the case of the 100% funding threshold 

that applies under section 436(d)(2) when an 

employer is in bankruptcy because, either the plan 

is 100 percent or more funded without the 

subtraction (and therefore no subtraction need be 

made under section 436(j)(3)), or the plan is less 

than 100 percent funded without the subtraction so 

that the value of plan assets must necessarily be 

insufficient for a deemed election to increase the 

plan’s AFTAP to 100%. 

and the Treasury Department believe 

that this rule is consistent with the 

applicable statutory requirement under 

section 413(c)(4)(A) that applies that the 

funding rules apply separately to each 

employer. 

5. Treatment of plan as of close of 

prohibited or cessation period. 

The final regulations use the term 

section 436 measurement date to 

identify the dates on which a section 

436 limitation may apply or cease to 

apply (as discussed in section VII.A.8 of 

this preamble). The regulations provide 

that, if a limitation on prohibited 

payments under section 436(d) (such as 

single-sum distributions) applies to a 

plan as of a section 436 measurement 

date, but that limit subsequently ceases 

to apply to the plan as of a later section 

436 measurement date, then the 

limitation does not apply to benefits 

with annuity starting dates that are on 

or after that later section 436 

measurement date. In addition, the final 

regulations provide that, if a limitation 

on benefit accruals under section 436(e) 

applies to a plan, then, unless the plan 

provides otherwise, benefit accruals 

under the plan will resume effective as 

of the section 436 measurement date as 

of which benefit accruals are no longer 

restricted. If the accruals resume 

effective in the middle of a plan year, 

the plan must comply with the rules 

relating to partial years of participation 

and the prohibition on double proration 

under Department of Labor regulation 

29 CFR 2530.204–2(c) and (d). 

With respect to a participant who was 

barred from receiving an optional form 

of benefit that would have been payable 

but for the application of a restriction on 

prohibited payments pursuant to section 

436(d), once the restriction ceases to 

apply, the participant’s benefits will 

continue to be paid in the form 

previously elected unless the plan offers 

the participant a new election that 

modifies the prior election. The final 

regulations permit a plan to provide that 

the participant will be offered the 

opportunity to have a new election 

under which the form of benefit 

previously elected may be modified, 

subject to applicable qualification 

requirements, and clarify that any such 

new election will result in a new 

annuity starting date for purposes of 

section 417. 

Similarly, a plan is permitted to be 

amended to provide that any benefit 

accruals that were limited under the 

rules of section 436(e) are credited 

under the plan once the limitation no 

longer applies, subject to applicable 

qualification requirements (including 

the limitations of section 436(c)). If a 

plan provides for the restoration of 

benefit accruals for the period of the 

limitation under preexisting plan terms, 

the plan is generally treated as having 

adopted an amendment that has the 

effect of increasing liabilities under the 

plan. The proposed regulations would 

have provided an exception to this rule 

if the period of limitation is 12 months 

or less. The final regulations retain that 

exception, but clarify that the exception 

is available only if the plan’s AFTAP 

would be at least 60 percent taking into 

account the restored accruals.6

In response to questions raised by 

commenters, the final regulations clarify 

the treatment of unpredictable 

contingent event benefits that are 

limited under the rules of section 

436(b). The regulations provide that, in 

general, if any unpredictable contingent 

event benefits are limited under section 

436(b) with respect to an unpredictable 

contingent event, then that limitation 

applies to all such benefits that 

otherwise would have been paid to any 

plan participant with respect to that 

unpredictable contingent event. 

However, if the limitations of section 

436(b) with respect to an unpredictable 

contingent event cease to apply for a 

plan year as a result of a contribution 

that satisfies the requirements of section 

436(b)(2) or a certification of the AFTAP 

for the plan year, then any 

unpredictable contingent event benefits 

that were limited under the rules of 

section 436(b) for the plan year must 

automatically become payable, 

retroactive to the period those benefits 

would have been payable under the 

terms of the plan (other than plan terms 

implementing the requirements of 

section 436(b)). If the benefits do not 

become payable during the plan year in 

accordance with the preceding sentence, 

then the plan is treated as if it does not 

provide for those benefits. However, all 

or any portion of those benefits can be 

restored pursuant to a plan amendment 

that meets the requirements of section 

436(c) and other applicable qualification 

requirements. 

6. Treatment of plan amendments 

that do not go into effect. 

The proposed regulations did not 

contain rules regarding the treatment of 

plan amendments that do not go into 

effect because of the restrictions under 

section 436(c). To clarify the application 

of these rules, the final regulations 

provide that, if a plan amendment does 

not go into effect as of the effective date 

of the amendment because of the 

limitations of section 436(c), but is 

permitted to go into effect later in the 

plan year as a result of additional 

contributions that satisfy the 

requirements of section 436(c)(2) or a 

certification of the AFTAP for the plan 

year, then the plan amendment must 

automatically take effect as of the first 

day of the plan year (or, if later, the 

original effective date of the 

amendment). However, if the plan 

amendment cannot take effect during 

the plan year, then it must be treated as 

if it were never adopted, unless the plan 

amendment provides otherwise. For 

example, a plan amendment that 

provides a benefit increase pursuant to 

a collective bargaining agreement could 

provide that if the plan amendment 

does not take effect pursuant to the rules 

of section 436(c), it will take effect at the 

earliest time it is permitted to take effect 

pursuant to the rules of section 436(c). 

7. Deemed election to reduce 

prefunding and funding standard 

carryover balances. 

Pursuant to section 436(f)(3), the final 

regulations provide that, if a limitation 

on prohibited payments under section 

436(d)(1) or (d)(3) would otherwise 

apply to a plan, the employer is treated 

as having made an election under 

section 430(f) to reduce the prefunding 

balance or funding standard carryover 

balance by such amount as is necessary 

for the AFTAP to be at or above the 

applicable threshold (60 or 80 percent, 

as the case may be) 7 in order for the 

benefit limitation not to apply to the 

plan. In such a case, the plan sponsor 

is treated as having made that election 

on the section 436 measurement date as 

of which the benefit limitation would 

otherwise apply. This deemed election 

applies if the plan provides for 

prohibited payments that would be 

limited in a plan year, regardless of 

whether a plan participant is eligible or 

elects to receive such a distribution 

during the plan year (but does not apply 

if the plan does not provide for 

prohibited payments that are subject to 

the benefit limitation or if the plan is 

not subject to section 436(d) because the 


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8See also Notice 2007–14, 2007–1 CB 501 (see 

§ 601.601(d)(2) of this chapter), requesting 

comments on the types of benefits that are 

permitted to be provided in a qualified defined 

benefit plan, including benefits payable in the event 

of a plant shutdown or similar event. 

plan was frozen before September 1, 

2005). However, the deemed reduction 

applies with respect to this limitation 

only if the prefunding and funding 

standard carryover balances to be 

reduced are large enough to avoid the 

application of the limitation. Thus, no 

reduction of prefunding and funding 

standard carryover balances is required 

if the limitation would still apply for a 

year even if those balances were 

reduced to zero. The final regulations 

provide that, if a plan is presumed to 

have an AFTAP of less than 60 percent 

because the plan did not receive a 

certification of the AFTAP before the 

first day of the 10th month of the plan 

year under the section 436(h)(2) 

presumption rules, then the plan is 

treated as if the plan’s funding standard 

carryover balance and prefunding 

balance are insufficient to increase the 

plan’s AFTAP to the threshold 

percentage. 

In addition, the regulations provide 

that, in the case of a plan maintained 

pursuant to one or more collective 

bargaining agreements between an 

employee representative and one or 

more employers in which a benefit 

limitation under section 436(b), 436(c), 

or 436(e) would otherwise apply to the 

plan, the employer is treated as having 

made an election under section 430(f) to 

reduce the prefunding balance or 

funding standard carryover balance by 

such amount as is necessary for the 

AFTAP to be at or above the applicable 

threshold for the benefit limitation not 

to apply to the plan, taking into account 

the unpredictable contingent event 

benefits or plan amendment, as 

applicable. In such a case, the plan 

sponsor is treated as having made that 

election on the section 436 

measurement date as of which the 

benefit limitation would otherwise 

apply. As in the case of the deemed 

reduction in funding balances to avoid 

the application of section 436(d), the 

deemed reduction applies only if the 

prefunding and funding standard 

carryover balances to be reduced are 

large enough to avoid the application of 

the limitation under section 436(b), 

436(c), or 436(e), as applicable. 

The proposed regulations would have 

provided that, in the case of a plan with 

respect to which a collective bargaining 

agreement applies to some, but not all, 

of the plan participants, the plan is 

considered a collectively bargained plan 

if at least 25 percent of the participants 

in the plan are members of collective 

bargaining units for which the benefit 

levels under the plan are specified 

under a collective bargaining agreement. 

A number of commentators asked which 

participants are taken into account in 

this calculation. The final regulations 

adopt the definition in the proposed 

regulations, but also provide that such 

a plan is considered a collectively 

bargained plan if at least 50 percent of 

the employees benefiting under the plan 

(within the meaning of § 1.410(b)–3(a)) 

are members of collective bargaining 

units for which the benefit levels under 

the plan are specified under a collective 

bargaining agreement. 

8. Section 436 measurement date. 

The section 436 measurement date is 

a defined term under the final 

regulations that is used to describe the 

date that stops or starts the application 

of the limitations of sections 436(d) and 

436(e) and is also used for calculations 

with respect to applying the limitations 

of sections 436(b) and 436(c). The 

regulations provide that the date of the 

enrolled actuary’s certification of the 

AFTAP for the plan year is a section 436 

measurement date if it is made during 

the plan year. The regulations further 

provide that a section 436 measurement 

date also occurs where there is a change 

in the plan’s presumed AFTAP under 

the presumption rules of section 436(h). 

In addition, the regulations provide a 

series of rules in cases where the 

enrolled actuary’s certification of the 

AFTAP for a plan year is made after the 

end of the plan year, as described in 

section VII.G of this preamble. 

9. Notice requirement under section 

101(j) of ERISA. 

Section 101(j) of ERISA requires the 

plan administrator of a single employer 

plan to provide a written notice to 

participants and beneficiaries within 30 

days after certain specified dates, 

including the date the plan has become 

subject to a restriction described in the 

ERISA provisions that are parallel to 

Code sections 436(b) and 436(d); and, in 

the case of a plan that is subject to the 

ERISA provisions that are parallel to 

Code section 436(e), the valuation date 

for the plan year for which the plan’s 

AFTAP is less than 60 percent (or, if 

earlier, the date the AFTAP is presumed 

to be less than 60 percent). These 

regulations do not include any guidance 

on section 101(j) of ERISA. The benefit 

restrictions under section 436 (and the 

parallel provisions under section 206(g) 

of ERISA) apply without regard to 

whether the requirements of section 

101(j) of ERISA are satisfied. 

B. Limitation on Plant Shutdown and 

Other Unpredictable Contingent Event 

Benefits 

In accordance with section 436(b), the 

final regulations provide that a plan that 

provides for any unpredictable 

contingent event benefit 8 must provide 

that the benefit will not be paid to a 

plan participant during a plan year if 

the AFTAP for the plan year is less than 

60 percent (or is 60 percent or more but 

would be less than 60 percent if the 

AFTAP were redetermined applying an 

actuarial assumption that the likelihood 

of the occurrence of the unpredictable 

contingent event during the plan year is 

100 percent). However, this prohibition 

on payment of unpredictable contingent 

event benefits no longer applies for a 

plan year, effective as of the first day of 

the plan year, if the plan sponsor makes 

the contribution specified in section 

436(b)(2), as described in section VII.F 

of this preamble. 

The regulations provide that an 

unpredictable contingent event benefit 

is any benefit or increase in benefits to 

the extent the benefit or increase would 

not be payable but for the occurrence of 

an unpredictable contingent event, and 

that an unpredictable contingent event 

is a plant shutdown (whether full or 

partial) or similar event, or an event 

other than the attainment of any age, 

performance of any service, receipt or 

derivation of any compensation, or the 

occurrence of death or disability. For 

example, if a plan provides for an 

unreduced early retirement benefit upon 

the occurrence of an event other than 

the attainment of any age, performance 

of any service, receipt or derivation of 

any compensation, or the occurrence of 

death or disability, then that unreduced 

early retirement benefit is an 

unpredictable contingent event benefit 

to the extent of any portion of the 

benefit that would not be payable but 

for the occurrence of the event, even if 

the remainder of the benefit is payable 

without regard to the occurrence of the 

event. Similarly, if a plan includes a 

benefit payable upon the presence 

(including the absence) of 

circumstances specified in the plan 

(other than the attainment of any age, 

performance of any service, receipt or 

derivation of any compensation, or the 

occurrence of death or disability), but 

not upon a severance from employment 

that does not include those 

circumstances, that benefit is an 

unpredictable contingent event benefit. 

Unpredictable contingent event 

benefits attributable to a plant shutdown 

or other unpredictable contingent event 

that occurred within a period during 

which no limitation under section 

436(b) applied to the plan are not 


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affected by the limitation as it applies in 

a subsequent period. For example, if a 

plant shutdown occurs in 2010 and the 

plan’s funded status is such that 

benefits contingent upon that plant 

shutdown are not subject to the 

limitation described in section 436(b) 

for that calendar plan year, section 

436(b) does not apply to restrict 

payment of those benefits even if 

another plant shutdown occurs in 2012 

that results in the restriction of benefits 

that are contingent upon that later plant 

shutdown under section 436(b) (where 

the plan’s adjusted funding target 

attainment percentage for 2012 would 

be less than 60 percent taking into 

account the liability attributable to those 

shutdown benefits). Conversely, if a 

plant shutdown occurs in 2010 and a 

plan’s funded status is such that its 

shutdown benefits are subject to the 

limitation under section 436(b) for that 

plan year and cannot be paid, those 

shutdown benefits related to the 2010 

plant shutdown are not permitted to be 

paid in a later year even if the plan’s 

AFTAP for the later year is at or above 

60 percent (subject to the rules 

permitting plan amendments to 

reinstate previously restricted benefits, 

including unpredictable contingent 

event benefits, as described in section 

VII.A.5 of this preamble). 

To clarify the operation of the rules 

regarding unpredictable contingent 

event benefits, the final regulations 

contain rules of application that were 

not provided in the proposed 

regulations. The regulations clarify that 

the limitations of section 436(b) apply 

on a participant-by-participant basis. 

Thus, whether payment or 

commencement of an unpredictable 

contingent event benefit under a plan is 

restricted with respect to a participant is 

determined based on whether the 

participant satisfies the plan’s eligibility 

requirements (other than the attainment 

of any age, performance of any service, 

receipt or derivation of any 

compensation, or the occurrence of 

death or disability) for such a benefit in 

a plan year in which the limitations of 

section 436(b) apply. In addition, in the 

case of a plan that provides for a benefit 

that depends upon the occurrence of 

more than one unpredictable contingent 

event with respect to a participant, the 

unpredictable contingent event for 

purposes of section 436(b) occurs upon 

the last of those unpredictable 

contingent events. Cessation of a benefit 

under a plan upon the occurrence of a 

specified event does not trigger the 

application of a limitation under section 

436(b). Thus, section 436(b) does not 

prohibit provisions of a plan that 

provide for cessation, suspension, or 

reduction of any benefits upon 

occurrence of any event. 

C. Limitations on Plan Amendments 

Increasing Plan Liabilities 

In accordance with section 436(c), the 

regulations provide that a plan satisfies 

the limitation on plan amendments 

increasing liability for benefits only if 

the plan provides that no amendment to 

the plan that has the effect of increasing 

liabilities of the plan by reason of 

increases in benefits, establishment of 

new benefits, changing the rate of 

benefit accrual, or changing the rate at 

which benefits become nonforfeitable is 

permitted to take effect if the AFTAP for 

the plan year is less than 80 percent (or 

is 80 percent or more but would be less 

than 80 percent if the AFTAP were 

redetermined taking into account the 

benefits attributable to the amendment). 

However, this prohibition on plan 

amendments no longer applies for a 

plan year if the employer makes the 

contribution specified in section 

436(c)(2), as described in section VII.F 

of this preamble. Thus, an amendment 

that provides for an increase in benefits 

under a formula that is based solely on 

service performed by participants after 

the amendment is adopted is always 

permitted to take effect in a plan year 

because the amount of contribution 

described in section 436(c)(2) is $0. 

However, see § 1.430(d)–1(d)(2) for a 

rule that requires such an amendment to 

be taken into account in determining the 

funding target and the target normal cost 

in certain situations. 

The final regulations clarify the 

application of section 436(c) to certain 

pre-existing plan provisions. Under the 

regulations, if a plan contains a 

provision that provides for the 

automatic restoration of benefit accruals 

that were not permitted to accrue 

because of the application of section 

436(e), the restoration of those accruals 

is generally treated as a plan 

amendment that is subject to section 

436(c). However, the automatic 

restoration of benefit accruals that were 

not permitted to accrue because of the 

application of section 436(e) is not 

treated as a plan amendment that is 

subject to section 436(c) if the 

continuous period of the limitation is 12 

months or less and the AFTAP for the 

plan would not be less than 60 percent 

taking into account the restored benefit 

accruals for the prior plan year. The 

application of section 436(c) to other 

pre-existing plan provisions that result 

in benefit increases is expected to be 

addressed in future proposed 

regulations. 

In accordance with section 436(c)(3), 

the limitation on amendments 

increasing liabilities does not apply to 

any amendment that provides for an 

increase in benefits under a formula that 

is not based on a participant’s 

compensation, but only if the rate of 

increase in benefits does not exceed the 

contemporaneous rate of increase in 

average wages of participants covered 

by the amendment. Like the proposed 

regulations, the final regulations 

provide that the determination of the 

rate of increase in average wages is 

made by taking into consideration the 

net increase in average wages from the 

period of time beginning with the 

effective date of the most recent benefit 

increase applicable to all of those 

participants who are covered by the 

current amendment and ending on the 

effective date of the current amendment. 

If the participants covered by an 

amendment include both currently 

employed participants and terminated 

participants, all covered participants are 

included in determining the increase in 

average wages of the participants 

covered by the amendment. For this 

purpose, terminated participants who 

are not employees at any time during 

the period from the effective date of the 

most recent benefit increase applicable 

to all the participants who are covered 

by the current amendment and ending 

on the effective date of the current 

amendment are treated as having no 

increase or decrease in wages for the 

period after severance from 

employment. Alternatively, the 

employer can adopt two amendments— 

one that increases benefits for currently 

employed participants that is eligible for 

this exception based solely on the wages 

of those current employees, and another 

that increases benefits for terminated 

participants. However, the amendment 

that applies only to terminated 

participants (who received no increase 

in wages from the employer during the 

period over which the increase in 

average wages is determined) would not 

be eligible for this exception. 

As under the proposed regulations, 

the final regulations exempt a plan 

amendment (or any pre-existing plan 

provision) that provides for a mandatory 

increase in the vesting of benefits under 

the Code or ERISA (such as vesting rate 

increases pursuant to statute, plan 

termination amendments or partial 

terminations under section 411(d)(3), 

and vesting increases required by the 

rules for top-heavy plans under section 

416) from the requirements of section 

436(c) to the extent the increase in 

vesting is necessary to enable the plan 

to continue to satisfy the requirements 

for qualified plans. In addition, the final 


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regulations provide that the 

Commissioner may, in guidance of 

general applicability, issue additional 

rules under which other amendments to 

a plan are not treated as amendments to 

which section 436(c) applies. 

The final regulations contain a rule to 

clarify when an amendment is 

considered to take effect for purposes of 

section 436(c). Under these regulations, 

in the case of an amendment that 

increases benefits, the amendment takes 

effect under a plan on the first date on 

which any individual who is or could 

be a participant or beneficiary under the 

plan would obtain a legal right to the 

increased benefit if the individual were 

on that date to satisfy the applicable 

requirements for entitlement to the 

benefit (such as the attainment of any 

age, performance of any service, receipt 

or derivation of any compensation, or 

the occurrence of death, disability, or 

severance from employment). Thus, if a 

plan’s operations change to provide 

increased benefits so that participants 

obtain a legal right to the benefit at the 

time of the change (with the 

corresponding plan amendment adopted 

in that year or in a subsequent year that 

is within the remedial amendment 

period under section 401(b)), the 

amendment takes effect at the time of 

the change and must satisfy the 

requirements of section 436(c) for that 

earlier year. By contrast, if an 

amendment is adopted to provide 

increased benefits retroactively with 

respect to a prior year, but no 

participant’s benefits are increased until 

the amendment is adopted, the 

amendment takes effect at the time of 

adoption and must satisfy the 

requirements of section 436(c) for the 

plan year the amendment is adopted. 

D. Limitations on Prohibited Payments 

1. Funding percentage less than 60 

percent. 

In accordance with section 436(d)(1), 

under the final regulations, a plan must 

provide that, if the plan’s AFTAP for a 

plan year is less than 60 percent, a 

participant or beneficiary is not 

permitted to elect an optional form of 

benefit that includes a prohibited 

payment, and the plan will not pay any 

prohibited payment, with an annuity 

starting date that is on or after the 

applicable section 436 measurement 

date. The proposed regulations would 

have provided that, if a participant 

requests such a prohibited payment, the 

plan must permit the participant to elect 

another form of benefit available under 

the plan and this rule is retained in 

these regulations. Thus, if a participant 

elects a single-sum payment which is 

not available because of the section 436 

limitations, the participant has to retain 

the right to elect the annuity forms 

offered under the plan which do not 

contain prohibited payments. Similar 

rules apply in any case in which a 

beneficiary is entitled to a prohibited 

payment (for example, where a qualified 

pre-retirement survivor annuity is 

offered in an alternative single-sum 

payment). 

The proposed regulations would also 

have provided that, if a participant 

requests such a prohibited payment, the 

plan must permit the participant to elect 

to defer payment to a later date to the 

extent permitted under applicable 

qualification requirements. Questions 

have arisen regarding whether this 

deferral right must be provided to a 

participant who has separated from 

service and has attained normal 

retirement age if the plan does not 

otherwise provide such a participant 

with the right to defer commencement 

of benefits. The final regulations clarify 

that, if a participant requests a 

prohibited payment at a time when that 

form of payment cannot be made, the 

participant retains the right to delay 

commencement of benefits only if the 

right to delay commencement is in 

accordance with the terms of the plan 

and applicable qualification 

requirements (such as sections 

411(a)(11) and 401(a)(9)). Thus, where 

payment of an optional form of benefit 

is restricted pursuant to section 436(d), 

the plan is not required to provide 

participants with deferral rights that 

would not be otherwise available. 

Some commenters requested that the 

regulations permit a plan under which 

prohibited payments are restricted to 

handle an election for a prohibited 

payment by paying the maximum 

amount permitted under section 436(d) 

each year, with payments resuming 

under the originally elected schedule as 

soon as permitted under section 436(d) 

(with appropriate catch-up payments). 

The final regulations do not permit this 

approach because the IRS and the 

Treasury Department believe that a plan 

should pay benefits in accordance with 

a participant’s actual election (with the 

associated spousal consent, if 

applicable). However, the final 

regulations clarify that a plan can offer 

special optional forms of benefit during 

the period in which section 436(d)(1) 

applies to the plan. For example, a plan 

may permit participants or beneficiaries 

who commence benefits during this 

period to elect, within a specified 

period after the date on which the 

limitation ceases to apply to the plan, to 

receive the remaining benefit in the 

form of a single-sum payment equal to 

the present value of the remaining 

benefit to the extent then permitted 

under section 436(d)(3). Any such 

optional forms must satisfy section 

436(d) and applicable qualification 

requirements, including satisfaction of 

section 417(e) and section 415 (at each 

annuity starting date). 

2. Bankruptcy. 

In accordance with section 436(d)(2), 

under the final regulations, a plan must 

provide that a participant or beneficiary 

is not permitted to elect an optional 

form of benefit that includes a 

prohibited payment, and the plan will 

not pay any prohibited payment, with 

an annuity starting date that occurs 

during any period in which the plan 

sponsor is a debtor in a case under title 

11, United States Code, or similar 

Federal or State law, until the date on 

which the enrolled actuary of the plan 

certifies that the plan’s AFTAP for the 

plan year is not less than 100 percent. 

Participants and beneficiaries can still 

elect those forms of distribution offered 

under the plan which do not contain a 

prohibited payment, as well as the right 

to defer distribution, as described in 

section VII.D.1 of this preamble. 

3. Limited payment if percentage at 

least 60 percent but less than 80 

percent. 

In accordance with section 436(d)(3), 

under the final regulations, a plan must 

provide that, in any case in which the 

plan’s AFTAP for a plan year is 60 

percent or more but is less than 80 

percent, a participant or beneficiary is 

not permitted to elect the payment of an 

optional form of benefit that includes a 

prohibited payment, and the plan will 

not pay any prohibited payment, with 

an annuity starting date that is on or 

after the applicable section 436 

measurement date, unless the present 

value, determined in accordance with 

section 417(e)(3), of the portion of the 

benefit that is being paid in a prohibited 

payment does not exceed the lesser of: 

(A) 50 percent of the present value 

(determined in accordance with section 

417(e)(3)) of the benefit payable in the 

optional form of benefit that includes 

the prohibited payment; or (B) 100 

percent of the PBGC maximum benefit 

guarantee amount. 

Commenters asked a number of 

questions about this limitation, 

including how to determine the portion 

of the benefit that is being paid in a 

prohibited payment. Under the final 

regulations, this determination is made 

based on the applicable optional form of 

benefit. If the benefit is being paid in an 

optional form for which any of the 

payments is greater than the amount 

payable under a straight life annuity to 

the participant or beneficiary (plus any 

social security supplements described 


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in the last sentence of section 411(a)(9) 

payable to the participant or 

beneficiary) with the same annuity 

starting date, then the portion of the 

benefit that is being paid in a prohibited 

payment is the excess of each payment 

over the smallest payment during the 

participant’s lifetime under the optional 

form of benefit (treating a period during 

the participant’s lifetime in which no 

payments are made as a payment of 

zero). Thus, for an optional form of 

benefit in the form of a single sum or in 

the form of installments over a fixed 

period of years, the entire optional form 

of benefit would be a prohibited 

payment, whereas in the case of a social 

security leveling optional form of 

benefit (under which higher payments 

are made before an assumed social 

security commencement date, with 

lower payments thereafter for life), only 

the amount payable before the assumed 

social security commencement date that 

exceeds the ultimate life annuity 

amount would be a prohibited payment 

(so that a social security leveling form 

could go into effect under section 

436(d)(3) if the present value of the 

payments before the assumed social 

security commencement date that 

exceed the ultimate life annuity amount 

does not exceed the present value of 50 

percent of the total benefit or, if less, the 

PBGC maximum benefit guarantee 

amount). In addition, the PBGC 

maximum benefit guarantee amount is 

the present value (determined under 

guidance prescribed by the Pension 

Benefit Guaranty Corporation, using the 

interest and mortality assumptions 

under section 417(e)) of the maximum 

benefit guarantee with respect to a 

participant (based on the participant’s 

age or the beneficiary’s age at the 

annuity starting date) under section 

4022 of ERISA for the year in which the 

annuity starting date occurs. 

Like the proposed regulations, the 

final regulations require that, if an 

optional form of benefit that is 

otherwise available under the terms of 

the plan is not available as of the 

annuity starting date because of the 

application of the requirements of 

section 436(d)(3), the plan must permit 

a participant or beneficiary to elect to 

bifurcate the benefit into unrestricted 

and restricted portions. The plan must 

also offer the participant or beneficiary 

any other optional form of benefit 

otherwise available under the plan at 

that annuity starting date that would 

satisfy the 50 percent/PBGC maximum 

benefit guarantee amount limitation, as 

well as any general right to defer 

commencement of benefits under the 

plan (in the same manner described in 

section VII.D.1 of this preamble). 

Commenters had raised a number of 

questions concerning calculation of the 

unrestricted portion of the benefit for 

purposes of the rule requiring the 

participant’s benefit to be bifurcated 

into unrestricted and restricted portions. 

The final regulations clarify that the 

benefit for the unrestricted portion of 

the benefit is calculated at the annuity 

starting date with respect to each 

optional form of benefit that does not 

satisfy the 50 percent/PBGC maximum 

benefit guarantee amount limitation. In 

general, the unrestricted portion of the 

benefit with respect to an optional form 

of benefit is 50 percent of the amount 

payable under that optional form of 

benefit. Thus, if a participant elects a 

single-sum payment of a participant’s 

entire benefit which is not permitted 

under section 436(d)(3), the bifurcation 

rule requires the plan to offer the 

participant half that amount as a singlesum payment (with the remainder being 

payable as a life annuity or any other 

optional form available under the plan 

at that annuity starting date that does 

not include a prohibited payment). 

However, for an optional form of 

benefit that is a prohibited payment on 

account of a social security leveling 

feature or a refund of employee after-tax 

contributions feature, the unrestricted 

portion of the benefit is that optional 

form of benefit applied to only 50 

percent of the total benefit. Thus, for a 

social security leveling option, the 

unrestricted portion is not equal to half 

the amount payable before the assumed 

social security commencement date, 

plus half the amount payable thereafter, 

but instead would be a result of 

applying the plan’s social security 

leveling option provision to half of the 

participant’s total benefit. This may 

often result in the unrestricted portion 

being a series of payments ending at the 

assumed social security commencement 

date (which, in combination with a life 

annuity for the restricted portion 

commencing at the same annuity 

starting date plus the participant’s 

anticipated social security benefit, 

would provide level income to the 

participant to the extent permitted 

under section 436(d)(3)). 

In any event, the unrestricted portion 

of the benefit must be reduced to the 

extent necessary so that the present 

value (determined in accordance with 

section 417(e)) of the unrestricted 

portion of that optional form of benefit 

does not exceed the PBGC maximum 

benefit guarantee amount. 

If the participant or beneficiary elects 

to bifurcate the benefit, the plan must 

provide, with respect to the unrestricted 

portion, the optional form of benefit 

elected by the participant, treating the 

unrestricted portion of the benefit as if 

it were the participant’s or beneficiary’s 

entire benefit under the plan. The 

participant can elect to receive the 

remainder of his or her benefit in any 

optional form of benefit available under 

the plan at that annuity starting date 

that does not include a prohibited 

payment. If a plan provides for an 

optional form of benefit that applies to 

only a portion of the participant’s 

benefit, that optional form of benefit 

must be available on a proportionate 

basis with respect to the unrestricted 

portion of the benefit. The rules of 

§ 1.417(e)–1 are applied separately to 

the separate optional forms for the 

unrestricted and restricted portions of 

the benefits. 

Under the regulations, a plan is 

permitted to provide for separate 

elections with respect to the 

unrestricted and restricted portions of 

the benefit, without regard to whether 

the participant or beneficiary elects an 

optional form of benefit that includes a 

prohibited payment that is not 

permitted to be paid under the rules of 

section 436(d)(3). Like the proposed 

regulations, the final regulations permit 

a plan to offer optional forms of benefit 

that are solely available during a period 

during which benefits are restricted 

pursuant to section 436(d)(3). For 

example, during that period, a plan may 

offer an optional form of benefit (such 

as a single sum) that provides for the 

current payment of the unrestricted 

portion of the benefit, with a delayed 

commencement for the restricted 

portion of the benefit or for an 

immediate commencement of the 

restricted portion of the benefit in an 

annuity form with a right to commute to 

a single sum offered upon the enrolled 

actuary’s certification that the plan’s 

AFTAP is at least 80 percent. As another 

example, a plan that offers a subsidized 

early retirement benefit or a single-sum 

payment based on the normal retirement 

benefit may offer an optional form of 

benefit that combines an unsubsidized 

single-sum payment for over 50 percent 

of the accrued benefit with a subsidized 

early retirement life annuity for the 

remainder of the accrued benefit, 

provided that the optional form satisfies 

the section 436(d)(3) 50 percent/PBGC 

maximum benefit guarantee limitation. 

Any such optional forms must also 

satisfy the applicable qualification 

requirements, including satisfaction of 

section 417(e) and, in the case of 

optional forms of benefit with different 

annuity starting dates, section 415 at the 


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53026 Federal Register / Vol. 74, No. 198 / Thursday, October 15, 2009 / Rules and Regulations 

later annuity starting date for the 

restricted portion of the benefit. 

The IRS and the Treasury Department 

anticipate that plan sponsors will use 

one of several alternative approaches to 

providing benefit election packages to 

participants in order to comply with the 

benefit restrictions of section 436(d). As 

part of any of these alternatives, as 

described in the preceding paragraph, 

the plan may provide special optional 

forms that are available only when the 

restrictions of section 436(d) apply. 

One approach would be to provide a 

benefit election package that does not 

take into account the restrictions under 

section 436(d), regardless of whether a 

benefit restriction under section 436(d) 

applies at the time the package is 

furnished. In periods during which a 

restriction applies, the plan must permit 

the participant either to (1) choose 

another optional form of benefit that 

does not have a restriction, (2) defer 

commencement of the payments to a 

later annuity starting date, or (3) if the 

AFTAP is at least 60 percent but less 

than 80 percent, elect to bifurcate the 

benefit—that is, to receive the 

unrestricted portion in the optional 

form chosen and to make a separate 

election with respect to the remaining 

portion of the benefit (the restricted 

portion). Thus, if a participant elects a 

form of benefit that is not permitted 

pursuant to a restriction, then the 

participant must be informed which 

benefit options are currently available in 

order to enable the participant to make 

a new election among the available 

forms if the participant so chooses. This 

approach entails a two-step process. 

As an alternative to this approach, the 

plan may provide for a one-step process 

which eliminates the need to go back to 

the participant if the participant elects 

a form of benefit that is restricted. 

Under this one-step process, a 

participant who elects an optional form 

of benefit that could be subject to 

restrictions would also elect a backup 

distribution form which would apply if 

restrictions are applicable as of the 

annuity starting date for the 

distribution. As part of the backup 

election, this one-step process would 

also provide the participant with the 

opportunity to defer commencement 

and, if the AFTAP is at least 60 percent 

but less than 80 percent, to bifurcate the 

benefit. 

A third alternative approach, which 

also eliminates the need to go back to 

the participant, anticipates the 

application of the section 436(d) 

restriction on prohibited payments. 

Under this approach, with respect to an 

optional form of benefit that includes a 

prohibited payment that is not 

permitted to be paid and for which no 

additional information is needed to 

make that determination (such as 

information regarding a social security 

leveling optional form of benefit), rather 

than wait for the participant or 

beneficiary to elect such optional form, 

the plan is permitted to provide for 

separate elections with respect to the 

restricted and unrestricted portions of 

that optional form of benefit. However, 

the alternative described in the 

preceding sentence is permitted to be 

applied only if the plan applies the rule 

to all the optional forms for which no 

additional information from the 

participant or beneficiary is needed to 

make that determination and the plan 

identifies the option that the bifurcation 

election replaces. Thus, if section 

436(d)(3) applies to a plan during a 

period and the plan’s prohibited 

payments include a single-sum 

payment, installments for 10 years, and 

various life annuities with social 

security leveling features that depend 

on information from the participant 

regarding assumed social security 

commencement date and social security 

amount, then during this period the 

plan can offer 50% of the single-sum 

payment and 50% of the 10-year 

installments, without having to offer 

half of each of the potential life 

annuities with social security leveling 

features. Thus, the package presented to 

a participant would generally present 

optional forms of benefit that satisfy the 

requirements of section 436(d) at the 

annuity starting date (but if the 

participant were to elect a life annuity 

with a social security leveling feature 

that is not permitted to be paid, then the 

plan would have to follow the two-step 

approach). If this third approach is used 

and the plan’s benefit restriction status 

with respect to the participant’s annuity 

starting date changes after the package 

is furnished, then updated information 

would be provided to the participant 

that takes into account the plan’s new 

status. As part of the overall 

methodology, a plan may provide 

special optional forms that are available 

only when the restrictions of section 

436(d) apply. Thus, the package 

presented to a participant would only 

present optional forms of benefit that 

satisfy the requirements of section 

436(d) at the annuity starting date. 

A participant for whom a prohibited 

payment (or a series of prohibited 

payments under a single optional form 

of benefit) is made in accordance with 

the 50 percent/PBGC maximum benefit 

guarantee amount limitation cannot 

receive any additional payment that 

would be a prohibited payment during 

any period of consecutive plan years to 

which any of the limitations under 

section 436(d) apply. Benefits provided 

to a participant and any beneficiary of 

that participant are aggregated for 

purposes of determining whether the 

distribution complies with the 

limitations under section 436(d)(3). The 

final regulations also reflect the rules of 

section 436(d)(3)(B)(ii), which describe 

how this limited distribution is 

allocated among the beneficiaries of a 

participant. The final regulations 

include two special rules for 

beneficiaries. First, while generally the 

annuity starting date for the payments to 

the participant is also the annuity 

starting date for payments to the 

beneficiary, a new annuity starting date 

occurs if the amount payable to the 

beneficiary can exceed the monthly 

amount that would have been paid to 

the participant had he or she not died 

(such as where a plan offers to pay the 

death benefit in a single sum). Second, 

if a beneficiary is not an individual, the 

prohibited payment amount is 

determined based on the monthly 

amount payable in installments over 20 

years (instead of the monthly amount 

paid under a straight life annuity). 

4. Exception for certain frozen plans. 

In accordance with section 436(d)(4), 

the limitations under section 436(d) do 

not apply to a plan for any plan year if 

the terms of the plan, as in effect for the 

period beginning on September 1, 2005, 

provide for no benefit accruals with 

respect to any participants. However, if 

such a plan provides for any benefit 

accruals thereafter, this exception ceases 

to apply for the plan as of the date those 

accruals start. 

5. Prohibited payment. 

In accordance with section 436(d)(5), 

the final regulations provide that the 

term prohibited payment means any 

payment for a month that is in excess 

of the monthly amount paid under a 

single life annuity (plus any social 

security supplements described in the 

last sentence of section 411(a)(9)) to a 

participant or beneficiary whose 

annuity starting date occurs during any 

period that a limitation on prohibited 

payments is in effect, as well as any 

payment for the purchase of an 

irrevocable commitment from an insurer 

to pay benefits. The final regulations 

also include in this definition any 

transfer of assets and liabilities to 

another plan maintained by the same 

employer (or by any member of the 

employer’s controlled group) that is 

made in order to avoid or terminate the 

application of section 436 benefit 

limitations. In addition, the 

Commissioner may provide for other 

amounts to be identified as prohibited 


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Federal Register / Vol. 74, No. 198 / Thursday, October 15, 2009 / Rules and Regulations 53027 

payments in revenue rulings and 

procedures, notices, and other guidance 

published in the Internal Revenue 

Bulletin. 

Commenters raised several concerns 

regarding the definition of the term 

annuity starting date as applied to 

various types of benefits restricted 

under section 436(d). The final 

regulations generally adopt the 

definition of annuity starting date set 

forth in § 1.401(a)–20, Q&A–10(b), 

modified to cover retroactive annuity 

starting dates, as well as transactions 

that are restricted under section 436(d) 

even though they do not constitute 

distributions to any participant. Thus, 

the final regulations provide that, for 

purposes of applying the limitations on 

prohibited payments under section 

436(d), the term annuity starting date is 

defined as the first day of the first 

period for which an amount is payable 

as an annuity as described in section 

417(f)(2)(A)(i) if the benefit is being paid 

in the form of an annuity. In the case of 

a benefit not payable in the form of an 

annuity, the annuity starting date is the 

annuity starting date for the qualified 

joint and survivor annuity that is 

payable under the plan at the same time 

as the benefit that is not payable as an 

annuity, and, in the case of an amount 

payable under a retroactive annuity 

starting date, the annuity starting date is 

the benefit commencement date. The 

effect of the change in the definition of 

annuity starting date will be to provide 

plan administrators with some 

additional time to adjust their 

administrative practices to take into 

account a newly issued certification of 

the plan’s AFTAP. The definition of 

annuity starting date also includes the 

date of the purchase of an irrevocable 

commitment from an issuer to pay 

benefits under the plan and the date of 

any transfer of assets and liabilities to 

another plan maintained by the same 

employer (or by any member of the 

employer’s controlled group) that is 

made in order to avoid or terminate the 

application of section 436 benefit 

limitations. 

The final regulations include rules to 

clarify how the limitations apply with 

respect to any prohibited payment that 

is in the form of a purchase of an 

irrevocable commitment from an insurer 

or a transfer of assets and liabilities. In 

the case of a purchase of insurance, the 

annuity starting date is the date of the 

purchase of the irrevocable commitment 

from the insurer and the present value 

(for purposes of the section 436(d)(3) 

limitation regarding the lesser of 50 

percent of the present value of the 

benefit and the PBGC maximum benefit 

guarantee amount) is based on the cost 

to the plan (which is generally the 

insurance premium). Where a 

prohibited payment is in the form of a 

plan-to-plan transfer of assets and 

liabilities, the annuity starting date is 

the date of the transfer to the other 

qualified plan and the present value is 

based on the present value of the 

liabilities transferred (determined in 

accordance with section 414(l)). 

However, any such transfer would have 

to independently satisfy section 414(l), 

which generally would not be possible 

where only a portion of a participant’s 

or beneficiary’s accrued benefit is being 

transferred. 

The regulations do not address the 

change made by section 101(c)(2)(C) of 

WRERA ’08, under which the 

limitations of section 436 do not apply 

to distributions permitted without 

consent of the participant under section 

411(a)(11) (that is, distributions where 

the total present value of the benefit is 

not in excess of $5,000). That change is 

expected to be addressed in future 

proposed regulations. Those proposed 

regulations are also expected to address 

issues regarding plan loans. 

E. Limitation on Benefit Accruals 

In accordance with section 436(e), the 

final regulations require a plan to 

provide that, in any case in which the 

plan’s AFTAP for a plan year is less 

than 60 percent, benefit accruals under 

the plan will cease as of the applicable 

section 436 measurement date. If a plan 

must cease benefit accruals under this 

limitation, then the plan is also not 

permitted to be amended in a manner 

that would increase the liabilities of the 

plan by reason of an increase in benefits 

or establishment of new benefits. This 

rule applies regardless of whether an 

amendment would otherwise be 

permissible under section 436(c)(3) 

(involving certain amendments to 

increase benefits under a formula not 

based on a participant’s compensation). 

This prohibition on additional benefit 

accruals no longer applies for a plan 

year if the plan sponsor makes the 

contribution specified in section 

436(e)(2), as described in section VII.F 

of this preamble. 

The regulations do not reflect the 

provisions of section 203 of WRERA ’08 

under which, for the first plan year 

beginning during the period beginning 

on October 1, 2008 and ending on 

September 30, 2009, the plan’s AFTAP 

for purposes of the benefit limitation 

under section 436(e) is equal to the 

larger of the AFTAP for the plan year 

and the AFTAP for the prior plan year. 

That change is expected to be addressed 

in future proposed regulations. 

F. Rules Relating to Techniques To 

Avoid Benefit Limitations 

The final regulations provide rules 

regarding techniques that the plan 

sponsor may utilize to avoid or 

terminate benefit limitations under 

section 436 that are largely unchanged 

from the rules in the proposed 

regulations. For example, under the 

final regulations, an employer 

sponsoring a plan that would otherwise 

be subject to the limitations of section 

436 can avoid the application of those 

limits by reducing the funding standard 

carryover balance and prefunding 

balance by an amount sufficient to avoid 

the limitations or, if the deadline for 

making contributions for the prior plan 

year has not passed, by making 

additional contributions for a prior plan 

year that are not added to the 

prefunding balance. Either of these 

techniques will have the effect of 

increasing the adjusted plan assets that 

form the numerator of the AFTAP 

calculation, which will increase the 

AFTAP. In addition, a plan sponsor 

could make the specific contributions 

described in section 436(b)(2), 436(c)(2), 

or 436(e)(2) or provide security to the 

plan as described in section 436(f)(1). 

These latter two techniques for avoiding 

or terminating the application of the 

benefit limitations of section 436 are 

described in § 1.436–1(f). 

The regulations provide that the plan 

sponsor is permitted to make additional 

contributions that are specifically 

designated at the time of the 

contribution as a contribution used to 

avoid the application of a limitation 

under section 436(b), 436(c), or 436(e). 

To address questions raised with respect 

to the proposed regulations, the final 

regulations provide general rules that 

apply to all contributions pursuant to 

section 436(f) (referred to as section 436 

contributions) and also separately state 

the rules with respect to the amount of 

contributions needed to avoid each type 

of benefit limitation. 

Section 436 contributions must be 

separate from any minimum required 

contributions under section 430 and are 

disregarded in determining the 

maximum addition to the prefunding 

balance under section 430(f)(6) and 

§ 1.430(f)–1(b)(1)(i)(B). The designation 

of a contribution as a section 436 

contribution must be made at the time 

the contribution is used to avoid or 

terminate the applicable benefit 

limitations and, except as specifically 

provided, cannot subsequently be 

recharacterized with respect to any plan 

year as a contribution to satisfy a 

minimum required contribution 

obligation, or otherwise. Thus, if a plan 


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53028 Federal Register / Vol. 74, No. 198 / Thursday, October 15, 2009 / Rules and Regulations 

sponsor makes a section 436 

contribution for a plan year but does not 

make the minimum required 

contribution for the plan year, the plan 

will fail to satisfy the minimum funding 

requirements under section 430 for the 

plan year. The designation must be 

made in accordance with the rules and 

procedures that otherwise apply to 

elections under the regulations (at 

§ 1.430(f)–1(f)) with respect to funding 

balances. The deductibility of a section 

436 contribution is determined pursuant 

to the rules of section 404 (including the 

rules of section 404(a) and (o)). For this 

purpose, the section 436 contribution is 

considered to be made for the plan year 

during which it is made. 

Any section 436 contribution made on 

a date other than the valuation date for 

the plan year must be adjusted with 

interest at the plan’s effective interest 

rate under section 430(h)(2)(A) for the 

plan year. If the plan’s effective interest 

rate for the plan year has not been 

determined at the time of the 

contribution, then this interest 

adjustment must be made using the 

highest rate of the three segment rates as 

applicable for the plan year under 

section 430(h)(2)(C). In such a case, if 

the effective interest rate for the year 

under section 430(h)(2)(A) is 

subsequently determined to be less than 

that highest rate, the excess is 

recharacterized as an employer 

contribution taken into account under 

section 430 for the current plan year. 

Any section 436 contribution must be 

paid before the unpredictable 

contingent event benefits are permitted 

to be paid, the plan amendment is 

permitted to go into effect, or the benefit 

accruals are permitted to resume. In 

addition, any section 436 contribution 

with respect to a plan year must be paid 

during the plan year. Furthermore, no 

prefunding balance or funding standard 

carryover balance under section 430(f) 

may be used as a section 436 

contribution to avoid benefit 

limitations. 

In the case of a contribution to avoid 

or terminate the application of the 

limitation on benefits attributable to an 

unpredictable contingent event under 

section 436(b), in the event that the 

AFTAP for the plan year determined 

without taking into account the liability 

attributable to the unpredictable 

contingent event benefits is less than 60 

percent, the amount of the contribution 

under section 436(b)(2) is equal to the 

amount of the increase in the funding 

target of the plan for the plan year if the 

benefits attributable to the 

unpredictable contingent event were 

included in the determination of the 

funding target. In the event that the 

AFTAP for the plan year determined 

without taking into account the liability 

attributable to the unpredictable 

contingent event benefits is 60 percent 

or more, but would be less than 60 

percent taking the unpredictable 

contingent event benefits into account, 

the amount of the contribution under 

section 436(b)(2) is the amount that 

would be sufficient to result in an 

AFTAP for the plan year of 60 percent 

if the benefits attributable to the 

unpredictable contingent event were 

included in the determination of the 

funding target and the contribution were 

included as part of the assets of the 

plan. In this latter case, the 

determination of the amount that would 

be sufficient to result in an AFTAP of 

60 percent must take into account all 

liabilities for benefits attributable to 

prior unpredictable contingent event 

benefits that were permitted to be paid, 

prior plan amendments that were 

permitted to take effect, and restored 

accruals (and any associated section 436 

contributions). 

In the case of a contribution to avoid 

or terminate the application of the 

limitation on benefits attributable to a 

plan amendment under section 436(c), 

in the event that the AFTAP for the plan 

year determined without taking into 

account the liability attributable to the 

plan amendment is less than 80 percent, 

the amount of the contribution under 

section 436(c)(2) is equal to the amount 

of the increase in the funding target of 

the plan for the plan year if the 

liabilities attributable to the amendment 

were included in the determination of 

the funding target. In the event that the 

AFTAP for the plan year determined 

without taking into account the liability 

attributable to the plan amendment is 80 

percent or more, but would be less than 

80 percent taking the amendment into 

account, the amount of the contribution 

under section 436(c)(2) is the amount 

that would be sufficient to result in an 

AFTAP for the plan year of 80 percent 

if the liabilities attributable to the plan 

amendment were included in the 

determination of the funding target and 

the contribution were included as part 

of the assets of the plan. In this latter 

case, the determination of the amount 

that would be sufficient to result in an 

AFTAP of 80 percent must take into 

account all liabilities for benefits 

attributable to prior unpredictable 

contingent event benefits that were 

permitted to be paid, prior plan 

amendments that were permitted to take 

effect, and restored benefit accruals (and 

any associated section 436 

contributions). 

In the case of a contribution to avoid 

or terminate the application of the 

limitation on accruals under section 

436(e), the amount of the contribution 

under section 436(e)(2) is equal to the 

amount sufficient to result in an AFTAP 

for the plan year of 60 percent if the 

contribution were included as part of 

the assets of the plan. For this purpose, 

the determination of the amount that 

would be sufficient to result in an 

AFTAP of 60 percent must take into 

account all liabilities for benefits 

attributable to prior unpredictable 

contingent event benefits that were 

permitted to be paid, prior plan 

amendments that were permitted to take 

effect, and restored benefit accruals (and 

any associated section 436 

contributions). 

A plan sponsor is treated as making 

a section 436 contribution to bring the 

funding level to the applicable 

threshold only after the plan’s enrolled 

actuary certifies an AFTAP for the plan 

year that takes into account the 

increased liability for the unpredictable 

contingent event benefits, the plan 

amendments, or accruals, and any 

associated section 436 contributions. 

Another technique for a plan sponsor 

to avoid the application of the benefit 

limitations of section 436 is for the plan 

sponsor to provide security. In such a 

case, the AFTAP for the plan year is 

determined by treating as an asset of the 

plan any security provided by a plan 

sponsor by the valuation date for the 

plan year in a form meeting certain 

specified requirements. However, this 

security is not taken into account as a 

plan asset for any other purpose, 

including section 430. The only security 

permitted to be provided by a plan 

sponsor for this purpose is (i) a bond 

issued by a corporate surety company 

that is an acceptable surety for purposes 

of section 412 of ERISA or (ii) cash, or 

United States obligations that mature in 

three years or less, held in escrow by a 

bank or insurance company. The 

regulations reflect section 436(f)(1)(C) 

and (D) in specifying when the security 

is to be contributed to the plan and 

when it may be released. If the security 

is turned over to the plan, then that 

amount is treated as an employer 

contribution when it is turned over to 

the plan. The final regulations provide 

that any such security turned over to the 

plan pursuant to the enforcement 

mechanism cannot be treated as a 

contribution to avoid or terminate the 

application of a section 436 benefit 

limitation under section 436(b)(2), 

436(c)(2), or 436(e)(2). In response to 

commenter concerns, the final 

regulations permit security to be 

replaced, provided that the new security 

is in at least the same amount and 

satisfies certain other requirements. 


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G. Presumed Underfunding for Purposes 

of Benefit Limitations 

1. General rules relating to operation 

of presumptions. 

Section 436(h) sets forth rules under 

which the limitations of section 436 are 

applied during the portion of a plan 

year before the enrolled actuary has 

certified the plan’s AFTAP for the plan 

year. The regulations set forth rules for 

the application of the section 436 

benefit limitations during the period the 

presumptions of section 436(h) apply to 

a plan, and describe the interaction of 

the application of those presumptions 

on plan operations with plan operations 

after the plan’s enrolled actuary has 

issued a certification of the plan’s 

AFTAP for the plan year. The rules in 

the final regulations have been revised 

from those in the proposed regulations 

to reflect comments. 

Under the final regulations, a plan 

must provide that, for any period during 

which a presumption under section 

436(h) applies to the plan, the 

limitations applicable under section 436 

are applied to the plan as if the AFTAP 

for the year were the presumed AFTAP 

determined under the applicable rule 

under section 436(h), in accordance 

with the rules of operation set forth in 

the regulations. For example, a plan’s 

prefunding balance and funding 

standard carryover balance must be 

reduced under section 436(f)(3) if the 

reduction would be sufficient to avoid 

the applicable limitation based on the 

presumed AFTAP. The final regulations 

provide rules for determining the 

amount of the reduction in balances that 

are similar to those under the proposed 

regulations. 

The final regulations use the 

presumed AFTAP and the interim value 

of adjusted plan assets as of a date to 

calculate a presumed adjusted funding 

target as of that date. The presumed 

adjusted funding target is then 

compared to the interim value of 

adjusted plan assets in order to 

determine the amount of any deemed 

reduction in the funding standard 

carryover balance and prefunding 

balance under section 436(f)(3) that is 

made as of the first day of the plan year 

(and, in certain circumstances, that may 

be made later in the plan year). 

The interim value of adjusted plan 

assets is equal to the value of adjusted 

plan assets as of the first day of the plan 

year, determined without regard to 

future contributions and future elections 

with respect to the plan’s prefunding 

and funding standard carryover 

balances under section 430(f) (for 

example, elections to add to the 

prefunding balance for the prior plan 

year, elections to use the prefunding 

and funding standard carryover 

balances to offset the minimum required 

contribution for a year, and elections 

(including deemed elections under 

section 436(f)(3)) to reduce the 

prefunding and funding standard 

carryover balances for the current plan 

year). The presumed adjusted funding 

target is equal to the interim value of 

adjusted plan assets for the plan year 

divided by the presumed AFTAP. 

The final regulations provide that, if 

the presumed AFTAP for the plan year 

changes during the year, the rules 

regarding the deemed election to reduce 

funding balances must be reapplied 

based on the new presumed AFTAP. 

This will typically occur on the first day 

of the 4th month of a plan year, but 

could also happen at a different date if 

the enrolled actuary certifies the AFTAP 

for the prior plan year during the 

current plan year. In order to determine 

the amount of any reduction in 

prefunding balance and funding 

standard carryover balance that would 

apply in such a situation, a new 

presumed adjusted funding target must 

be established, which is then compared 

to the updated interim value of adjusted 

plan assets. For this purpose, the 

updated interim value of adjusted plan 

assets for the plan year is determined as 

the interim value of adjusted plan assets 

as of the first day of the plan year 

updated to take into account 

contributions for the prior plan year and 

section 430(f) elections with respect to 

the plan’s prefunding and funding 

standard carryover balances made 

before the date of the change in the 

presumed AFTAP, and the new 

presumed adjusted funding target is 

equal to the updated interim value of 

adjusted plan assets divided by the new 

presumed AFTAP. The reapplication of 

the rules regarding the deemed election 

under section 436(f)(3) may require an 

additional reduction in funding 

balances if the amount of the reduction 

in funding balances that is necessary to 

reach the applicable threshold to avoid 

the application of the limitation under 

section 436(d) or (e) is greater than the 

amount that was initially reduced. Prior 

reductions of funding balances continue 

to apply. 

Pursuant to section 436(d)(2), during 

any period in which the plan sponsor of 

a plan is a debtor in a case under title 

11, United States Code, or any similar 

Federal or State law, no prohibited 

payment may be paid if the plan’s 

enrolled actuary has not yet certified the 

plan’s AFTAP for the plan year to be at 

least 100 percent. The presumption 

rules of section 436(h) do not apply for 

purposes of section 436(d)(2). 

The regulations also provide special 

rules that apply when the presumed 

AFTAP is deemed to be under 60 

percent as a result of the application of 

section 436(h)(2). In such a case, the 

regulations provide that neither a 

reduction of the funding standard 

carryover balance or prefunding balance 

nor a section 436 contribution can be 

used to increase the presumed AFTAP 

to 60 percent. Accordingly, no 

prohibited payment can be made, no 

benefit accruals are permitted, and no 

plan amendment increasing benefits can 

take effect during the period the plan is 

deemed to have an AFTAP of less than 

60 percent. However, an unpredictable 

contingent event benefit is permitted to 

be paid if the plan sponsor makes the 

contribution described in section 

436(b)(2)(B) (that is, a contribution 

equal to the increase in the funding 

target attributable to the unpredictable 

contingent event benefits). 

2. Rules relating to unpredictable 

contingent event benefits and plan 

amendments. 

Under the regulations, for purposes of 

applying the limitations applicable to 

unpredictable contingent event benefits 

and plan amendments during the 

presumption period, the presumed 

adjusted funding target must be adjusted 

to take into account the increase in the 

funding target attributable to the 

unpredictable contingent event benefits 

or the plan amendment, as well as the 

increase in the funding target 

attributable to any unpredictable 

contingent event benefits that are 

permitted to be paid as a result of any 

unpredictable contingent event that 

occurred, or plan amendment that has 

taken effect, in the prior plan year to the 

extent not taken into account in the 

prior plan year adjusted funding target 

attainment percentage, and any other 

unpredictable contingent event benefits 

that are permitted to be paid as a result 

of any unpredictable contingent event 

that occurred, or plan amendment that 

has taken effect, in the current plan year 

to the extent not previously taken into 

account in the presumed adjusted 

funding target for the plan year. The 

final regulations use the term inclusive 

presumed adjusted funding target for 

this value. The inclusive presumed 

adjusted funding target is used to 

calculate an inclusive presumed AFTAP 

by comparing it to the interim value of 

adjusted plan assets, updated to take 

into account contributions for the prior 

plan year, prior section 436 

contributions for the current plan year, 

and section 430(f) elections with respect 

to the plan’s prefunding and funding 

standard carryover balances made 

before the date of the unpredictable 


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53030 Federal Register / Vol. 74, No. 198 / Thursday, October 15, 2009 / Rules and Regulations 

contingent event or the date the plan 

amendment would take effect. 

During the presumption period, the 

rules relating to the deemed election of 

a collectively bargained plan to reduce 

the funding standard carryover balance 

and the prefunding balance must be 

applied based on the inclusive 

presumed adjusted funding target and 

the updated interim value of adjusted 

plan assets. Thus, if, based on the 

comparison of the updated interim 

value of adjusted plan assets and the 

inclusive presumed adjusted funding 

target, a plan amendment with respect 

to a collectively bargained plan can only 

take effect if the funding standard 

carryover balance and prefunding 

balance are reduced, then those 

balances must be reduced. A plan 

sponsor of a plan that is not a 

collectively bargained plan (and, thus, is 

not required to reduce the funding 

standard carryover balance and the 

prefunding balance) is permitted to 

reduce those balances in order to 

increase the updated interim value of 

adjusted plan assets that is compared to 

the inclusive presumed adjusted 

funding target. 

Under the final regulations, if the 

ratio of the updated interim value of 

adjusted plan assets to the inclusive 

presumed adjusted funding target is less 

than the applicable threshold under 

section 436(b) or 436(c), then the plan 

is not permitted to provide any benefits 

attributable to the unpredictable 

contingent event, nor is the plan 

amendment permitted to take effect, 

unless the plan sponsor makes a 

contribution that would allow payment 

of unpredictable contingent event 

benefits or would permit a plan 

amendment increasing benefit liabilities 

to take effect under section 436(b)(2) or 

436(c)(2). However, if, after application 

of any reduction in the funding standard 

carryover balance or prefunding balance 

(whether mandatory or optional), the 

ratio of the interim value of adjusted 

plan assets to the inclusive presumed 

adjusted funding target is greater than or 

equal to the applicable threshold under 

section 436(b) or 436(c), then the plan 

is not permitted to limit the payment of 

unpredictable contingent event benefits, 

nor is the plan permitted to restrict a 

plan amendment increasing benefit 

liabilities from becoming effective based 

on an expectation that the limitations 

under section 436(b) or 436(c) will 

apply following the enrolled actuary’s 

certification of the AFTAP for the plan 

year. 

3. Updated determination of 

presumed AFTAP. 

If, in accordance with the rules of 

operation under the final regulations, 

unpredictable contingent event benefits 

are permitted to be paid, or a plan 

amendment takes effect, because the 

plan sponsor makes a contribution 

described in section 436(b)(2) or (c)(2), 

then the presumed adjusted funding 

target must be adjusted to reflect the 

increase in the funding target 

attributable to the unpredictable 

contingent event benefits or the plan 

amendment and the present value of the 

section 436 contribution is included in 

the updated interim value of adjusted 

plan assets. For example, if a plan 

amendment would have caused the ratio 

of the updated interim value of adjusted 

plan assets to the inclusive presumed 

AFTAP to be less than 80 percent, then, 

after the contribution described in 

section 436(c)(2)(B) is made, the 

presumed AFTAP would be 80 percent. 

The adjustment to the presumed 

adjusted funding target is made on the 

date the contribution is made, and that 

date is a section 436 measurement date. 

Similar rules apply to a contribution 

described in section 436(e)(2). Thus, if 

benefit accruals are permitted to resume 

in a plan year because the plan sponsor 

makes the contribution described in 

section 436(e)(2), then the presumed 

AFTAP will be increased to 60 percent. 

In this case, the adjustment to the 

presumed adjusted funding target is 

made on the date the contribution is 

made, and that date is a section 436 

measurement date. 

The regulations also provide that if a 

plan’s funding standard carryover 

balance or prefunding balance is 

reduced as a result of applying the 

presumption rules, then the presumed 

AFTAP for the plan year is increased to 

reflect the higher interim value of 

adjusted plan assets resulting from the 

reduction in the funding standard 

carryover balance or prefunding 

balance. For example, if a reduction in 

the prefunding balance is made in an 

amount necessary to increase the 

presumed AFTAP to 60 percent, then 

the presumed AFTAP is changed to 60 

percent. The date of the event that 

causes the reduction is a section 436 

measurement date. 

4. Periods for which no presumptions 

apply to the plan. 

Under the regulations, if no 

presumptions under section 436(h) 

apply to a plan during a period and the 

plan’s enrolled actuary has not yet 

issued the certification of the plan’s 

actual AFTAP for the plan year, the plan 

is not permitted to limit the payment of 

prohibited payments under section 

436(d) or the accrual of benefits under 

section 436(e) based on an expectation 

that those sections will apply to the 

plan once an actuarial certification is 

issued. However, the limitations on 

unpredictable contingent event benefits 

under section 436(b) and plan 

amendments increasing benefit 

liabilities under section 436(c) must be 

applied during that period by treating 

the preceding year’s certified AFTAP as 

if it were a presumed AFTAP and 

applying the rules for the presumption 

period as described in this preamble. 

Thus, an inclusive presumed adjusted 

funding target must be determined that 

takes into account prior events 

(including the unpredictable contingent 

event or plan amendment, any other 

unpredictable contingent event benefits 

that were permitted to be paid as a 

result of any unpredictable contingent 

event that occurred, and any other plan 

amendment that took effect, earlier 

during the plan year to the extent not 

taken into account in the certified 

AFTAP for the plan year, and any 

earlier section 436 contributions made 

for the plan year to the extent those 

contributions were not taken into 

account in the certified AFTAP). 

If after application of those rules the 

plan would be treated as having an 

AFTAP below the applicable threshold 

(taking into account the increase in the 

funding target attributable to the 

unpredictable contingent event benefits 

or the increase in liability attributable to 

the plan amendment), the unpredictable 

contingent event benefits are not 

permitted to be paid, and the plan 

amendment is not permitted to take 

effect, unless the plan sponsor makes a 

contribution that would allow payment 

of the unpredictable contingent event 

benefits or would permit the plan 

amendment to go into effect. In the case 

where the plan sponsor makes section 

436 contributions to avoid the 

application of the applicable benefit 

limitations, to the extent those 

contributions would not be needed to 

permit the payment of the unpredictable 

contingent event benefits or for a plan 

amendment increasing benefits to go 

into effect based on a subsequent 

certification of the AFTAP for the 

current plan year that takes into account 

the increase in the funding target 

attributable to those unpredictable 

contingent event benefits or the increase 

in liability attributable to that plan 

amendment, the excess section 436 

contributions are recharacterized as 

employer contributions and taken into 

account under section 430 for the 

current plan year. 

5. Periods following certification of 

AFTAP. 

Under the final regulations, the rules 

of operation that apply during a period 

for which a section 436(h) presumption 

is in effect no longer apply for a plan 


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Federal Register / Vol. 74, No. 198 / Thursday, October 15, 2009 / Rules and Regulations 53031 

year on and after the date the enrolled 

actuary for the plan issues a certification 

of the AFTAP of the plan for the current 

plan year, provided that the certification 

is issued before the first day of the 10th 

month of the plan year. For example, 

the plan must provide that section 

436(d) applies for distributions with 

annuity starting dates on and after the 

date of that certification using the 

certified AFTAP of the plan for the plan 

year. Similarly, the plan must provide 

that any prohibition on accruals under 

section 436(e) as a result of the enrolled 

actuary’s certification that the AFTAP of 

the plan for the plan year is less than 

60 percent is effective as of the date of 

the certification and that any 

prohibition on accruals ceases to be 

effective on the date the enrolled 

actuary issues a certification that the 

AFTAP of the plan for the plan year is 

at least 60 percent. In addition, in the 

case of a plan that has been issued a 

certification of the plan’s AFTAP for a 

plan year by the plan’s enrolled actuary, 

the plan sponsor must comply with the 

requirements of sections 436(b) and (c) 

for an unpredictable contingent event 

that occurs or a plan amendment that 

would take effect on or after the date of 

the enrolled actuary’s certification. 

Thus, the plan administrator must 

determine if the AFTAP is at or above 

the applicable threshold, taking into 

account the increase in the funding 

target that would be attributable to the 

unpredictable contingent event or plan 

amendment, any other unpredictable 

contingent event benefits that were 

permitted to be paid as a result of any 

unpredictable contingent event that 

occurred (and any other plan 

amendment that went into effect) earlier 

during the plan year to the extent not 

taken into account in the certified 

AFTAP for the plan year, and any 

earlier section 436 contributions made 

for the plan year to the extent those 

contributions were not taken into 

account in the certified AFTAP. 

After the AFTAP for a plan year is 

certified by the plan’s enrolled actuary, 

the deemed election to reduce funding 

balances must be reapplied based on the 

actual funding target for the year 

(provided the certification is issued 

before the first day of the 10th month of 

the plan year). This reapplication of the 

deemed election rules may require an 

additional reduction in funding 

balances if the amount of the reduction 

in funding balances that is necessary to 

reach the applicable threshold to avoid 

the application of the limitations under 

section 436(d) or (e) is greater than the 

amount that was reduced. If the amount 

of the reduction in funding balances 

that is necessary to reach the applicable 

threshold to avoid the application of the 

benefit limitation is less than the 

amount that was reduced, then the prior 

reduction continues to apply. Similarly, 

if the amount of the reduction in 

funding balances that is necessary to 

reach the applicable threshold to avoid 

the application of the corresponding 

benefit limitation exceeds the remaining 

amount of the funding balances, then 

the prior reduction continues to apply 

and no further reduction is made. 

The enrolled actuary’s certification of 

the AFTAP for the plan for the plan year 

does not affect unpredictable contingent 

event benefits that were permitted to be 

paid for events that occurred during the 

prior periods for which a presumption 

under section 436(h) applied. In 

addition, the enrolled actuary’s 

certification of the AFTAP for the plan 

for the plan year does not affect a plan 

amendment that increases the liability 

for benefits where the amendment was 

permitted to first take effect during the 

prior periods for which a presumption 

under section 436(h) applies. Similarly, 

the enrolled actuary’s certification of the 

AFTAP for the plan for the plan year 

does not affect prohibited payment 

distributions with annuity starting dates 

before the certification and does not 

require a cessation of accruals prior to 

the date of that certification. 

However, under the final regulations, 

if a plan does not pay benefits 

attributable to an unpredictable 

contingent event or plan amendment 

because of the application of a 

presumption under section 436(h) for a 

plan year, the plan must provide for 

benefits that were not previously paid 

(or accrued) if such benefits would be 

permitted under the rules of section 436 

based on the certified actual AFTAP for 

that plan year, taking into account the 

increase in the funding target that 

would be attributable to the 

unpredictable contingent event benefits 

or increase in liability due to the plan 

amendment. 

The final regulations clarify that, for 

any plan year in which a plan is 

providing benefits with respect to 

multiple unpredictable contingent 

events occurring within the plan year or 

plan amendments taking effect within 

the plan year, the section 436(b) 

restriction on unpredictable contingent 

event benefits and the section 436(c) 

restriction on plan amendments are 

applied with respect to each 

unpredictable contingent event or 

amendment by treating the increase in 

the funding target attributable to that 

event or amendment as if it included the 

increase in the funding target 

attributable to any earlier event or 

amendment (and including any earlier 

section 436 contributions for the plan 

year as plan assets). As applied with 

respect to the limitation on plan 

amendments, this rule ensures that the 

limitation applies in a similar fashion 

regardless of whether a benefit increase 

is effectuated through a series of 

amendments or through a single 

amendment. In the absence of such a 

rule, the limitation on plan amendments 

could be avoided through a series of 

amendments each of which provides 

only a small portion of the aggregate 

increase. 

H. Determination of AFTAP and 

Presumed AFTAP 

1. Determination of presumed AFTAP 

based on prior plan year’s certified 

AFTAP. 

The final regulations provide rules for 

the determination of the presumed 

AFTAP under section 436(h)(1) that are 

similar to the rules under the proposed 

regulations. Thus, if a limitation under 

section 436 applied in the prior plan 

year based on a certified AFTAP during 

that plan year, the presumed AFTAP as 

of the first day of the current plan year 

is equal to the AFTAP for the prior plan 

year. 

The final regulations modify the rule 

in the proposed regulations that would 

have permitted a certified AFTAP that 

is made on or after the first day of the 

10th month of the prior plan year to be 

used as the basis for the presumed 

AFTAP in the current plan year (in lieu 

of using the deemed ‘‘under 60 percent’’ 

AFTAP that applied for the prior plan 

year in such a case). Under the final 

regulations, such a late prior plan year 

certification is permitted to be so used 

only if the certification took into 

account any unpredictable contingent 

event benefits that are permitted to be 

paid based on unpredictable contingent 

events that occurred and plan 

amendments that went into effect prior 

to that late certification (along with any 

associated section 436 contributions). 

In addition, the regulations provide 

rules for the application of the 

presumptions if the plan actuary did not 

certify the AFTAP in the prior plan 

year, but that prior plan year ended 

before the first day of the 10th month of 

the plan year (so that section 436(h)(2) 

did not apply in that prior plan year). 

In such a case, the presumed AFTAP 

that applied as of the end of the prior 

plan year is treated as a certified AFTAP 

for that plan year which is used for 

purposes of the presumptions in the 

current year. 

2. Change in presumed AFTAP on 

first day of the 4th month. 


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53032 Federal Register / Vol. 74, No. 198 / Thursday, October 15, 2009 / Rules and Regulations 

The final regulations provide rules for 

the application of section 436(h)(3) that 

are similar to the proposed regulations. 

Some comments suggested that section 

436(h)(3) applies on a limitation by 

limitation basis (with the result that a 

plan could have different presumed 

AFTAPs among the various limitations). 

However, the IRS and the Treasury 

Department believe that applying a 

single presumed AFTAP for all 

purposes reflects the statutory language 

of section 436(h)(3) and provides a 

consistent set of rules for applying the 

limitations during the period following 

the first day of the 4th month of the plan 

year. This interpretation is also essential 

for purposes of the rule under which 

benefits with respect to unpredictable 

contingent events that previously 

occurred during the plan year and plan 

amendments that previously took effect 

during the plan year are taken into 

account on a combined basis for 

purposes of applying the limitations 

with respect to subsequent events or 

amendments, such as a subsequent 

unpredictable contingent event. 

Under the final regulations, if the 

AFTAP for the prior plan year was at 

least 60 percent but less than 70 percent 

or was at least 80 percent but less than 

90 percent, and the actuary has not 

certified the AFTAP for the current plan 

year before the first day of the 4th 

month of the current plan year, then the 

presumed AFTAP for the current plan 

year is 10 percentage points lower than 

the AFTAP for the prior plan year. As 

under the proposed regulations, this 10 

percentage point reduction will also 

apply as of the date the actuary certifies 

the AFTAP for the prior plan year, even 

if that certification is on or after the first 

day of the 4th month of the current plan 

year. In either case, the date of the 10 

percentage point reduction is a section 

436 measurement date. 

The final regulations also provide that 

the 10 percentage point reduction 

applies in the first year that section 436 

applies to the plan if the AFTAP for the 

prior plan year was at least 70 percent 

but less than 80 percent. This rule 

reflects an interpretation of section 

436(h)(3)(A) (providing for a 10 

percentage point reduction in the 

AFTAP if a limitation under section 436 

would have applied in the prior plan 

year) under which the determination of 

whether a limitation under section 436 

would have applied in the prior plan 

year is made by assuming that section 

436 was effective in that prior plan year. 

3. Change in presumed AFTAP on 

first day of 10th month for plans with 

no current year certification. 

The final regulations reflect the rules 

of section 436(h)(2), under which a plan 

for which the actuary has not issued a 

certification before the first day of the 

10th month of the plan year is 

conclusively presumed to have an 

AFTAP of less than 60 percent 

beginning on that date. These rules are 

unchanged from the proposed 

regulations. 

4. Rules regarding certifications and 

range certifications. 

The proposed regulations would have 

provided that the enrolled actuary’s 

certification of the AFTAP for a plan 

year must be made in writing, must be 

provided to the plan administrator, and 

must certify the plan’s AFTAP for the 

plan year. The final regulations specify 

that the certification must also set forth 

the value of plan assets, the prefunding 

balance, the funding standard carryover 

balance, the value of the funding target 

used in the determination, the aggregate 

amount of annuity purchases included 

in the adjusted value of plan assets and 

the adjusted funding target, the 

unpredictable contingent event benefits 

permitted to be paid for unpredictable 

contingent events that occurred during 

the current plan year that were taken 

into account for the current plan year 

(including with any associated section 

436 contribution), the plan amendments 

that went into effect in the current plan 

year that were taken into account for the 

current plan year (including with any 

associated section 436 contribution), 

and any other relevant factors. The 

actuarial assumptions and funding 

methods used in the calculation for the 

certification must be the actuarial 

assumptions and funding methods used 

for the plan for purposes of determining 

the minimum required contributions 

under section 430 for the plan year. 

Thus, if the actuary who determines the 

minimum required contributions for the 

plan year is not the same actuary who 

certified the AFTAP for the plan year, 

then the second actuary must either 

apply the actuarial assumptions and 

methods used by the first actuary or 

must issue a revised certification for the 

plan year. See section VII.H.5 of this 

preamble for a description of the 

consequences of a revised certification. 

Some commenters requested that an 

enrolled actuary be permitted to certify 

the AFTAP for a plan year based on a 

‘‘roll forward’’ of prior year actuarial 

results with appropriate adjustments for 

subsequent changes. The final 

regulations do not provide for such an 

alternative to estimate the AFTAP 

because the AFTAP must be based on 

the funding target for the current plan 

year and section 436 does not provide 

any rules to address discrepancies 

between an estimated AFTAP and an 

actual AFTAP for a plan year. 

As an alternative to certifying a 

specific number for the plan’s AFTAP, 

the proposed regulations would have 

provided that the enrolled actuary is 

permitted to certify during the first 9 

months of a plan year that the plan’s 

AFTAP for that year is within a 

percentage ‘‘range’’ that is either (i) 60 

percent or higher, but less than 80 

percent, (ii) 80 percent or higher, or (iii) 

100 percent or higher. The final 

regulations adopt this alternative and 

provide that such a ‘‘range’’ certification 

ends the application of the 

presumptions, but only if the enrolled 

actuary follows up with a certification 

of the specific AFTAP and that the 

certified specific AFTAP is within the 

range of the earlier certification. In 

addition, the final regulations permit a 

range certification of under 60 percent. 

The proposed regulations would have 

provided that the specific AFTAP must 

be certified before the first day of the 

10th month of that year. In response to 

concerns raised by commenters, the 

final regulations provide that, if the 

plan’s enrolled actuary has issued a 

timely range certification for a plan 

year, then the specific AFTAP is 

permitted to be certified at any time 

prior to the end of the plan year. 

However, if the plan’s enrolled actuary 

has issued a range certification for the 

plan year but does not issue a 

certification of the specific AFTAP for 

the plan by the last day of that plan 

year, the AFTAP for the plan is 

retroactively deemed to be less than 60 

percent as of the first day of the 10th 

month of the plan year. 

If this range certification alternative is 

followed, then the plan is treated as 

having a certified AFTAP at the smallest 

value within the applicable range. For 

example, if the enrolled actuary 

certified that the AFTAP was more than 

60 percent but less than 80 percent, then 

the plan is treated as having an AFTAP 

of 60 percent for purposes of applying 

the limitations of section 436(b) until 

the date of the specific AFTAP 

certification. In such a case, if there is 

an unpredictable contingent event or a 

plan amendment is adopted that 

increases liability for benefits, 

unpredictable contingent event benefits 

cannot be paid and the plan amendment 

cannot take effect unless the plan 

sponsor makes a contribution described 

in section 436(b)(2) or 436(c)(2). If the 

plan sponsor makes a contribution 

under section 436(b)(2) or section 

436(c)(2), the final regulations provide 

that the contribution is recharacterized 

as a regular employer contribution that 

is taken into account under section 430 

for the current plan year to the extent it 

is determined that the contribution was 


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Federal Register / Vol. 74, No. 198 / Thursday, October 15, 2009 / Rules and Regulations 53033 

not needed to avoid the application of 

the benefit limit, based on the 

subsequent calculation of the specific 

AFTAP. 

The final regulations specify that the 

enrolled actuary is not permitted to 

certify the AFTAP based on a value of 

assets that includes contributions 

receivable for the prior plan year that 

have not actually been made as of the 

date of the certification. However, this 

rule does not apply to certifications that 

are made for plan years beginning before 

January 1, 2009. Thus, for a certification 

with respect to 2008, the enrolled 

actuary is permitted to take in account 

contributions for 2007 that are 

reasonably expected but have not yet 

been made by the plan sponsor at the 

time of the certification. However, if the 

plan sponsor does not make those 

contributions, the enrolled actuary’s 

certification will be incorrect. 

5. Change in certified AFTAP. 

If the enrolled actuary for the plan 

provides a certification of the AFTAP 

for the plan year (including a range 

certification) and that certified 

percentage is superseded by a 

subsequent determination of the AFTAP 

for that plan year, that later percentage 

generally must be applied for the period 

beginning with the date of the first 

certification. The subsequent 

determination could be the correction of 

a prior incorrect certification (including 

a certification for a plan year beginning 

in 2008 which assumed an employer 

contribution that was not made) or it 

could be an update of a prior correct 

certification to take into account 

subsequent events, such as plan 

amendments, additional contributions, 

or elections under section 430(f). The 

implications of such a change depend 

on whether the change is a material 

change or an immaterial change. 

For this purpose, the regulations 

define a change of AFTAP as a material 

change if plan operations with respect 

to benefits that are addressed by section 

436, taking into account any actual 

contributions and elections under 

section 430(f) made by the plan sponsor 

based on the prior certified percentage, 

would have been different based on the 

subsequent determination of the plan’s 

AFTAP for the plan year. A change in 

a plan’s AFTAP for a plan year can be 

a material change even if the only 

impact of the change occurs in the 

following plan year under the rules for 

determining the presumed AFTAP in 

that following year. 

The regulations specify that a change 

in an AFTAP that is not a material 

change as described in the preceding 

paragraph is an immaterial change. In 

addition, the regulations provide that if 

the difference between the AFTAP for a 

plan year and the later revised 

determination of that percentage is the 

result of certain specified actions, then 

the change in the AFTAP is deemed to 

be an immaterial change. The proposed 

regulations would have provided that 

the specified actions are additional 

contributions for the preceding year or 

a plan sponsor’s election to reduce the 

prefunding or funding standard 

carryover balance after the date of the 

certification. The final regulations add 

to this list, including adding a plan 

sponsor’s election to apply the 

prefunding balance or funding standard 

carryover balance to offset the prior plan 

year’s minimum required contribution, 

a change in funding method or actuarial 

assumptions (where such change 

required actual approval of the 

Commissioner, rather than deemed 

approval), and an unpredictable 

contingent event or plan amendment for 

which a section 436 contribution was 

made. 

The final regulations provide rules 

requiring a recertification of the AFTAP 

in certain situations. For example, if the 

plan would have a material change in 

the AFTAP as a result of one of the 

changes described in the prior 

paragraph, the change is deemed 

immaterial only if the actuary recertifies 

the AFTAP for the plan year as soon as 

practicable thereafter, taking into 

account the relevant event. Similarly, if 

the plan sponsor is making a section 436 

contribution in the amount needed to 

bring the AFTAP up to a relevant 

threshold (60 or 80 percent), then the 

actuary must recertify the AFTAP as 60 

or 80 percent. The regulations also 

provide that the plan administrator is 

permitted to request an updated 

certification of AFTAP in other 

situations, such as where the employer 

makes a section 436 contribution in the 

amount of the increase in the funding 

target attributable to the unpredictable 

contingent event benefits or the plan 

amendment. 

The regulations provide that a 

material change will result in the plan 

not satisfying the qualification rules. If 

the plan was operated in accordance 

with the prior certification of the 

AFTAP for the plan year, the plan will 

not have satisfied the requirements of 

section 401(a)(29) and section 436. In 

the case of a material change where the 

plan was operated in accordance with 

the subsequent certification of the 

AFTAP during the period of time the 

prior certification applied, then the plan 

will not have been operated in 

accordance with its terms. Furthermore, 

the regulations provide that the rules 

requiring application of a presumed 

AFTAP under section 436(h) continue 

to apply from and after the date of the 

prior certification until the date of the 

subsequent certification. 

The final regulations provide that, in 

the case of an immaterial change, the 

revised percentage applies 

prospectively. For this purpose, in the 

case of a change that would be a 

material change but for the rule deeming 

it to be an immaterial change, the 

revised percentage must be applied 

beginning with the date of the event that 

gave rise to the need for the updated 

certification. As under the proposed 

regulations, an immaterial change does 

not change the inapplicability of the 

presumptions under section 436(h) for 

the plan year prior to the date of the 

subsequent certification. 

I. Determination of Adjusted Funding 

Target Attainment Percentage 

For purposes of section 436, the 

funding target means the funding target 

under section 430(d) or section 430(i), 

as applicable to the plan for a plan year, 

and the FTAP is determined under the 

same rules that apply under section 

430(d). 

The AFTAP for any plan year is the 

fraction (expressed as a percentage), the 

numerator of which is the adjusted plan 

assets and the denominator of which is 

the adjusted funding target. The 

adjusted plan assets equals the value of 

plan assets, decreased by the plan’s 

funding standard carryover balance and 

prefunding balance and increased by the 

aggregate amount of purchases of 

annuities for participants and 

beneficiaries (other than participants 

who, at the time of the purchase, were 

highly compensated employees (as 

defined in section 414(q), which 

definition includes highly compensated 

former employees described in 

§ 1.414(q)–1T, Q&A–4)) which were 

made by the plan during the preceding 

2 plan years, to the extent not included 

in plan assets under section 430. The 

final regulations provide that the 

adjusted funding target equals the 

funding target for the plan year 

(determined without regard to the atrisk rules under section 430(i)), 

increased by the same annuity 

purchases that were added to the assets 

in determining adjusted plan assets. 

If the FTAP for a plan year, 

determined without regard to the 

subtraction of the funding standard 

carryover balance and the prefunding 

balance from the value of plan assets in 

accordance with section 436(f), would 

be 100 percent or more, then, for 

purposes of section 436, the value of net 

plan assets used in the determination of 

the FTAP (and hence the AFTAP) is 


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53034 Federal Register / Vol. 74, No. 198 / Thursday, October 15, 2009 / Rules and Regulations 

9Section 436(m) provides for special rules to 

apply in determining a plan’s AFTAP for the 

preceding plan year only for plan years beginning 

during 2008. Accordingly, the regulations limit the 

use of the special rule under which the plan’s FTAP 

is determined based on the plan’s current liability 

to the determination of the plan’s FTAP for the 

2007 plan year, even for a plan described in 

sections 104 through 106 of PPA ’06 for which 

section 430 does not apply for purposes of 

determining a plan’s minimum required 

contribution until a plan year after the 2008 plan 

year. 

determined without regard to any 

subtraction of funding balances under 

section 430(f)(4). The final regulations 

reflect the transition rule of section 

436(j)(3)(B) under which a lower 

percentage is substituted for 100 percent 

for purposes of the rule described in the 

preceding sentence. However, this 

transition is only available if the plan’s 

FTAP for each prior year is above the 

transition percentage. This latter 

requirement was unchanged by WRERA. 

The final regulations also provide 

rules for determining the AFTAP for the 

prior plan year in the case of the first 

plan year beginning in 2008. These rules 

are the same as under the proposed 

regulations, except that the proposed 

regulations would have allowed the 

special rules to apply to the first 

effective plan year (which could be later 

than 2008 in the case of a plan 

described in sections 104 through 106 of 

PPA ’06). 

Under the rules for determining the 

AFTAP for the plan year preceding the 

first plan year beginning in 2008, the 

FTAP for the preceding plan year is 

determined by substituting the current 

liability for the funding target. The 

transition rules for determining the 

value of plan assets are the same under 

section 436 as apply under section 

430(d). Thus, the value of plan assets is 

determined under section 412(c)(2) as in 

effect for the 2007 plan year (except that 

the value of plan assets prior to 

subtraction of the plan’s funding 

standard account credit balance 

described below can neither be less than 

90 percent of the fair market value of 

plan assets nor greater than 110 percent 

of the fair market value of plan assets on 

the valuation date for that plan year). If 

a plan has a funding standard account 

credit balance as of the valuation date 

for the 2007 plan year, that balance 

must be subtracted from the asset value 

described in this preamble as of that 

date (unless the value of plan assets is 

greater than or equal to 90 percent of the 

plan’s current liability determined 

under section 412(l)(7) (as in effect prior 

to PPA ’06) on the valuation date for the 

2007 plan year). However, if the 

employer makes an election to reduce 

some or all of the funding standard 

carryover balance as of the first day of 

the first plan year beginning in 2008 in 

accordance with section 430(f)(5), then 

the present value (determined as of the 

valuation date for the prior plan year 

using the valuation interest rate for that 

prior year) of the amount so reduced is 

not treated as part of the funding 

standard account credit balance when 

that balance is subtracted from the value 

of net plan assets. 

In any case in which the plan’s 

enrolled actuary has not issued a 

certification of the AFTAP of the plan 

for the 2007 plan year using this rule, 

the AFTAP of the plan for the first plan 

year beginning in 2008 is presumed to 

be less than 60 percent until the AFTAP 

of the plan for the 2007 plan year has 

been certified or the AFTAP of the plan 

for the first plan year beginning in 2008 

has been certified. This rule applies for 

purposes of sections 436(b) and 436(c) 

at the beginning of the first plan year 

beginning in 2008 and applies for 

purposes of sections 436(d) and 436(e) 

as of the first day of the 4th month of 

the first plan year beginning in 2008. 

The special rules permitting range 

certifications for plan years beginning 

after 2007 do not apply to the 2007 plan 

year. 

The final regulations differ from the 

proposed regulations in the transition 

rules that apply for the determination of 

a plan’s AFTAP for the pre-effective 

plan year in the case of a plan described 

in sections 104 through 106 of PPA ’06. 

In such a case, the AFTAP is 

determined for that plan year in the 

same manner as for a plan to which 

section 430 applies to determine the 

plan’s minimum required contribution, 

except that the value of plan assets that 

forms the FTAP numerator is 

determined without subtraction of the 

funding standard carryover balance or 

the credit balance under the funding 

standard account.9

The regulations do not include any 

special rules authorized under section 

436(k) (relating to the determination of 

the AFTAP for a plan that uses a 

valuation date other than the first day of 

the plan year). Those rules, based on the 

rules described in Notice 2008–21, will 

be included in future proposed 

regulations. See § 601.601(d)(2) relating 

to objectives and standards for 

publishing regulations, revenue rulings 

and revenue procedures in the Internal 

Revenue Bulletin. 

J. Timeliness of Certification of a Plan’s 

AFTAP 

A number of comments were received 

raising issues concerning potential 

delays in the completion and delivery of 

a certification of the plan’s AFTAP by 

the plan’s enrolled actuary. In 

particular, commenters asked whether 

there was any legal obligation to provide 

a certification, whether an actuary could 

intentionally delay providing the 

certification, and whether the plan 

administrator could direct the 

certification to be delayed (or delay 

requesting a certification where the 

plan’s actuary would not provide a 

certification until so requested by the 

plan administrator). These final 

regulations do not include any special 

rules relating to these comments, but 

these comments may be considered in 

connection with future proposed 

regulations. In addition, the Treasury 

Department and the IRS will be 

coordinating with the Department of 

Labor to consider the circumstances in 

which the power to delay issuance of a 

certification may result in fiduciary 

responsibilities in the administration of 

the plan, rather than being merely 

ministerial. 

Section 1.411(d)–4, Q&A–4(a) 

provides generally that a plan that 

permits the employer, either directly or 

indirectly, through the exercise of 

discretion, to deny a participant a 

section 411(d)(6) protected benefit 

provided under the plan for which the 

participant is otherwise eligible violates 

the requirements of section 411(d)(6). In 

addition, pursuant to that regulation, a 

plan that permits employer discretion to 

deny the availability of a section 

411(d)(6) protected benefit violates the 

definitely determinable requirement of 

section 401(a). Section 1.411(d)–4, 

Q&A–4(b) provides an exception to this 

general rule for limited discretion with 

respect to the ministerial or mechanical 

administration of the plan. Section 

1.411(d)–4, Q&A–6(b) provides that a 

plan may not limit the availability of 

section 411(d)(6) protected benefits 

permitted under the plan based on 

objective conditions that are within the 

employer’s discretion. As an example of 

such a provision, the regulation states 

that the availability of section 411(d)(6) 

protected benefits in a plan may not be 

conditioned on a determination with 

respect to the level of the plan’s funded 

status because the amount of the plan’s 

funding is within the employer’s 

discretion. 

Future proposed regulations are 

expected to address the interaction of 

the rules of section 436 and the rules of 

§ 1.411(d)–4 that relate to employer 

discretion. These future proposed 

regulations are expected to conform the 

rules of § 1.411(d)–4, Q&A–6(b), 

regarding employer discretion in plan 

funding to the requirements of section 

436. These future proposed regulations 


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Federal Register / Vol. 74, No. 198 / Thursday, October 15, 2009 / Rules and Regulations 53035 

10As provided in section 113(b)(2) of PPA ’06, 

any plan amendment made pursuant to a collective 

bargaining agreement relating to the plan which 

amends the plan solely to conform to any 

requirement added by section 436 is not treated as 

a termination of the collective bargaining 

agreement. 

11Except to the extent permitted under section 

411(d)(6) and § 1.411(d)–3 or 1.411(d)–4, or under 

a statutory provision such as section 1107 of PPA 

’06, section 411(d)(6) prohibits a plan amendment 

that decreases a participant’s accrued benefits or 

that has the effect of eliminating or reducing an 

early retirement benefit or retirement-type subsidy, 

or eliminating an optional form of benefit, with 

respect to benefits attributable to service before the 

amendment. However, an amendment that 

eliminates or decreases benefits that have not yet 

accrued does not violate section 411(d)(6), provided 

that the amendment is adopted and effective before 

the benefits accrue. 

are also expected to address the extent 

to which § 1.411(d)–4, Q&A–4(b) (under 

which a plan may permit limited 

discretion with respect to ministerial 

acts) applies with respect to the 

certification of the plan’s AFTAP. 

Effective/Applicability Date 

The final regulations under section 

430 apply to plan years beginning on or 

after January 1, 2010, regardless of 

whether section 430 applies to 

determine the minimum required 

contribution for the plan year. For plan 

years beginning before January 1, 2010, 

plans are permitted to rely on these final 

regulations for purposes of satisfying the 

requirements of section 430. This 

reliance applies section by section 

under the final regulations. 

Alternatively, for plan years beginning 

before January 1, 2010, plans are 

permitted to rely on the proposed 

regulations under section 430(d), (f), (g), 

(h)(2), and (i) (REG–139236–07, 72 FR 

74215; REG–113891–07, 72 FR 50544) 

for purposes of applying the rules of 

section 430. 

Section 436 generally applies to plan 

years beginning on or after January 1, 

2008. The applicability of section 436 

for purposes of determining the 

minimum required contribution is 

delayed for certain plans in accordance 

with sections 104 through 106 of PPA 

’06. In the case of a collectively 

bargained plan that is maintained 

pursuant to one or more collective 

bargaining agreements between 

employee representatives and one or 

more employers ratified before January 

1, 2008, section 436 does not apply to 

plan years beginning before the earlier 

of January 1, 2010, or the later of the 

date on which the last such collective 

bargaining agreement relating to the 

plan terminates 10 (determined without 

regard to any extension thereof agreed to 

after August 17, 2006), or the first day 

of the first plan year to which section 

436 would otherwise apply. In the case 

of a plan with respect to which a 

collective bargaining agreement applies 

to some, but not all, of the plan 

participants, the plan is considered a 

collectively bargained plan if it is 

considered a collectively bargained plan 

under the rules that apply for purposes 

of section 436(f)(3)(C) described in 

section VII.A.7 of this preamble. 

The final regulations under section 

436 apply to plan years beginning on or 

after January 1, 2010. For plan years 

beginning before January 1, 2010, plans 

are permitted to rely on the provisions 

set forth in these final regulations for 

purposes of satisfying the requirements 

of section 436. Alternatively, for plan 

years beginning before January 1, 2010, 

plans are permitted to rely on the 

proposed regulations under section 436 

(REG–113891–07, 72 FR 50544) for 

purposes of satisfying the requirements 

of section 436. 

Section 1107 of PPA ’06 and Code 

Section 411(d)(6) 

Under section 1107 of PPA ’06, a plan 

sponsor is permitted to delay adopting 

a plan amendment pursuant to the 

enactment of section 436 (or pursuant to 

these regulations) until the last day of 

the first plan year beginning on or after 

January 1, 2009. If section 1107 of PPA 

’06 applies to an amendment of a plan, 

section 1107 provides that the plan does 

not fail to meet the requirements of 

section 411(d)(6) by reason of such 

amendment, except as otherwise 

provided by the Secretary of the 

Treasury.11 For example, section 

411(d)(6) relief would be available for 

plan amendments that would prohibit 

single sum or other optional forms of 

benefit that include prohibited 

payments if the plan’s AFTAP was less 

than 60 percent, in accordance with 

section 436(d) and § 1.436–1(d) of these 

regulations. The IRS and the Treasury 

Department are reviewing whether 

sample plan amendments should be 

issued with respect to section 436 and 

the § 1.436–1 regulations. 

Special Analyses 

It has been determined that this 

Treasury Decision is not a significant 

regulatory action as defined in 

Executive Order 12866. Therefore, a 

regulatory assessment is not required. It 

has also been determined that section 

553(b) of the Administrative Procedure 

Act (5 U.S.C. chapter 5) does not apply 

to these regulations. It is hereby 

certified that the collection of 

information imposed by these 

regulations will not have a significant 

economic impact on a substantial 

number of small entities. The estimated 

burden imposed by the collection of 

information contained in these 

regulations is 1.5 hours per respondent. 

Moreover, most of this burden is 

attributable to the requirement for a 

qualified defined benefit plan’s enrolled 

actuary to provide a timely certification 

of the plan’s AFTAP for each plan year 

to avoid certain benefit restrictions, 

which is imposed by section 436(h) of 

the Code. In addition, these regulations 

provide for several written elections to 

be made by the plan sponsor upon 

occasion; these written elections will 

require minimal time to prepare. 

Accordingly, a regulatory flexibility 

analysis is not required. Pursuant to 

section 7805(f) of the Code, the notice 

of proposed rulemaking preceding these 

regulations was submitted to the Chief 

Counsel for Advocacy of the Small 

Business Administration for comment 

on its impact on small business. 

Drafting Information 

The principal authors of these 

regulations are Michael P. Brewer, 

Lauson C. Green, and Linda S.F. 

Marshall, Office of Division Counsel/ 

Associate Chief Counsel (Tax Exempt 

and Government Entities). However, 

other personnel from the IRS and the 

Treasury Department participated in the 

development of these regulations. 

List of Subjects 

26 CFR Part 1 

Income taxes, Reporting and 

recordkeeping requirements. 

26 CFR Part 602 

Reporting and recordkeeping 

requirements. 

Adoption of Amendments to the 

Regulations 

■ Accordingly, 26 CFR parts 1 and 602 

are amended as follows: 

PART 1—INCOME TAXES 

■ Paragraph 1. The authority citation 

for part 1 continues to read in part as 

follows: 

Authority: 26 U.S.C. 7805 * * * 

■ Par. 2. Section 1.430(d)–1 is added to 

read as follows: 

§ 1.430(d)–1 Determination of target 

normal cost and funding target. 

(a) In general—(1) Overview. This 

section sets forth rules for determining 

a plan’s target normal cost and funding 

target under sections 430(b) and 430(d), 

including guidance relating to the rules 

regarding actuarial assumptions under 

sections 430(h)(1), 430(h)(4), and 

430(h)(5). Section 430 and this section 


srobinson on DSKHWCL6B1PROD with RULES2
53036 Federal Register / Vol. 74, No. 198 / Thursday, October 15, 2009 / Rules and Regulations 

apply to single employer defined benefit 

plans (including multiple employer 

plans as defined in section 413(c)) that 

are subject to section 412, but do not 

apply to multiemployer plans (as 

defined in section 414(f)). For further 

guidance on actuarial assumptions, see 

§ 1.430(h)(2)–1 (relating to interest rates) 

and §§ 1.430(h)(3)–1 and 1.430(h)(3)–2 

(relating to mortality tables). See also 

§ 1.430(i)–1 for the determination of the 

funding target and the target normal cost 

for a plan that is in at-risk status. 

(2) Organization of regulation. 

Paragraph (b) of this section sets forth 

certain definitions that apply for 

purposes of section 430. Paragraph (c) of 

this section provides rules regarding 

which benefits are taken into account in 

determining a plan’s target normal cost 

and funding target. Paragraph (d) of this 

section sets forth the rules regarding the 

plan provisions that are taken into 

account in making these determinations, 

and paragraph (e) of this section 

provides rules on the plan population 

that is taken into account for this 

purpose. Paragraph (f) of this section 

provides rules relating to the actuarial 

assumptions and the plan’s funding 

method that are used to determine 

present values. Paragraph (g) of this 

section contains effective/applicability 

dates and transition rules. 

(3) Special rules for multiple 

employer plans. In the case of a multiple 

employer plan to which section 

413(c)(4)(A) applies, the rules of section 

430 and this section are applied 

separately for each employer under the 

plan, as if each employer maintained a 

separate plan. Thus, the plan’s funding 

target and target normal cost are 

computed separately for each employer 

under such a multiple employer plan. In 

the case of a multiple employer plan to 

which section 413(c)(4)(A) does not 

apply (that is, a plan described in 

section 413(c)(4)(B) that has not made 

the election for section 413(c)(4)(A) to 

apply), the rules of section 430 and this 

section are applied as if all participants 

in the plan were employed by a single 

employer. 

(b) Definitions—(1) Target normal 

cost—(i) In general. For a plan that is 

not in at-risk status under section 430(i) 

for a plan year, subject to the 

adjustments described in paragraph 

(b)(1)(iii) of this section, the target 

normal cost of the plan for the plan year 

is the present value (determined as of 

the valuation date) of all benefits under 

the plan that accrue during, are earned 

during, or are otherwise allocated to 

service for the plan year under the 

applicable rules of this section, 

including paragraph (c)(1)(ii)(B), (C), or 

(D) of this section. See § 1.430(i)–1(d) 

and (e)(2) for the determination of the 

target normal cost for a plan that is in 

at-risk status. 

(ii) Benefits allocated to a plan year. 

The benefits that accrue, are earned, or 

are otherwise allocated to service for the 

plan year are based on the actual 

benefits accrued, earned, or otherwise 

allocated to service for the plan year 

through the valuation date and benefits 

expected to accrue, be earned, or be 

otherwise allocated to service for the 

plan year for the period from the 

valuation date through the end of the 

plan year. The benefits that are allocated 

to the plan year under the rules of 

paragraph (c) of this section include any 

increase in benefits during the plan year 

that is attributable to increases in 

compensation for the current plan year 

even if that increase in benefits is with 

respect to benefits attributable to service 

performed in a preceding plan year. In 

addition, the benefits that are allocated 

to the plan year under the rules of 

paragraph (c) of this section include any 

increase in benefits during the plan year 

that arises on account of mandatory 

employee contributions (within the 

meaning of § 1.411(c)–1(c)(4)) that are 

made during the plan year. 

(iii) Special adjustments—(A) In 

general. The target normal cost of the 

plan for the plan year (determined 

under paragraph (b)(1)(i) of this section) 

is adjusted (not below zero) by adding 

the amount of plan-related expenses 

expected to be paid from plan assets 

during the plan year and subtracting the 

amount of mandatory employee 

contributions (within the meaning of 

§ 1.411(c)–1(c)(4)) that are expected to 

be made during the plan year. 

(B) Plan-related expenses. [Reserved] 

(2) Funding target. For a plan that is 

not in at-risk status under section 430(i) 

for a plan year, the funding target of the 

plan for the plan year is the present 

value (determined as of the valuation 

date) of all benefits under the plan that 

have been accrued, earned, or otherwise 

allocated to years of service prior to the 

first day of the plan year under the 

applicable rules of this section, 

including paragraph (c)(1)(ii)(B), (C), or 

(D) of this section. See § 1.430(i)–1(c) 

and (e)(1) for the determination of the 

funding target for a plan that is in at-risk 

status. 

(3) Funding target attainment 

percentage—(i) In general. Except as 

otherwise provided in this paragraph 

(b)(3), the funding target attainment 

percentage of a plan for a plan year is 

a fraction (expressed as a percentage)— 

(A) The numerator of which is the 

value of plan assets for the plan year 

(determined under the rules of 

§ 1.430(g)–1) after subtraction of the 

prefunding balance and the funding 

standard carryover balance under 

section 430(f)(4)(B) and § 1.430(f)–1(c); 

and 

(B) The denominator of which is the 

funding target of the plan for the plan 

year (determined without regard to the 

at-risk rules of section 430(i) and 

§ 1.430(i)–1). 

(ii) Determination of funding target 

attainment percentage for plans with 

delayed effective dates. If section 430 

does not apply for purposes of 

determining the plan’s minimum 

required contribution for a plan year 

that begins on or after January 1, 2008 

(as is the case for a plan described in 

section 104, 105, or 106 of the Pension 

Protection Act of 2006 (PPA ’06), Public 

Law 109–280 (120 Stat. 780)), then the 

funding target attainment percentage is 

determined for that plan year in 

accordance with the rules of paragraph 

(b)(3)(i) of this section in the same 

manner as for a plan to which section 

430 applies to determine the plan’s 

minimum required contribution, except 

that the value of plan assets that forms 

the numerator under paragraph 

(b)(3)(i)(A) of this section is determined 

without subtraction of the funding 

standard carryover balance or the credit 

balance under the funding standard 

account. 

(iii) Special rule for plans with zero 

funding target. If the funding target of 

the plan is equal to zero for a plan year, 

then the funding target attainment 

percentage under this paragraph (b)(3) is 

equal to 100 percent for the plan year. 

(4) Present value. The present value of 

a benefit (including a portion of a 

benefit) with respect to a participant 

that is taken into account under the 

rules of paragraph (c) of this section is 

determined as of the valuation date by 

multiplying the amount of that benefit 

by the probability that the benefit will 

be paid at a future date and then 

discounting the resulting product using 

the appropriate interest rate under 

§ 1.430(h)(2)–1. The probability that the 

benefit will be paid with respect to the 

participant at such future date is 

determined using the actuarial 

assumptions that satisfy the standards of 

paragraph (f) of this section as to the 

probability of future service, 

advancement in age, and other events 

(such as death, disability, termination of 

employment, and selection of optional 

form of benefit) that affect whether the 

participant or beneficiary will be 

eligible for the benefit and whether the 

benefit will be paid at that future date. 

(c) Benefits taken into account—(1) In 

general—(i) Benefits earned or accrued. 

The benefits taken into account in 

determining the target normal cost and 


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Federal Register / Vol. 74, No. 198 / Thursday, October 15, 2009 / Rules and Regulations 53037 

the funding target under paragraph (b) 

of this section are all benefits earned or 

accrued under the plan that have not yet 

been paid as of the valuation date, 

including retirement-type and ancillary 

benefits (within the meaning of 

§ 1.411(d)–3(g)). The benefits taken into 

account are based on the participant’s or 

beneficiary’s status (such as active 

employee, vested or partially vested 

terminated employee, or disabled 

participant) as of the valuation date, and 

those benefits are allocated to the 

funding target or the target normal cost 

under paragraph (c)(1)(ii) of this section. 

(ii) Allocation of benefits—(A) In 

general. To the extent that the amount 

of a participant’s benefit that is expected 

to be paid is a function of the accrued 

benefit, the allocation of the benefit for 

purposes of determining the funding 

target and the target normal cost is made 

using the rules of paragraph (c)(1)(ii)(B) 

of this section. To the extent that the 

amount of a participant’s benefit that is 

expected to be paid is not a function of 

the accrued benefit, but is a function of 

the participant’s years of service (or is 

the excess of a function of the 

participant’s years of service over a 

function of the participant’s accrued 

benefit), the allocation of the benefit for 

purposes of determining the funding 

target and the target normal cost is made 

using the rules of paragraph (c)(1)(ii)(C) 

of this section. To the extent that the 

amount of a participant’s benefit that is 

expected to be paid is not allocated 

under the rules of paragraph (c)(1)(ii)(B) 

or (C) of this section, the allocation of 

the benefit for purposes of determining 

the funding target and the target normal 

cost is made using the rules of 

paragraph (c)(1)(ii)(D) of this section. 

(B) Benefits that are based on accrued 

benefits. If the allocation of the benefit 

for purposes of determining the funding 

target and the target normal cost is made 

under this paragraph (c)(1)(ii)(B), then 

the portion of a participant’s benefit that 

is taken into account in the funding 

target for a plan year is determined by 

applying the function to the accrued 

benefit as of the first day of the plan 

year, and the portion of the benefit that 

is taken into account in determining the 

target normal cost for the plan year is 

determined by applying that function to 

the increase in the accrued benefit 

during the plan year. For example, a 

benefit that is assumed to be payable at 

a particular early retirement age in the 

amount of 90 percent of the accrued 

benefit is taken into account in the 

funding target in the amount of 90 

percent of the accrued benefit as of the 

beginning of the plan year, and that 

benefit is taken into account in the 

target normal cost in the amount of 90 

percent of the increase in the accrued 

benefit during the plan year. 

(C) Benefits that are based on service. 

If the allocation of the benefit for 

purposes of determining the funding 

target and the target normal cost is made 

under this paragraph (c)(1)(ii)(C), then 

the portion of a participant’s benefit that 

is taken into account in determining the 

funding target for a plan year is 

determined by applying the function to 

the participant’s years of service as of 

the first day of the plan year, and the 

portion of the benefit that is taken into 

account in determining the target 

normal cost for the plan year is 

determined by applying that function to 

the increase in the participant’s years of 

service during the plan year. For 

example, if a plan provides a postretirement death benefit of $500 per 

year of service, then the funding target 

is determined based on a death benefit 

of $500 multiplied by a participant’s 

years of service at the beginning of the 

year, and if the participant earns or is 

expected to earn a full year of service 

during the plan year, the target normal 

cost is based on the additional $500 in 

death benefits attributable to that 

additional year of service. 

(D) Other benefits. If the allocation of 

the benefit for purposes of determining 

the funding target and the target normal 

cost is made under this paragraph 

(c)(1)(ii)(D), then the portion of a 

participant’s benefit that is taken into 

account in determining the funding 

target for a plan year is equal to the total 

benefit multiplied by the ratio of the 

participant’s years of service as of the 

first day of the plan year to the years of 

service the participant will have at the 

time of the event that causes the benefit 

to be payable (whether the benefit is 

expected to be paid at the time of that 

decrement or at a future time), and the 

portion of the benefit that is taken into 

account in determining the target 

normal cost for the plan year is the 

increase in the proportionate benefit 

attributable to the increase in the 

participant’s years of service during the 

plan year. For example, if a plan 

provides a Social Security supplement 

for a participant who retires after 30 

years of service that is equal to a 

participant’s Social Security benefit, the 

funding target with respect to the 

benefit payable beginning at a particular 

age (which reflects the probability of 

retirement at that age) is determined 

based on the projected Social Security 

benefit payable at the particular age 

multiplied by a fraction, the numerator 

of which is the participant’s years of 

service as of the first day of the plan 

year and the denominator of which is 

the participant’s projected years of 

service at the particular age. In such a 

case, if the participant earns or is 

expected to earn a full year of service 

during the plan year, the target normal 

cost is determined based on the 

projected Social Security benefit 

payable at the particular age multiplied 

by a fraction, the numerator of which is 

one and the denominator of which is the 

participant’s projected years of service 

at the particular age. 

(iii) Application of section 436 

limitations to funding target and target 

normal cost determination—(A) Effect 

of limitation on unpredictable 

contingent event benefits. The 

determination of the funding target and 

the target normal cost of a plan for a 

plan year must take into account any 

limitation on unpredictable contingent 

event benefits under section 436(b) with 

respect to unpredictable contingent 

events which occurred before the 

valuation date, but must not take into 

account anticipated funding-based 

limitations on unpredictable contingent 

event benefits under section 436(b) with 

respect to unpredictable contingent 

events which are expected to occur on 

or after the valuation date. 

(B) Effect of limitation on 

applicability of plan amendments. See 

paragraph (d) of this section for rules 

regarding the treatment of plan 

amendments that take effect during the 

plan year taking into account the 

restrictions under section 436(c). 

(C) Effect of limitation on prohibited 

payments. The determination of the 

funding target and the target normal cost 

of a plan for a plan year must take into 

account any limitation on prohibited 

payments under section 436(d) with 

respect to any annuity starting date that 

was before the valuation date, but must 

not take into account any limitation on 

prohibited payments under section 

436(d) for any annuity starting date on 

or after the valuation date (however, the 

determination must take into account 

benefit distributions under plan 

provisions that allow new annuity 

starting dates with respect to 

distributions that were limited under 

section 436(d)). 

(D) Effect of limitation on benefit 

accruals. Except as otherwise provided 

in this paragraph (c)(1)(iii)(D), the 

determination of the funding target of a 

plan for a plan year must take into 

account any limitation on benefit 

accruals under section 436(e) applicable 

before the valuation date. However, if 

the plan terms provide for the automatic 

restoration of benefit accruals as 

permitted under § 1.436–1(a)(4)(ii)(B), 

and the restoration of benefits as of the 

valuation date will not be treated as 

resulting from a plan amendment under 


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53038 Federal Register / Vol. 74, No. 198 / Thursday, October 15, 2009 / Rules and Regulations 

the rules of § 1.436–1(c)(3) (because the 

period of limitation as of the valuation 

date does not exceed 12 months and the 

adjusted funding target attainment 

percentage for the plan would not be 

less than 60 percent taking into account 

the restored benefit accruals), then the 

determination of the funding target of a 

plan for a plan year must not take into 

account the limitation on benefit 

accruals under section 436(e) for that 

period. The determination of the target 

normal cost of a plan for a plan year 

must not take into account any 

limitation on benefit accruals under 

section 436(e). Thus, if an employer 

wishes to take a plan freeze into account 

in determining the target normal cost, 

the plan must be specifically amended 

to cease accruals. 

(iv) Effect of other limitations of 

benefits—(A) Liquidity shortfalls. The 

determination of the funding target and 

the target normal cost of a plan for a 

plan year must take into account any 

restrictions on payments under section 

401(a)(32) on account of a liquidity 

shortfall (as defined in section 430(j)(4)) 

for periods preceding the valuation date. 

The determination of the funding target 

and the target normal cost must not take 

into account any restrictions on 

payments under section 401(a)(32) on 

account of a liquidity shortfall or 

possible liquidity shortfall for any 

period on or after the valuation date. 

(B) High 25 limitation. The 

determination of the funding target and 

the target normal cost of a plan for a 

plan year must take into account any 

restrictions on payments under 

§ 1.401(a)(4)–5(b) to highly compensated 

employees to the extent that benefits 

were not paid or will not be paid 

because of a limitation that applied 

prior to the valuation date. If a benefit 

that was otherwise restricted was paid 

prior to the valuation date but with 

suitable security (such as an escrow 

account) provided to the plan in the 

event of a plan termination, the benefit 

is treated as distributed for purposes of 

section 430 and this section. 

Accordingly, the funding target does not 

include any liability for the benefit and 

the plan assets do not include the 

security. The determination of the 

funding target and the target normal cost 

of a plan for a plan year must not take 

into account any restrictions on 

payments under § 1.401(a)(4)–5(b) to 

highly compensated employees that are 

anticipated with respect to annuity 

starting dates on or after the valuation 

date on account of the funded status of 

the plan. 

(2) Benefits provided by insurance— 

(i) General rule. A plan generally is 

required to reflect in the plan’s funding 

target and target normal cost the liability 

for benefits that are funded through 

insurance contracts held by the plan, 

and to include the corresponding 

insurance contracts in plan assets. 

Paragraph (c)(2)(ii) of this section sets 

forth an alternative to this general 

approach. A plan’s treatment of benefits 

funded through insurance contracts 

pursuant to this paragraph (c)(2) is part 

of the plan’s funding method. 

Accordingly, that treatment can be 

changed only with the consent of the 

Commissioner. 

(ii) Separate funding of insured 

benefits. As an alternative to the 

treatment described in paragraph 

(c)(2)(i) of this section, in the case of 

benefits that are funded through 

insurance contracts, the liability for 

benefits provided under such contracts 

is permitted to be excluded from the 

plan’s funding target and target normal 

cost, provided that the corresponding 

insurance contracts are excluded from 

plan assets. This treatment is only 

available with respect to insurance 

purchased from an insurance company 

licensed under the laws of a State and 

only to the extent that a participant’s or 

beneficiary’s right to receive those 

benefits is an irrevocable contractual 

right under the insurance contracts, 

based on premiums paid to the 

insurance company prior to the 

valuation date. For example, in the case 

of a retired participant receiving 

benefits from an annuity contract in pay 

status under which no premiums are 

required on or after the valuation date, 

the liability for benefits provided by the 

contract is permitted to be excluded 

from the plan’s funding target provided 

that the value of the contract is also 

excluded from the value of plan assets. 

Similarly, in the case of an active or 

deferred vested participant whose 

benefits are funded by a life insurance 

or annuity contract under which further 

premiums are required on or after the 

valuation date, the liability for benefits, 

if any, that would be paid from the 

contract if no further premiums were to 

be paid (for example, if the contract 

were to go on reduced paid-up status) is 

permitted to be excluded from the 

plan’s funding target and target normal 

cost, provided that the value of the 

contract is excluded from the value of 

plan assets. By contrast, if the plan 

trustee can surrender a contract to the 

insurer for its cash value, then the 

participant’s or beneficiary’s right to 

receive those benefits is not an 

irrevocable contractual right and, 

therefore, the liability for benefits 

provided under the contract must be 

taken into account in determining the 

plan’s funding target and target normal 

cost and the contracts cannot be 

excluded from plan assets. 

(d) Plan provisions taken into 

account—(1) General rule—(i) Plan 

provisions adopted by valuation date. 

Except as otherwise provided in this 

paragraph (d), a plan’s funding target 

and target normal cost for a plan year 

are determined based on plan 

provisions that are adopted no later than 

the valuation date for the plan year and 

that take effect on or before the last day 

of the plan year. For example, in the 

case of a plan amendment adopted on 

or before the valuation date for the plan 

year that has an effective date occurring 

in the current plan year, the plan 

amendment is taken into account in 

determining the funding target and the 

target normal cost for the current plan 

year if it is permitted to take effect 

under the rules of section 436(c) for the 

current plan year, but the amendment is 

not taken into account for the current 

plan year if it does not take effect until 

a future plan year. 

(ii) Plan provisions adopted after 

valuation date. If a plan administrator 

makes the election described in section 

412(d)(2) with respect to a plan 

amendment, then the plan amendment 

is treated as having been adopted on the 

first day of the plan year for purposes 

of this paragraph (d). Section 412(d)(2) 

applies to any plan amendment adopted 

no later than 21⁄2 months after the close 

of the plan year, including an 

amendment adopted during the plan 

year. Thus, if an amendment is adopted 

after the valuation date for a plan year 

(and no later than 21⁄2 months after the 

close of the plan year), but takes effect 

by the last day of the plan year, the 

amendment is taken into account in 

determining the plan’s funding target 

and target normal cost for the plan year 

if the plan administrator makes the 

election described in section 412(d)(2) 

with respect to such amendment. 

(iii) Determination of when an 

amendment takes effect. For purposes of 

this paragraph (d)(1), the determination 

of whether an amendment that increases 

benefits takes effect and when it takes 

effect is determined in accordance with 

the rules of section 436(c) and § 1.436– 

1(c)(5). For purposes of this paragraph 

(d)(1), in the case of an amendment that 

decreases benefits, the amendment takes 

effect under a plan on the first date on 

which the benefits of any individual 

who is or could be a participant or 

beneficiary under the plan would be 

less than those benefits would be under 

the pre-amendment plan provisions if 

the individual were on that date to 

satisfy the applicable conditions for the 

benefits. In either case, the 


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Federal Register / Vol. 74, No. 198 / Thursday, October 15, 2009 / Rules and Regulations 53039 

determination of when an amendment 

takes effect is unaffected by an election 

under section 412(d)(2). 

(2) Special rule for certain 

amendments increasing liabilities. In 

the case of a plan amendment that is not 

required to be taken into account under 

the rules of paragraph (d)(1) of this 

section because it is adopted after the 

valuation date for the plan year, the 

plan amendment must be taken into 

account in determining a plan’s funding 

target and target normal cost for the plan 

year if the plan amendment— 

(i) Takes effect by the last day of the 

plan year; 

(ii) Increases the liabilities of the plan 

by reason of increases in benefits, 

establishment of new benefits, changing 

the rate of benefit accrual, or changing 

the rate at which benefits become 

nonforfeitable; and 

(iii) Would not be permitted to take 

effect under the rules of section 436(c) 

if those rules were applied— 

(A) By treating the increase in the 

target normal cost for the plan year 

attributable to the amendment (and all 

other amendments that must be taken 

into account solely because of the 

application of the rules in this 

paragraph (d)(2)) as if the increase were 

an increase in the funding target for the 

plan year; and 

(B) By taking into account all 

unpredictable contingent event benefits 

permitted to be paid for unpredictable 

contingent events that occurred during 

the current plan year and all plan 

amendments that took effect in the 

current plan year (including all 

amendments to which this paragraph 

(d)(2) applies for the plan year). 

(3) Allocation of benefits attributable 

to plan amendments. If a plan 

amendment is taken into account for a 

plan year under the rules of this 

paragraph (d), then the allocation of 

benefits that is used to determine the 

funding target and the target normal cost 

for that plan year is based on the plan 

as amended. Thus, if an amendment 

that is taken into account for a plan year 

increases a participant’s accrued benefit 

for service prior to the beginning of the 

plan year, then the present value of that 

increase is included in the funding 

target for the plan year. 

(e) Plan population taken into 

account—(1) In general. In making any 

determination of the funding target or 

target normal cost under paragraph (b) 

of this section, the plan population is 

determined as of the valuation date. The 

plan population must include three 

classes of individuals— 

(i) Participants currently employed in 

the service of the employer; 

(ii) Participants who are retired under 

the plan or who are otherwise no longer 

employed in the service of the 

employer; and 

(iii) All other individuals currently 

entitled to benefits under the plan. 

(2) Assumption regarding rehiring of 

former employees—(i) Special exclusion 

for ‘‘rule of parity’’ cases. Certain 

individuals may be excluded from the 

class of individuals described in 

paragraph (e)(1)(ii) of this section. The 

excludable individuals are those former 

employees who, prior to the valuation 

date for the plan year, have terminated 

service with the employer without 

vested benefits and whose service might 

be taken into account in future years 

because the ‘‘rule of parity’’ of section 

411(a)(6)(D) does not permit that service 

to be disregarded. However, if the plan’s 

experience as to separated employees 

returning to service has been such that 

the exclusion described in this 

paragraph (e)(2) would be unreasonable, 

then no such exclusion is permitted. 

(ii) Application to partially vested 

participants. Whether former employees 

who are terminated with partially 

vested benefits are assumed to return to 

service is determined under the same 

rules that apply to former employees 

without vested benefits under paragraph 

(e)(2)(i) of this section. 

(3) Anticipated future participants. In 

making any determination of the 

funding target or target normal cost 

under paragraph (b) of this section, the 

actuarial assumptions and funding 

method used for the plan must not 

anticipate the affiliation with the plan of 

future participants not employed in the 

service of the employer on the plan’s 

valuation date. However, any such 

determination may anticipate the 

affiliation with the plan of current 

employees who have not yet satisfied 

the participation (age and service) 

requirements of the plan as of the 

valuation date. 

(f) Actuarial assumptions and funding 

method used in determination of 

present value—(1) Selection of actuarial 

assumptions and funding method—(i) 

General rules. The determination of any 

present value or other computation 

under section 430 and this section must 

be made on the basis of actuarial 

assumptions and a funding method. 

Except as otherwise specifically 

provided (for example, in § 1.430(h)(2)– 

1(b)(6) or section 4006(a)(3)(E)(iv) of the 

Employee Retirement Income Security 

Act of 1974, as amended (ERISA)), the 

same actuarial assumptions and funding 

method must be used for all 

computations under sections 430 and 

436. For example, the actuarial 

assumptions and the funding method 

used in making a certification of the 

adjusted funding target attainment 

percentage for a plan year must be the 

same as those disclosed on the actuarial 

report under section 6059 (Schedule SB, 

‘‘Single-Employer Defined Benefit Plan 

Actuarial Information’’ of Form 5500, 

‘‘Annual Return/Report of Employee 

Benefit Plan’’). 

(ii) Changes in actuarial assumptions 

and funding method. Actuarial 

assumptions established for a plan year 

cannot subsequently be changed for that 

plan year unless the Commissioner 

determines that the assumptions that 

were used are unreasonable. Similarly, 

a funding method established for a plan 

year cannot subsequently be changed for 

that plan year unless the Commissioner 

determines that the use of that funding 

method for that plan year is 

impermissible. 

(iii) Procedures for establishing 

actuarial assumptions and funding 

method. For purposes of this paragraph 

(f)(1), in the case of a plan for which an 

actuarial report under section 6059 

(Schedule SB of Form 5500) is required 

to be filed for a plan year, actuarial 

assumptions and the funding method 

are established by the filing of the 

actuarial report if it is filed no later than 

the due date (with extensions) for the 

report. In the case of a plan for which 

an actuarial report for a plan year is not 

required to be filed, actuarial 

assumptions and the funding method 

are established by the delivery of the 

completed report to the employer if it is 

delivered no later than what would be 

the due date (with extensions) for filing 

the actuarial report were such a filing 

required. If the actuarial report is not 

filed or delivered by the applicable date 

described in the two preceding 

sentences, then the same actuarial 

assumptions (such as the same interest 

rate and mortality table elections) and 

funding method as were used for the 

preceding plan year apply for all 

computations under sections 430 and 

436 for the current plan year, unless the 

Commissioner permits or requires other 

actuarial assumptions or another 

funding method permitted under 

section 430 to be used for the current 

plan year. 

(iv) Scope of funding method. A 

plan’s funding method includes not 

only the overall funding method used 

by the plan but also each specific 

method of computation used in 

applying the overall method. However, 

the choice of which actuarial 

assumptions are appropriate to the 

overall method or to the specific method 

of computation is not a part of the 

funding method. The assumed earnings 

rate used for purposes of determining 


srobinson on DSKHWCL6B1PROD with RULES2
53040 Federal Register / Vol. 74, No. 198 / Thursday, October 15, 2009 / Rules and Regulations 

the actuarial value of assets under 

section 430(g)(3)(B) is treated as an 

actuarial assumption, rather than as part 

of the funding method. 

(2) Interest and mortality rates. 

Section 430(h)(2) and § 1.430(h)(2)–1 set 

forth the interest rates, and section 

430(h)(3) and §§ 1.430(h)(3)–1 and 

1.430(h)(3)–2 set forth the mortality 

tables, that must be used for purposes of 

determining any present value under 

this section. However, notwithstanding 

the requirement to use the mortality 

tables, in the case of a plan which has 

fewer than 100 participants and 

beneficiaries who are not in pay status, 

the actuarial assumptions may assume 

no pre-retirement mortality, but only if 

that assumption would be a reasonable 

assumption. 

(3) Other assumptions. In the case of 

actuarial assumptions other than those 

specified in sections 430(h)(2), 

430(h)(3), and 430(i), each of those 

actuarial assumptions must be 

reasonable (taking into account the 

experience of the plan and reasonable 

expectations). In addition, the actuarial 

assumptions (other than those specified 

in sections 430(h)(2), 430(h)(3), and 

430(i)) must, in combination, offer the 

plan’s enrolled actuary’s best estimate of 

anticipated experience under the plan 

based on information determined as of 

the valuation date. See paragraph 

(f)(4)(iii) of this section for special rules 

for determining the present value of a 

single-sum and similar distributions. 

(4) Probability of benefit payments in 

single sum or other optional forms—(i) 

In general. This paragraph (f)(4) 

provides rules relating to the probability 

that benefit payments will be paid as 

single sums or other optional forms 

under a plan and the impact of that 

probability on the determination of the 

present value of those benefit payments 

under section 430. 

(ii) General rules of application. Any 

determination of present value or any 

other computation under this section 

must take into account— 

(A) The probability that future benefit 

payments under the plan will be made 

in the form of any optional form of 

benefit provided under the plan 

(including single-sum distributions), 

determined on the basis of the plan’s 

experience and other related 

assumptions, in accordance with 

paragraph (f)(3) of this section; and 

(B) Any difference in the present 

value of future benefit payments that 

results from the use of actuarial 

assumptions in determining the amount 

of benefit payments in any such 

optional form of benefit that are 

different from those prescribed by 

section 430(h). 

(iii) Single-sum and similar 

distributions—(A) Distributions using 

section 417(e) assumptions. In the case 

of a distribution that is subject to 

section 417(e)(3) and that is determined 

using the applicable interest rates and 

applicable mortality table under section 

417(e)(3), for purposes of applying 

paragraph (f)(4)(ii) of this section, the 

computation of the present value of that 

distribution is treated as having taken 

into account any difference in present 

value that results from the use of 

actuarial assumptions that are different 

from those prescribed by section 430(h) 

(as required under paragraph (f)(4)(ii)(B) 

of this section) if and only if the present 

value of the distribution is determined 

in accordance with this paragraph 

(f)(4)(iii). 

(B) Substitution of annuity form. 

Except as otherwise provided in this 

paragraph (f)(4)(iii), the present value of 

a distribution is determined in 

accordance with this paragraph (f)(4)(iii) 

if that present value is determined as 

the present value, using special 

actuarial assumptions, of the annuity 

(either the deferred or immediate 

annuity) which is used under the plan 

to determine the amount of the 

distribution. Under these special 

assumptions, for the period beginning 

with the expected annuity starting date 

for the distribution, the current 

applicable mortality table under section 

417(e)(3) that would apply to a 

distribution with an annuity starting 

date occurring on the valuation date is 

substituted for the mortality table under 

section 430(h)(3) that would otherwise 

be used. In addition, under these special 

assumptions, the valuation interest rates 

under section 430(h)(2) are used for 

purposes of discounting the projected 

annuity payments from their expected 

payment dates to the valuation date (as 

opposed to the interest rates under 

section 417(e)(3) which the plan uses to 

determine the amount of the benefit). 

(C) Optional application of 

generational mortality and phase-in of 

interest rates. In determining the 

present value of a distribution under 

this paragraph (f)(4)(iii), if a plan uses 

the generational mortality tables under 

§ 1.430(h)(3)–1(a)(4) or § 1.430(h)(3)–2, 

the plan is permitted to use a 50–50 

male-female blend of the annuitant 

mortality rates under the § 1.430(h)(3)– 

1(a)(4) generational mortality tables in 

lieu of the applicable mortality table 

under section 417(e)(3) that would 

apply to a distribution with an annuity 

starting date occurring on the valuation 

date. Similarly, a plan is permitted to 

make adjustments to the interest rates in 

order to reflect differences between the 

phase-in of the section 430(h)(2) 

segment rates under section 430(h)(2)(G) 

and the adjustments to the segment rates 

under section 417(e)(3)(D)(iii). 

(D) Distributions subject to section 

417(e)(3) using other assumptions. In 

the case of a distribution that is subject 

to section 417(e)(3) but that is 

determined on a basis other than using 

the applicable interest rates and the 

applicable mortality table under section 

417(e)(3), for purposes of applying 

paragraph (f)(4)(ii)(B) of this section, the 

computation of present value must take 

into account the extent to which the 

present value of the distribution is 

different from the present value 

determined using the rules of paragraph 

(f)(4)(iii)(B) of this section, based on 

actuarial assumptions that satisfy the 

requirements of paragraph (f)(3) of this 

section. If the plan provides that the 

amount of the benefit is based on a 

comparison of the section 417(e)(3) 

benefit (that is, the benefit determined 

using the applicable interest rates and 

the applicable mortality table under 

section 417(e)(3)) with another benefit 

determined using some other basis, then 

paragraph (f)(4)(ii)(B) of this section is 

applied as of the valuation date by 

comparing the present value of the 

section 417(e)(3) benefit determined 

under the rules of paragraph (f)(4)(iii)(B) 

of this section with the present value of 

the other benefit. The rule of this 

paragraph (f)(4)(iii)(D) applies, for 

example, where a distribution that is 

subject to section 417(e)(3) is 

determined as the greater of the benefit 

determined using the applicable interest 

rates and the applicable mortality table 

under section 417(e)(3) and the benefit 

determined using some other basis, or 

where the amount of a distribution that 

is subject to section 417(e)(3) is 

determined using an interest rate other 

than the applicable interest rates as 

required under section 415(b)(2)(E)(ii) 

(see § 1.417(e)–1(d)(1)). 

(5) Distributions from applicable 

defined benefit plans under section 

411(a)(13)(C)—(i) In general. In the case 

of an applicable defined benefit plan 

described in section 411(a)(13)(C), if the 

amount of a future distribution is based 

on an interest adjustment applied to the 

current accumulated benefit, then the 

amount of that distribution is 

determined by projecting the future 

interest credits or equivalent amount 

under the plan’s interest crediting rules 

using actuarial assumptions that satisfy 

the requirements of paragraph (f)(3) of 

this section. Thus, if a plan provides for 

a single-sum distribution equal to the 

balance of a participant’s hypothetical 

account under a cash balance plan, then 

the amount of that future distribution is 

equal to the projected account balance 


srobinson on DSKHWCL6B1PROD with RULES2
Federal Register / Vol. 74, No. 198 / Thursday, October 15, 2009 / Rules and Regulations 53041 

at the expected date of payment 

determined using actuarial assumptions 

that satisfy the requirements of 

paragraph (f)(3) of this section. 

(ii) Annuity distributions—(A) 

General rule. In the case of an 

applicable defined benefit plan 

described in section 411(a)(13)(C), if the 

amount of an annuity distribution is 

based on either the balance of a 

hypothetical account maintained for a 

participant or the accumulated 

percentage of a participant’s final 

average compensation, then the amount 

of that annuity distribution is calculated 

by converting the projected account 

balance (or accumulated percentage of 

final average compensation), in 

accordance with paragraph (f)(5)(i) of 

this section, to an annuity by applying 

the plan’s annuity conversion 

provisions using the rules of this 

paragraph (f)(5)(ii). 

(B) Use of current annuity factors. 

Except as otherwise provided in 

paragraph (f)(5)(ii)(C) of this section, if 

the plan bases the conversion of the 

projected account balance (or 

accumulated percentage of final average 

compensation) to an annuity using the 

applicable interest rates and applicable 

mortality table under section 417(e)(3), 

then the amount of the annuity 

distribution is determined by dividing 

the projected account balance (or 

accumulated percentage of final average 

compensation) by an annuity factor 

corresponding to the assumed form of 

payment using, for the period beginning 

with the annuity starting date, the 

current applicable mortality table under 

section 417(e)(3) that would apply to a 

distribution with an annuity starting 

date occurring on the valuation date (in 

lieu of the mortality table under section 

430(h)(3) that would otherwise be used) 

and the valuation interest rates under 

section 430(h)(2) (as opposed to the 

interest rates under section 417(e)(3) 

which the plan uses to determine the 

amount of the annuity). 

(C) Optional application of 

generational mortality and phase-in of 

segment rates. In determining the 

amount of an annuity distribution under 

paragraph (f)(5)(ii)(B) of this section, a 

plan is permitted to apply the options 

described in paragraph (f)(4)(iii)(C) of 

this section. 

(D) Distributions using assumptions 

other than assumptions under section 

417(e)(3). In applying this paragraph 

(f)(5)(ii), in the case of a plan that 

determines an annuity using a basis 

other than the applicable interest rates 

and applicable mortality table under 

section 417(e)(3), the amount of the 

annuity distribution must be based on 

actuarial assumptions that satisfy the 

requirements of paragraph (f)(3) of this 

section. 

(6) Unpredictable contingent event 

benefits. Any determination of present 

value or any other computation under 

this section must take into account, 

based on information as of the valuation 

date, the probability that future benefits 

(or increased benefits) will become 

payable under the plan due to the 

occurrence of an unpredictable 

contingent event (as described in 

§ 1.436–1(j)(9)). For this purpose, this 

probability with respect to an 

unpredictable contingent event may be 

assumed to be zero if there is not more 

than a de minimis likelihood that the 

unpredictable contingent event will 

occur. 

(7) Reasonable techniques 

permitted—(i) Determination of benefits 

to be paid during the plan year. Any 

reasonable technique can be used to 

determine the present value of the 

benefits expected to be paid during a 

plan year, based on the interest rates 

and mortality assumptions applicable 

for the plan year. For example, the 

present value of a monthly retirement 

annuity payable at the beginning of each 

month can be determined— 

(A) Using the standard actuarial 

approximation that reflects 13/24ths of 

the discounted expected payments for 

the year as of the beginning of the year 

and 11/24ths of the discounted expected 

payments for the year as of the end of 

the year; 

(B) By assuming a uniform 

distribution of death during the year; or 

(C) By assuming that the payment is 

made in the middle of the year. 

(ii) Determination of target normal 

cost. In the case of a participant for 

whom there is a less than 100 percent 

probability that the participant will 

terminate employment during the plan 

year, for purposes of determining the 

benefits expected to accrue, be earned, 

or otherwise allocated to service during 

the plan year which are used to 

determine the target normal cost, it is 

permissible to assume the participant 

will not terminate during the plan year, 

unless using this method of calculation 

would be unreasonable. 

(8) Approval of significant changes in 

actuarial assumptions for large plans— 

(i) In general. Except as otherwise 

provided in paragraph (f)(8)(iii) of this 

section, any actuarial assumptions used 

to determine the funding target of a plan 

for a plan year during which the plan is 

described in paragraph (f)(8)(ii) of this 

section cannot be changed from the 

actuarial assumptions that were used for 

the preceding plan year without the 

approval of the Commissioner if the 

changes in assumptions result in a 

decrease in the plan’s funding shortfall 

(within the meaning of section 

430(c)(4)) for the current plan year 

(disregarding the effect on the plan’s 

funding shortfall resulting from changes 

in interest and mortality assumptions 

under sections 430(h)(2) and (h)(3)) that 

either exceeds $50,000,000, or exceeds 

$5,000,000 and is 5 percent or more of 

the funding target of the plan before 

such change. 

(ii) Affected plans. A plan is 

described in this paragraph (f)(8)(ii) for 

a plan year if— 

(A) The plan is a defined benefit plan 

(other than a multiemployer plan) to 

which Title IV of ERISA applies; and 

(B) The aggregate unfunded vested 

benefits used to determine variable-rate 

premiums for the plan year (as 

determined under section 

4006(a)(3)(E)(iii) of ERISA) of the plan 

and all other plans maintained by the 

contributing sponsors (as defined in 

section 4001(a)(13) of ERISA) and 

members of such sponsors’ controlled 

groups (as defined in section 4001(a)(14) 

of ERISA) which are covered by Title IV 

of ERISA (disregarding multiemployer 

plans and disregarding plans with no 

unfunded vested benefits) exceed 

$50,000,000. 

(iii) Automatic approval to resume 

use of previously used assumptions 

upon exiting at-risk status during phasein. A plan that is not in at-risk status for 

the current plan year and that was in atrisk status for the prior plan year (but 

not for a period of 5 or more consecutive 

plan years) is granted automatic 

approval to use the actuarial 

assumptions that were applied before 

the plan entered at-risk status and that 

were used in combination with the 

required at-risk assumptions during the 

period the plan was in at-risk status. 

(9) Examples. The following examples 

illustrate the rules of this section. 

Unless otherwise indicated, these 

examples are based on the following 

assumptions: The normal retirement age 

is 65, the minimum required 

contribution for the plan is determined 

under the rules of section 430 starting 

in 2008, the plan year is the calendar 

year, the valuation date is January 1, no 

plan-related expenses are paid or 

expected to be paid from plan assets, 

and the plan does not provide for 

mandatory employee contributions. The 

examples are as follows: 

Example 1. (i) Plan P provides an accrued 

benefit equal to 1.0% of a participant’s 

highest 3-year average compensation for each 

year of service. Plan P provides that an early 

retirement benefit can be received at age 60 

equal to the participant’s accrued benefit 

reduced by 0.5% per month for early 

commencement. On January 1, 2010, 


srobinson on DSKHWCL6B1PROD with RULES2
53042 Federal Register / Vol. 74, No. 198 / Thursday, October 15, 2009 / Rules and Regulations 

Participant A is age 60 and has 12 years of 

past service. Participant A’s compensation 

for the years 2007 through 2009 was $47,000, 

$50,000, and $52,000, respectively. 

Participant A’s rate of compensation at 

December 31, 2009, is $54,000 and A’s rate 

of compensation for 2010 is assumed not to 

increase at any point during 2010. 

Decrements are applied at the beginning of 

the plan year. 

(ii) Participant A’s annual accrued benefit 

as of January 1, 2010, is $5,960 [0.01 × 12 × 

($47,000 + $50,000 + $52,000) ÷ 3]. 

Participant A’s expected benefit accrual for 

2010 is $800 [0.01 × 13 × ($50,000 + $52,000 

+ $54,000) ÷ 3 ¥ $5,960], to the extent that 

Participant A is expected to continue in 

employment for the full 2010 plan year. 

(iii) Because the early retirement benefit is 

a function of the participant’s accrued 

benefit, the allocation of the benefit for 

purposes of determining the target normal 

cost and funding target is made under 

paragraph (c)(1)(ii)(B) of this section. 

Accordingly, for Participant A, the early 

retirement benefit that is taken into account 

with respect to the decrement at age 60 when 

determining the 2010 funding target is $4,172 

[$5,960 accrued benefit × (1 ¥ 0.005 × 60 

months)]. The expected accrual of the early 

retirement benefit during 2010 that is taken 

into account for Participant A with respect to 

the decrement at age 60 when determining 

the 2010 target normal cost is zero, because 

in this example the age-60 decrement would 

be applied as of January 1, 2010, before 

Participant A would earn any additional 

benefits. (But see paragraph (f)(7)(ii) of this 

section for an alternative approach for 

determining the expected accrual with 

respect to the decrement at age 60.) 

(iv) The early retirement benefit for 

Participant A with respect to the decrement 

at age 61 that is taken into account in 

determining the funding target for the 2010 

plan year is $4,529.60 [$5,960 accrued 

benefit × (1 ¥ 0.005 × 48 months)]. The 

portion of the early retirement benefit that is 

taken into account for Participant A with 

respect to the decrement at age 61 that is 

taken into account in determining the target 

normal cost for the 2010 plan year is $608 

[$800 expected annual accrual × (1 ¥ 0.005 

× 48 months)]. 

Example 2. (i) The facts are the same as 

in Example 1. In addition, the plan offers a 

$500 temporary monthly supplement to 

participants who complete 15 years of service 

and retire from active employment after 

attaining age 60. The temporary supplement 

is payable until the participant turns age 62. 

In addition, the supplement is limited so that 

it does not exceed the participant’s Social 

Security benefit payable at age 62. On 

January 1, 2010, Participant B is age 55 and 

has 20 years of past service, and Participant 

C is age 60 and has 14 years of past service. 

For Participants B and C, the projected Social 

Security benefit is greater than $500 per 

month. 

(ii) Because the temporary supplement is 

not a function of the participant’s accrued 

benefit or service, the allocation of the 

benefit for purposes of determining the target 

normal cost and funding target is made under 

paragraph (c)(1)(ii)(D) of this section. The 

portion of the annual temporary supplement 

for Participant B with respect to the early 

retirement decrement occurring at age 60 that 

is taken into account in determining the 

funding target for the 2010 plan year is 

$4,800 [($500 × 12 months) × 20 years of past 

service ÷ 25 years of service at assumed early 

retirement age]. The portion of the annual 

temporary supplement for Participant B with 

respect to the early retirement decrement 

occurring at age 61 that is taken into account 

in determining the funding target for the 

2010 plan year is $4,615 [($500 × 12 months) 

× 20 years of past service ÷ 26 years of service 

at assumed early retirement age]. In each 

case, the allocable portion of the benefit is 

assumed to be payable until age 62 (or the 

participant’s death, if earlier). 

(iii) For Participant B, the portion of the 

annual temporary supplement with respect to 

the early retirement decrement occurring at 

age 60 that is taken into account in 

determining the target normal cost for the 

2010 plan year is $240 [($500 × 12 months) 

× 1 year of service expected to be earned 

during the plan year ÷ 25 years of service at 

assumed early retirement age]. The portion of 

the annual temporary supplement with 

respect to the early retirement decrement 

occurring at age 61 that is taken into account 

in determining the target normal cost for the 

2010 plan year is $230.77 [($500 × 12 

months) × 1 year of service expected to be 

earned during the plan year ÷ 26 years of 

service at assumed early retirement age]. The 

present value of these amounts reflects a 

payment period beginning with the 

decrement at age 60 or 61, as applicable, 

until age 62 (or assumed death, if earlier). 

(iv) For Participant C, the portion of the 

annual temporary supplement with respect to 

the early retirement decrement occurring at 

age 61 (when the participant is first eligible 

for the benefit) that is taken into account in 

determining the funding target for the 2010 

plan year is $5,600 [($500 × 12 months) × 14 

years of past service ÷ 15 years of service at 

assumed early retirement age]. The present 

value of this amount reflects a payment 

period beginning with the decrement at age 

61 until age 62 (or death if earlier). 

Example 3. (i) The facts are the same as 

in Example 1. The plan also provides a 

single-sum death benefit (in addition to the 

qualified pre-retirement spouse’s benefit) 

equal to the greater of the participant’s 

annual accrued benefit at the time of death, 

or $10,000. The benefit is limited as 

necessary to ensure that the plan meets the 

incidental death benefit requirements of 

section 401(a). 

(ii) The determination of the portion of the 

death benefit that is taken into account in 

determining the target normal cost and 

funding target is made under paragraph 

(c)(1)(ii)(B) of this section to the extent that 

it is a function of the participant’s accrued 

benefit and under paragraph (c)(1)(ii)(D) of 

this section to the extent that it relates to the 

part of the death benefit that is not a function 

of the participant’s accrued benefit. 

(iii) The portion of the single-sum death 

benefit corresponding to the accrued benefit, 

or $5,960, is taken into account when 

determining the 2010 funding target for 

Participant A. 

(iv) The excess of the death benefit over 

Participant A’s accrued benefit is $4,040 (that 

is, $10,000 ¥ $5,960). Because this part of 

the death benefit is not a function of the 

participant’s accrued benefit nor is it a 

function of service, the determination of the 

corresponding portion of the death benefit 

taken into account in determining the target 

normal cost and funding target for 2010 is 

made under paragraph (c)(1)(ii)(D) of this 

section. For example, for Participant A, the 

portion of this benefit with respect to the 

death decrement occurring at age 64 that is 

taken into account for purposes of 

determining the funding target for the 2010 

plan year is $3,030 ($4,040 × 12 years of past 

service ÷ 16 years of service at assumed age 

of death). 

(v) The total single-sum death benefit for 

Participant A with respect to the death 

decrement at age 64 that is taken into account 

in determining the funding target for the 

2010 plan year is $8,990 ($5,960 + $3,030). 

(vi) Similarly, the portion of the single-sum 

death benefit for Participant A that is taken 

into account in determining the target normal 

cost for the 2010 plan year is equal to the 

sum of the expected increase in the accrued 

benefit during 2010, and the expected change 

in the allocable portion of the excess death 

benefit attributable to service during 2010 as 

determined in accordance with paragraph 

(c)(1)(ii)(D) of this section. As described in 

Example 1, the expected increase in 

Participant A’s accrued benefit during 2010 

is $800, to the extent that Participant A is 

expected to continue in employment for the 

full 2010 plan year. 

(vii) At the end of 2010, Participant A’s 

accrued benefit is expected to be $6,760 

($5,960 + $800). The excess portion of the 

single-sum death benefit to be allocated in 

accordance with paragraph (c)(1)(ii)(D) of this 

section is $3,240 ($10,000 ¥ $6,760), and the 

allocable portion of the excess benefit for 

Participant A as of December 31, 2010, with 

respect to the death decrement at age 64, is 

$2,632.50 ($3,240 × 13 years of service as of 

December 31, 2010 ÷ 16 years of service at 

assumed age of death). The change in the 

allocable portion of Participant A’s excess 

death benefit due to an additional year of 

service, with respect to the death decrement 

at age 64, is a decrease of $397.50. Therefore, 

the target normal cost for the 2010 plan year 

attributable to Participant A, with respect to 

the death decrement at age 64, will reflect a 

single-sum death benefit of $402.50 ($800 

expected increase in Participant A’s accrued 

benefit minus a $397.50 expected decrease in 

the allocable portion of the death benefit in 

excess of the accrued benefit). 

Example 4. (i) The facts are the same as 

in Example 3, except that the plan provides 

a single-sum death benefit equal to the 

greater of the present value of the qualified 

pre-retirement survivor annuity or 100 times 

the amount of the participant’s monthly 

retirement benefit with service projected to 

normal retirement age. The valuation is based 

on the assumption that all surviving spouses 

choose to receive their benefit in the form of 

a single sum. For Participant A, the value of 

the qualified pre-retirement survivor annuity 

is less than 100 times Participant A’s 

projected monthly retirement benefit. 


srobinson on DSKHWCL6B1PROD with RULES2
Federal Register / Vol. 74, No. 198 / Thursday, October 15, 2009 / Rules and Regulations 53043 

(ii) The allocation of the death benefit that 

is a function of Participant A’s accrued 

benefit is based on service and compensation 

to the first day of the plan year for purposes 

of determining the funding target, and the 

allocation of the death benefit that is a 

function of the increase in Participant A’s 

accrued benefit during the plan year for 

purposes of determining the target normal 

cost is made in accordance with paragraph 

(c)(1)(ii)(B) of this section. As described in 

Example 1, Participant A’s accrued benefit 

based on service and compensation as of 

January 1, 2010, is $5,960, or $496.67 per 

month. Accordingly, the portion of the 

single-sum death benefit corresponding to 

the accrued benefit, or $49,667 (100 times 

$496.67), is taken into account when 

determining the 2010 funding target for 

Participant A. 

(iii) In addition, the funding target and the 

target normal cost reflect a portion of 

Participant A’s death benefit in excess of the 

amount based on Participant A’s accrued 

benefit. Based on Participant A’s average 

compensation as of the first day of the plan 

year, Participant A’s accrued benefit with 

service projected to normal retirement is 

$8,443 [.01 × 17 years of service at age 65 × 

($47,000 + $50,000 + $52,000) ÷ 3], or 

$703.61 per month. The corresponding death 

benefit is $70,361. 

(iv) The excess of the death benefit over 

Participant A’s accrued benefit as of January 

1, 2010, is $20,694 (that is, $70,361 ¥ 

$49,667). Because this part of the death 

benefit is not a function of Participant A’s 

accrued benefit or service, the portion that is 

taken into account in determining the 

funding target is determined under paragraph 

(c)(1)(ii)(D) of this section. For Participant A, 

the portion of this benefit with respect to the 

death decrement occurring at age 64 that is 

taken into account when determining the 

funding target for the 2010 plan year is 

$15,521 ($20,694 × 12 years of past service 

÷ 16 years of service at assumed age of 

death). The total single-sum death benefit for 

Participant A with respect to the death 

decrement at age 64 reflected in the funding 

target for the 2010 plan year is $65,188 

($49,667 + $15,521). 

(v) Similarly, the portion of the single-sum 

death benefit for Participant A that is taken 

into account when determining the target 

normal cost for 2010 is equal to the sum of 

the death benefit based on the expected 

increase in the accrued benefit during 2010 

and the expected change in the allocable 

portion of the excess death benefit 

attributable to service during 2010 as 

determined in accordance with paragraph 

(c)(1)(ii)(D) of this section. 

(vi) At the end of 2010, Participant A’s 

accrued benefit is expected to be $6,760 

($5,960 + $800), or $563.33 per month, and 

the associated death benefit is $56,333. The 

expected increase in the amount of the death 

benefit attributable to the increase in 

Participant A’s accrued benefit is therefore 

$6,666 ($56,333 ¥ $49,667). 

(vii) Participant A’s projected accrued 

benefit at normal retirement based on average 

compensation as of the end of 2010 is $8,840 

[.01 × 17 years of service at age 65 × ($50,000 

+ $52,000 + $54,000) ÷ 3], or $736.67 per 

month. The corresponding death benefit is 

$73,667. The excess portion of the single-sum 

death benefit to be allocated in accordance 

with paragraph (c)(1)(ii)(D) of this section is 

$17,334 ($73,667 ¥ $56,333), and the 

allocable portion of the excess benefit for 

Participant A as of December 31, 2010, with 

respect to the death decrement at age 64, is 

$14,084 ($17,334 × 13 years of service as of 

December 31, 2010 ÷ 16 years of service at 

assumed age of death). 

(viii) The change in the allocable portion 

of Participant A’s excess death benefit during 

2010, with respect to the death decrement at 

age 64, is a decrease of $1,437 ($14,084 ¥ 

$15,521). Therefore, the target normal cost for 

the 2010 plan year attributable to Participant 

A, with respect to the death decrement at age 

64, will reflect a single-sum death benefit of 

$5,229 ($6,666 expected increase in 

Participant A’s death benefit based on the 

expected increase in the accrued benefit, 

minus an expected decrease of $1,437 in the 

amount of the death benefit in excess of the 

amount attributable to the accrued benefit). 

Example 5. (i) The facts are the same as 

in Example 1. In addition, the plan provides 

a disability benefit to participants who 

become disabled after completing 15 years of 

service. The disability benefit is payable at 

normal retirement age or an earlier date if 

elected by a participant. For purposes of 

calculating the disability benefit, service 

continues to accrue until normal retirement 

age (unless recovery or commencement of 

retirement benefits occurs earlier). Further, 

compensation is deemed to continue at the 

same rate as when the disability began. 

(ii) Participant A will be eligible for the 

disability benefit at age 63 after completion 

of 15 years of service. Participant A’s annual 

disability benefit at normal retirement age is 

$9,180 (that is, 1% of highest 3-year average 

compensation of $54,000 multiplied by 17 

years of deemed service at normal retirement 

age). 

(iii) The portion of the disability benefit 

based on the participant’s accrued benefit as 

of the valuation date that is taken into 

account in determining the target normal cost 

and funding target is determined in 

accordance with paragraph (c)(1)(ii)(B) of this 

section. Accordingly, the portion of the 

disability benefit corresponding to 

Participant A’s accrued benefit as of January 

1, 2010, or $5,960, is taken into account 

when determining the 2010 funding target. 

(iv) The excess of Participant A’s disability 

benefit over the accrued benefit as of January 

1, 2010, is $3,220 ($9,180 ¥ $5,960). Because 

this portion of the disability benefit is not 

based on Participant A’s accrued benefit or 

service, the portion that is taken into account 

in determining the funding target is 

determined under paragraph (c)(1)(ii)(D) of 

this section. The portion of Participant A’s 

excess disability benefit with respect to the 

disability decrement occurring at age 63 that 

is taken into account when determining the 

2010 funding target is $2,576 [$3,220 × (12 

years of past service ÷ 15 years of service at 

assumed date of disability)]. The total 

disability benefit for Participant A, with 

respect to the disability decrement occurring 

at age 63, that is taken into account in 

determining the funding target for the 2010 

plan year is $8,536 ($5,960 + $2,576). 

(v) The portion of Participant A’s disability 

benefit with respect to the disability 

decrement occurring at age 64 that is taken 

into account when determining the 2010 

funding target is $8,375 [$5,960 + $3,220 × 

(12 years of past service ÷ 16 years of service 

at assumed date of disability)]. 

(vi) If in fact Participant A becomes 

disabled at age 63, the funding target will 

reflect the full disability benefit to which 

Participant A will be entitled at normal 

retirement age, based on service projected to 

normal retirement age (17 years) and final 

average compensation reflecting 

compensation projected to normal retirement 

age at the rate Participant A was earning at 

the time of disablement. 

Example 6. (i) The facts are the same as 

in Example 5, except that the disability 

benefit is based on the accrued benefit 

calculated using service and compensation 

earned to the date of disability. 

(ii) Because the disability benefit is a 

function of the participant’s accrued benefit, 

the portion of Participant A’s disability 

benefit that is taken into account when 

determining the funding target for the 2010 

plan year is Participant A’s annual accrued 

benefit as of January 1, 2010, or $5,960, as 

determined in Example 1. This amount is 

taken into account for both the disability 

decrement occurring at age 63 and the 

disability decrement occurring at age 64. 

(iii) Similarly, the benefit accrual for 

Participant A with respect to the disability 

decrements occurring at age 63 and age 64 

that is taken into account when determining 

the target normal cost for the 2010 plan year 

is equal to Participant A’s expected benefit 

accrual for 2010 determined in Example 1, or 

$800. 

Example 7. (i) Retiree D, a participant in 

Plan P, is a male age 72 and is receiving a 

$100 monthly straight life annuity. The 2009 

actuarial valuation is performed using the 

segment rates applicable for September 2008 

(determined without regard to the transition 

rule of section 430(h)(2)(G)), and the 2009 

annuitant and nonannuitant (male and 

female) mortality tables (published in Notice 

2008–85). See § 601.601(d)(2) relating to 

objectives and standards for publishing 

regulations, revenue rulings and revenue 

procedures in the Internal Revenue Bulletin. 

(ii) The present value of Retiree D’s straight 

life annuity on the valuation date is 

$10,535.79. This is equal to the sum of: 

$5,029.99, which is the present value of 

payments expected to be made during the 

first 5 years, using the first segment interest 

rate of 5.07%; $5,322.26, which is the present 

value of payments expected to be made 

during the next 15 years, using the second 

segment interest rate of 6.09%; and $183.54, 

which is the present value of payments 

expected to be made after 20 years, using the 

third segment interest rate of 6.56%. 

Example 8. (i) The facts are the same as in 

Example 7. Plan P does not provide for early 

retirement benefits or single-sum 

distributions. The actuary assumes that no 

participants terminate employment prior to 

age 50 (other than by death), there is a 5% 

probability of withdrawal at age 50, and that 

those participants who withdraw receive a 

deferred annuity starting at age 65. 


srobinson on DSKHWCL6B1PROD with RULES2
53044 Federal Register / Vol. 74, No. 198 / Thursday, October 15, 2009 / Rules and Regulations 

Participant E is a male age 46 on January 1, 

2009, and has an annual accrued benefit of 

$23,000 beginning at age 65. 

(ii) Before taking into account the 5% 

probability of withdrawal, the funding target 

associated with Participant E’s assumed age 

50 withdrawal benefit in the 2009 actuarial 

valuation is $68,396.75. This is equal to the 

sum of: $6,925.29, which is the present value 

of payments expected to be made during the 

year the participant turns age 65 (the 20th 

year after the valuation date), using the 

second segment interest rate of 6.09%; and 

$61,471.46, which is the present value of 

payments expected to be made after the 20th 

year, using the third segment interest rate of 

6.56%. 

(iii) Taking the 5% probability of 

withdrawal into account, the funding target 

for the 2009 plan year associated with 

Participant E’s assumed age 50 withdrawal 

benefit is $3,419.84 ($68,396.75 × 5%). 

Example 9. (i) The facts are the same as in 

Example 8, except the plan offers a singlesum distribution payable at normal 

retirement age (age 65) determined based on 

the applicable interest rates and the 

applicable mortality table under section 

417(e)(3). The actuary assumes that 70% of 

the participants will elect a single sum upon 

retirement and the remaining 30% will elect 

a straight life annuity. 

(ii) Before taking into account the 5% 

probability of withdrawal or the 70% 

probability of electing a single-sum payment, 

the portion of the 2009 funding target that is 

attributable to Participant E’s assumed singlesum payment, deferred to age 65, is 

$70,052.30. This is calculated in the same 

manner as the present value of annuity 

payments, except that, for the period after the 

annuity starting date, the 2009 applicable 

mortality rates are substituted for the 2009 

male annuitant mortality rates. This portion 

of the funding target for the 2009 plan year 

is equal to the sum of: $6,929.00, which is 

the present value of annuity payments 

expected to be made between age 65 and 66 

(during the 20th year after the valuation 

date), using the second segment interest rate 

of 6.09%; and $63,123.30, which is the 

present value of annuity payments expected 

to be made after the 20th year following the 

valuation date, using the third segment 

interest rate of 6.56%. These present value 

amounts reflect the 2009 male nonannuitant 

mortality rates prior to the assumed 

commencement of benefits at age 65 and the 

100% probability of retiring at age 65. 

(iii) Taking the 5% probability of 

withdrawal and the 70% probability of 

electing a single-sum payment into account, 

the portion of the 2009 funding target 

attributable to Participant E’s assumed singlesum payment based on withdrawal at age 50 

is $2,451.83 ($70,052.30 × 5% × 70%). After 

taking into account the 5% probability of 

withdrawal and the 30% probability of 

electing a straight life annuity, the portion of 

the 2009 funding target that is attributable to 

Participant E’s assumed straight life annuity 

(based on assumed withdrawal at age 50), 

deferred to age 65, is equal to 30% of the 

result obtained in Example 8. 

Example 10. (i) The facts are the same as 

in Example 9, except the plan offers an 

immediate single sum upon withdrawal at 

age 50 determined based on the applicable 

interest rates and the applicable mortality 

table under section 417(e)(3). The actuary 

assumes that 70% of the participants will 

elect to receive a single-sum distribution 

upon withdrawal. 

(ii) Before taking into account the 5% 

probability of withdrawal and the 70% 

probability of electing a single-sum payment, 

the portion of the funding target for the 2009 

plan year that is attributable to Participant 

E’s assumed single-sum payment based on 

withdrawal at age 50 is $68,908.39. This is 

calculated in the same manner as the present 

value of annuity payments, except that the 

2009 applicable mortality rates are 

substituted for the 2009 male annuitant and 

nonannuitant mortality rates after the 

annuity starting date. This portion of the 

2009 funding target is equal to the sum of 

$6,815.85, which is the present value of 

annuity payments expected to be made 

between age 65 and 66 (during the 20th year 

after the valuation date), using the second 

segment interest rate of 6.09%, and 

$62,092.54, which is the present value of 

annuity payments expected to be made after 

the 20th year following the valuation date, 

using the third segment interest rate of 

6.56%. These present value amounts reflect 

the 2009 male nonannuitant mortality rates 

prior to the assumed single-sum distribution 

age of 50. 

(iii) Applying the 5% probability of 

withdrawal at age 50 and the 70% probability 

of electing a single-sum payment, the portion 

of the funding target for the 2009 plan year 

that is attributable to Participant E’s assumed 

single-sum payment (based on withdrawal at 

age 50) is $2,411.79 ($68,908.39 × 5% × 

70%). 

Example 11. (i) The facts are the same as 

in Example 8, except that the plan sponsor 

elects under section 430(h)(2)(D)(ii) to use 

the monthly corporate bond yield curve 

instead of segment rates. The enrolled 

actuary assumes payments are made monthly 

throughout the year and uses the interest rate 

from the middle of the monthly corporate 

bond yield curve because this mid-year yield 

rate most closely matches the average timing 

of benefits paid. In accordance with 

§ 1.430(h)(2)–1(e)(4), the applicable monthly 

corporate bond yield curve is the yield curve 

derived from December 2008 rates. 

(ii) Before taking into account the 5% 

probability of withdrawal, the funding target 

associated with Participant E’s assumed age 

50 withdrawal benefit in the 2009 actuarial 

valuation is $67,394.12. This reflects the sum 

of each year’s expected payments, discounted 

at the yield rates described in paragraph (i) 

of this Example 11, as shown below: 

Age Maturity Yield rate Present value 

65 ........................................................ 19.5 ..................................................... 6.97% .............................................................. $5,897.88 

66 ........................................................ 20.5 ..................................................... 6.90% .............................................................. 5,524.69 

67 ........................................................ 21.5 ..................................................... 6.84% .............................................................. 5,164.63 

68 and over ......................................... Varies ................................................. Varies .............................................................. 50,806.92 

Total ............................................. ............................................................. ......................................................................... 67,394.12 

(iii) Applying the 5% probability of 

withdrawal, the portion of the funding target 

for the 2009 plan year attributable to 

Participant E’s assumed withdrawal at age 50 

is $3,369.71 ($67,394.12 × 5%). 

Example 12. (i) The facts are the same as 

in Example 10, except that the plan 

determines the amount of the immediate 

single-sum distribution upon withdrawal at 

age 50 based on the applicable interest rates 

under section 417(e)(3) or an interest rate of 

6.25%, whichever produces the higher 

amount. The applicable mortality table under 

section 417(e)(3) is used for both 

calculations. 

(ii) Before taking into account the 5% 

probability of withdrawal and the 70% 

probability of electing a single-sum payment, 

the present value of Participant E’s singlesum distribution as of January 1, 2009, using 

an interest rate of 6.25%, based on 

withdrawal at age 50, is $77,391.88. This 

amount is determined by calculating the 

projected single-sum distribution at age 50 

using the applicable mortality rate under 

section 417(e)(3) and an interest rate of 

6.25%, or $94,789.10, and discounting the 

result to the January 1, 2009, valuation date 

using the first segment rate of 5.07% (because 

the single-sum distribution is assumed to be 

paid 4 years after the valuation date) and the 

male non-annuitant mortality rates for 2009. 

(iii) Before taking into account the 5% 

probability of withdrawal and the 70% 

probability of electing a single-sum payment, 

the present value as of January 1, 2009, of 

Participant E’s age-50 single-sum distribution 

using the applicable interest rates and 

applicable mortality table under section 

417(e)(3) is $68,908.39, as developed in 

Example 10. Corresponding to plan 

provisions, the present value reflected in the 

funding target is the larger of this amount or 

the present value of the amount based on a 

6.25% interest rate, or $77,391.88. 

(iv) Applying the 5% probability of 

withdrawal at age 50 and the 70% probability 

of electing a single-sum payment, the portion 

of the funding target for the 2009 plan year 

that is attributable to Participant E’s assumed 

single-sum payment (based on withdrawal at 


srobinson on DSKHWCL6B1PROD with RULES2
Federal Register / Vol. 74, No. 198 / Thursday, October 15, 2009 / Rules and Regulations 53045 

age 50) is $2,708.72 ($77,391.88 × 5% × 

70%). 

Example 13. (i) Plan Q is a cash balance 

plan that permits an immediate payment of 

a single sum equal to the participant’s 

hypothetical account balance upon 

termination of employment. Plan Q’s terms 

provide that the hypothetical account is 

credited with interest at a market-related rate, 

based on a specified index. The January 1, 

2009, actuarial valuation is performed using 

the 24-month average segment rates 

applicable for September 2008 (determined 

without regard to the transition rule of 

section 430(h)(2)(G)). Participant F is a male 

age 61 on January 1, 2009, and has a 

hypothetical account balance equal to 

$150,000 on that date. In the 2009 actuarial 

valuation, the enrolled actuary assumes that 

the hypothetical account balances will 

increase with annual interest credits of 7% 

until the participant commences receiving 

his or her benefit, corresponding to the 

actuary’s best estimate of future interest rates 

credited under the terms of the plan. The 

actuary also assumes that all participants will 

retire on the first day of the plan year in 

which they attain age 65 (that is, no 

participant will terminate employment prior 

to age 65 other than by death), and that 100% 

of participants will elect a single sum upon 

retirement. 

(ii) Participant F’s hypothetical account 

balance projected to January 1, 2013 (the plan 

year in which F attains age 65) is $196,619.40 

based on the assumed annual interest 

crediting rate of 7%. The funding target for 

the 2009 plan year attributable to Participant 

F’s benefit at age 65 is $158,525.81, which is 

calculated by discounting the projected 

hypothetical account balance of $196,619.40 

using the first segment rate of 5.07% and the 

male non-annuitant mortality rates. 

Example 14. (i) The facts are the same as 

in Example 13, except that the actuary 

assumes that 10% of the participants will 

choose to collect their benefits in the form of 

a straight life annuity. The plan provides that 

the participant’s account balance at 

retirement is converted to an annuity using 

the applicable interest rates and applicable 

mortality table under section 417(e)(3). 

(ii) Participant F’s hypothetical account 

balance projected to January 1, 2013 (the plan 

year in which F attains age 65) is 

$196,619.40, as outlined in Example 13. This 

amount is converted to an annuity payable 

commencing at age 65 by dividing the 

projected account balance by an annuity 

factor based on the applicable mortality table 

for 2009 under section 417(e)(3) 

(corresponding to the valuation date) and the 

interest rates used for the valuation. The 

resulting annuity factor is 10.8321, reflecting 

one year of interest at the first segment rate 

(5.07%) corresponding to the first year of the 

expected annuity payments (the fifth year 

after the valuation date), 15 years of interest 

at the second segment rate (6.09%) and all 

remaining years at the third segment rate 

(6.56%). The projected future annuity is 

therefore $196,619.40 divided by 10.8321, or 

$18,151.55 per year. 

(iii) Before taking into account the 10% 

probability that the participant will elect to 

take the distribution in the form of a lifetime 

annuity, the funding target associated with 

the future annuity payout for Participant F is 

$149,120.41. This is equal to the sum of 

$14,242.79, which is the present value of the 

annuity payment expected to made during 

the year the participant turns age 65 (the 5th 

year after the valuation date), using the first 

segment interest rate of 5.07%; $116,321.72, 

which is the present value of payments 

expected to be made during the 6th through 

the 20th years following the valuation date, 

using the second segment interest rate of 

6.09%; and $18,555.90, which is the present 

value of payments expected to be made after 

the 20th year following the valuation date, 

using the third segment interest rate of 

6.56%. 

(iv) Applying the 10% probability of 

electing a lifetime annuity, the portion of the 

2009 funding target attributable to Participant 

F’s assumed lifetime annuity payable at age 

65 is $14,912.04. The portion of the 2009 

funding target attributable to Participant F’s 

assumed single-sum payment is 90% of the 

result obtained in Example 13. 

Example 15. (i) Plan H provides a monthly 

benefit of $50 times service for all 

participants. Plan H has a funding target of 

$1,000,000 and an actuarial value of assets of 

$810,000 as of January 1, 2010. No annuity 

contracts have been purchased, and Plan H 

has no funding standard carryover balance or 

prefunding balance as of January 1, 2010. The 

enrolled actuary certifies that the January 1, 

2010, AFTAP is 81%. Effective July 1, 2010, 

Plan H is amended on June 14, 2010, to 

increase the plan’s monthly benefit to $55 for 

years of service earned on or after July 1, 

2010. The present value of the increase in 

plan benefits during 2010 (reflecting benefit 

accruals attributable to the six months 

between July 1, 2010, and December 31, 

2010) is $25,000. 

(ii) The amendment increases benefits for 

future service only, and so the funding target 

is unaffected. Since section 436(c) only 

restricts plan amendments that increase plan 

liabilities, the plan amendment can take 

effect. 

(iii) If the $25,000 present value of the 

increase in plan benefits during 2010 were 

included in Plan H’s funding target of 

$1,000,000, the total would be $1,025,000, 

and the AFTAP would be 79.02% (that is, 

$810,000/$1,025,000). Since this is less than 

80%, the amendment would not have been 

permitted to take effect if the 2010 increase 

were included in the funding target instead 

of target normal cost. 

(iv) Because the amendment was adopted 

after the January 1, 2010, valuation date, the 

plan sponsor would generally have the 

option of deciding whether to reflect this 

amendment in the January 1, 2010, valuation 

or defer recognition of the amendment to the 

January 1, 2011, valuation. However, under 

paragraph (d)(2) of this section, because the 

plan amendment would not have been 

permitted to take effect under the provisions 

of section 436 if the increase in the target 

normal cost for the plan year had been taken 

into account in the funding target, the 

actuary must take into account the 

amendment in the January 1, 2010, valuation 

for purposes of section 430. Thus, the target 

normal cost for the plan year includes the 

$25,000 that results from the plan 

amendment. 

(g) Effective/applicability dates and 

transition rules—(1) Statutory effective 

date/applicability date—(i) In general. 

Section 430 generally applies to plan 

years beginning on or after January 1, 

2008. The applicability of section 430 

for purposes of determining the 

minimum required contribution is 

delayed for certain plans in accordance 

with sections 104 through 106 of PPA 

’06. 

(ii) Applicability of special 

adjustments. The special adjustments of 

paragraph (b)(1)(iii) of this section 

(relating to adjustments to the target 

normal cost for plan-related expenses 

and mandatory employee contributions) 

apply to plan years beginning after 

December 31, 2008. In addition, a plan 

sponsor may elect to make the special 

adjustments of paragraph (b)(1)(iii) of 

this section for a plan year beginning in 

2008. This election must take into 

account both adjustments described in 

paragraph (b)(1)(iii) of this section. This 

election is subject to the same rules that 

apply to an election to add an amount 

to the plan’s prefunding balance 

pursuant to § 1.430(f)–1(f), and it must 

be made in the same manner as the 

election made under § 1.430(f)–1(f). 

Thus, the election can be made no later 

than the last day for making the 

minimum required contribution for the 

plan year to which the election relates. 

(2) Effective date/applicability date of 

regulations. This section applies to plan 

years beginning on or after January 1, 

2010, regardless of whether section 430 

applies to determine the minimum 

required contribution for the plan year. 

For plan years beginning before January 

1, 2010, plans are permitted to rely on 

the provisions set forth in this section 

for purposes of satisfying the 

requirements of section 430. 

(3) Approval for changes in funding 

method—(i) 2008 plan year. Any 

changes in a plan’s funding method that 

are made for the first plan year 

beginning in 2008 that are not 

inconsistent with the requirements of 

section 430 are treated as having been 

approved by the Commissioner and do 

not require the Commissioner’s specific 

prior approval. 

(ii) Application of this section—(A) 

First plan year for which regulations are 

effective. Except as otherwise provided 

in paragraph (g)(3)(ii)(B) of this section, 

any change in a plan’s funding method 

for the first plan year that begins on or 

after January 1, 2010, is treated as 

having been approved by the 

Commissioner and does not require the 

Commissioner’s specific prior approval. 


srobinson on DSKHWCL6B1PROD with RULES2
53046 Federal Register / Vol. 74, No. 198 / Thursday, October 15, 2009 / Rules and Regulations 

(B) Optional earlier application of 

regulations. For the first plan year that 

a plan applies all the provisions of this 

section, §§ 1.430(f)–1, 1.430(g)–1, 

1.430(i)–1, and 1.436–1, any change in 

a plan’s funding method for that plan 

year is treated as having been approved 

by the Commissioner and does not 

require the Commissioner’s specific 

prior approval. For example, if the 

change in funding method includes a 

change in the valuation software, the 

change in the valuation software is 

treated as having been approved by the 

Commissioner and does not require the 

Commissioner’s specific prior approval. 

If that plan year begins before January 

1, 2010, the automatic approval for a 

change in funding method under 

paragraph (g)(3)(ii)(A) of this section 

does not apply to the plan. 

(C) Special rule for changes in 

allocation. Any change in a plan’s 

funding method for a plan year earlier 

than the first plan year beginning on or 

after January 1, 2010, that is necessary 

to apply the rules of paragraph (c)(1)(ii) 

of this section is treated as having been 

approved by the Commissioner and 

does not require the Commissioner’s 

specific prior approval. 

(iii) First plan year for which section 

430 applies to determine minimum 

funding. For a plan for which the 

minimum required contribution is not 

determined under section 430 for the 

first plan year that begins on or after 

January 1, 2008, pursuant to sections 

104 through 106 of PPA ’06, any change 

in a plan’s funding method for the first 

plan year to which section 430 applies 

to determine the plan’s minimum 

required contribution is treated as 

having been approved by the 

Commissioner and does not require the 

Commissioner’s specific prior approval. 

(4) Approval for changes in actuarial 

assumptions. The Commissioner’s 

specific prior approval is not required 

with respect to any actuarial 

assumptions that are adopted for the 

first plan year for which section 430 

applies to determine the minimum 

required contribution for the plan and 

that are not inconsistent with the 

requirements of section 430. 

(5) Transition rule for determining 

funding target attainment percentage for 

the 2007 plan year—(i) In general. For 

purposes of the first plan year beginning 

on or after January 1, 2008, the funding 

target attainment percentage for the 

plan’s prior plan year (the 2007 plan 

year) is determined as the fraction 

(expressed as a percentage), the 

numerator of which is the value of plan 

assets determined under paragraph 

(g)(5)(ii) of this section, and the 

denominator of which is the plan’s 

current liability determined pursuant to 

section 412(l)(7) (as in effect prior to 

amendment by PPA ’06) as of the 

valuation date for the 2007 plan year. 

(ii) Determination of value of plan 

assets—(A) In general. The value of plan 

assets for the 2007 plan year under this 

paragraph (g)(5)(ii)(A) is determined as 

the value of plan assets as described in 

paragraph (g)(5)(ii)(B) of this section, 

reduced by the plan’s funding standard 

account credit balance for the 2007 plan 

year as described in paragraph 

(g)(5)(iii)(A) of this section except to the 

extent provided in paragraph 

(g)(5)(iii)(B) of this section. 

(B) Value of plan assets. The value of 

plan assets for the 2007 plan year under 

this paragraph (g)(5)(ii)(B) is determined 

under section 412(c)(2) as in effect for 

the 2007 plan year, except that the value 

of plan assets prior to subtracting the 

plan’s funding standard account credit 

balance described in paragraph 

(g)(5)(iii)(A) of this section must be 

adjusted so that it is neither less than 90 

percent of the fair market value of plan 

assets nor greater than 110 percent of 

the fair market value of plan assets on 

the valuation date for that plan year. If 

the value of plan assets prior to 

adjustment under this paragraph 

(g)(5)(ii)(B) is less than 90 percent of the 

fair market value of plan assets on the 

valuation date, then the value of plan 

assets under this paragraph (g)(5)(ii)(B) 

is equal to 90 percent of the fair market 

value of plan assets. If the value of plan 

assets determined under this paragraph 

(g)(5)(ii)(B) is greater than 110 percent of 

the fair market value of plan assets on 

the valuation date, then the value of 

plan assets under this paragraph 

(g)(5)(ii)(B) is equal to 110 percent of the 

fair market value of plan assets. 

(iii) Subtraction of credit balance— 

(A) In general. If a plan has a funding 

standard account credit balance as of 

the valuation date for the 2007 plan 

year, then, except as described in 

paragraph (g)(5)(iii)(B) of this section, 

that balance is subtracted from the value 

of plan assets described in paragraph 

(g)(5)(ii)(B) of this section as of that 

valuation date to determine the value of 

plan assets for the 2007 plan year. 

However, the value of plan assets is not 

reduced below zero. 

(B) Effect of funding standard 

carryover balance reduction for the 2008 

plan year. Notwithstanding the rules of 

paragraph (g)(5)(iii)(A) of this section, 

for the first plan year beginning in 2008, 

if the employer has made an election to 

reduce some or all of the funding 

standard carryover balance as of the first 

day of that year in accordance with 

§ 1.430(f)–1(e), then the present value 

(determined as of the valuation date for 

the 2007 plan year using the valuation 

interest rate for that 2007 plan year) of 

the amount so reduced is not treated as 

part of the funding standard account 

credit balance when that balance is 

subtracted from the value of plan assets 

pursuant to paragraph (g)(5)(iii)(A) of 

this section. 

■ Par. 3. Section 1.430(f)–1 is added to 

read as follows: 

§ 1.430(f)–1 Effect of prefunding balance 

and funding standard carryover balance. 

(a) In general—(1) Overview. This 

section provides rules relating to the 

application of prefunding and funding 

standard carryover balances under 

section 430(f). Section 430 and this 

section apply to single employer 

defined benefit plans (including 

multiple employer plans) that are 

subject to section 412, but do not apply 

to multiemployer plans (as defined in 

section 414(f)). Paragraph (b) of this 

section sets forth rules regarding a 

plan’s prefunding balance and a plan 

sponsor’s election to maintain a funding 

standard carryover balance. Paragraph 

(c) of this section provides rules under 

which those balances must be 

subtracted from plan assets. Paragraph 

(d) of this section describes a plan 

sponsor’s election to use those balances 

to offset the minimum required 

contribution. Paragraph (e) of this 

section describes a plan sponsor’s 

election to reduce those balances (which 

will affect the determination of the 

value of plan assets for purposes of 

sections 430 and 436). Paragraph (f) of 

this section sets forth rules regarding 

elections under this section. Paragraph 

(g) of this section contains examples. 

Paragraph (h) of this section contains 

effective/applicability dates and 

transition rules. 

(2) Special rules for multiple 

employer plans. In the case of a multiple 

employer plan to which section 

413(c)(4)(A) applies, the rules of this 

section are applied separately for each 

employer under the plan, as if each 

employer maintained a separate plan. 

Thus, each employer under such a 

multiple employer plan may have a 

separate funding standard carryover 

balance and a prefunding balance for 

the plan. In the case of a multiple 

employer plan to which section 

413(c)(4)(A) does not apply (that is, a 

plan described in section 413(c)(4)(B) 

that has not made the election for 

section 413(c)(4)(A) to apply), the rules 

of this section are applied as if all 

participants in the plan were employed 

by a single employer. 

(b) Maintenance of balances—(1) 

Prefunding balance—(i) In general. A 

plan sponsor is permitted to elect to 


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maintain a prefunding balance for a 

plan. A prefunding balance maintained 

for a plan consists of a beginning 

balance of zero, increased by the 

amount of excess contributions to the 

extent the employer elects to do so as 

described in paragraph (b)(1)(ii) of this 

section, and decreased to the extent 

provided in paragraph (b)(1)(iii) of this 

section. The plan sponsor’s initial 

election to add to the prefunding 

balance under paragraph (b)(1)(ii) of this 

section constitutes an election to 

maintain a prefunding balance. The 

prefunding balance is adjusted further 

for investment return and interest as 

provided in paragraphs (b)(3) and (b)(4) 

of this section. 

(ii) Increases—(A) In general. If the 

plan sponsor of a plan elects to add to 

the plan’s prefunding balance, as of the 

first day of a plan year following the 

first effective plan year for the plan, the 

prefunding balance is increased by the 

amount so elected by the plan sponsor 

for the plan year. The amount added to 

the prefunding balance cannot exceed 

the present value of the excess 

contributions for the preceding plan 

year determined under paragraph 

(b)(1)(ii)(B) of this section, increased for 

interest in accordance with paragraph 

(b)(1)(iv)(A) of this section. 

(B) Present value of excess 

contribution. The present value of the 

excess contribution for the preceding 

plan year is the excess, if any, of— 

(1) The present value (determined 

under the rules of paragraph (b)(1)(iv)(B) 

of this section) of the employer 

contributions (other than contributions 

to avoid or terminate benefit limitations 

described in § 1.436–1(f)(2)) to the plan 

for such preceding plan year; over 

(2) The minimum required 

contribution for such preceding plan 

year. 

(C) Treatment of unpaid minimum 

required contributions. For purposes of 

this paragraph (b)(1)(ii), a contribution 

made during a plan year to correct an 

unpaid minimum required contribution 

(within the meaning of section 

4971(c)(4)) for a prior plan year is not 

treated as a contribution for the current 

plan year. 

(iii) Decreases. As of the first day of 

each plan year, the prefunding balance 

of a plan is decreased (but not below 

zero) by the sum of— 

(A) Any amount of the prefunding 

balance that was used under paragraph 

(d) of this section to offset the minimum 

required contribution of the plan for the 

preceding plan year; and 

(B) Any reduction in the prefunding 

balance under paragraph (e) of this 

section for the plan year. 

(iv) Adjustments for interest—(A) 

Adjustment of excess contribution. The 

present value of the excess contribution 

for the preceding year (as determined 

under paragraph (b)(1)(ii)(B) of this 

section) is increased for interest 

accruing for the period between the 

valuation date for the preceding plan 

year and the first day of the current plan 

year. For this purpose, interest is 

determined by using the plan’s effective 

interest rate under section 430(h)(2)(A) 

for the preceding plan year, except to 

the extent provided in paragraph 

(b)(3)(iii) of this section. 

(B) Determination of present value. 

The present value of the contributions 

described in paragraph (b)(1)(ii)(B)(1) of 

this section is determined as of the 

valuation date for the preceding plan 

year, using the plan’s effective interest 

rate under section 430(h)(2)(A) for the 

preceding plan year. 

(2) Funding standard carryover 

balance—(i) In general. A funding 

standard carryover balance is 

automatically established for a plan that 

had a positive balance in the funding 

standard account under section 412(b) 

(as in effect prior to amendment by the 

Pension Protection Act of 2006 (PPA 

’06), Public Law 109–280 (120 Stat. 

780)) as of the end of the pre-effective 

plan year for the plan. The funding 

standard carryover balance as of the 

beginning of the first effective plan year 

for the plan is the positive balance in 

the funding standard account under 

section 412(b) (as in effect prior to 

amendment by PPA ’06) as of the end 

of the pre-effective plan year for the 

plan. After that date, the funding 

standard carryover balance is decreased 

to the extent provided in paragraph 

(b)(2)(ii) of this section and adjusted 

further for investment return and 

interest as provided in paragraphs (b)(3) 

and (b)(4) of this section. 

(ii) Decreases. As of the first day of 

each plan year, the funding standard 

carryover balance of a plan is decreased 

(but not below zero) by the sum of— 

(A) Any amount of the funding 

standard carryover balance that was 

used under paragraph (d) of this section 

to offset the minimum required 

contribution of the plan for the 

preceding plan year; and 

(B) Any reduction in the funding 

standard carryover balance under 

paragraph (e) of this section for the plan 

year. 

(3) Adjustments for investment 

experience—(i) In general. A plan’s 

prefunding balance under paragraph 

(b)(1) of this section and a plan’s 

funding standard carryover balance 

under paragraph (b)(2) of this section as 

of the first day of a plan year must be 

adjusted to reflect the actual rate of 

return on plan assets for the preceding 

plan year. For this purpose, the actual 

rate of return on plan assets for the 

preceding plan year is determined on 

the basis of fair market value and must 

take into account the amount and timing 

of all contributions, distributions, and 

other plan payments made during that 

period. 

(ii) Ordering rules for adjustments. In 

general, the adjustment for actual rate of 

return on plan assets is applied to the 

balance after any reduction of 

prefunding and funding standard 

carryover balances for that preceding 

plan year under paragraph (e) of this 

section and after subtracting amounts 

used to offset the minimum required 

contribution for the preceding plan year 

pursuant to paragraph (d) of this 

section. However, see paragraph 

(d)(1)(ii)(D) of this section for a special 

ordering rule when adjusting for 

investment experience. 

(iii) Special rule for excess 

contributions attributable to use of 

funding balances. Notwithstanding 

paragraph (b)(1)(iv)(A) of this section, to 

the extent that a contribution is 

included in the present value of excess 

contributions solely because the 

minimum required contribution has 

been offset under paragraph (d) of this 

section, the contribution is adjusted for 

investment experience under the rules 

of this paragraph (b)(3). 

(4) Valuation date other than the first 

day of the plan year—(i) In general. If 

a plan’s valuation date is not the first 

day of the plan year, then, solely for 

purposes of applying paragraphs (c), (d), 

and (e) of this section, the plan’s 

prefunding and funding standard 

carryover balances (if any) determined 

under this paragraph (b) are increased 

from the first day of the plan year to the 

valuation date using the plan’s effective 

interest rate under section 430(h)(2)(A) 

for the plan year. 

(ii) Special rule for adjustments for 

investment experience. In the case of a 

plan with a valuation date that is not the 

first day of the plan year, for purposes 

of applying the subtraction under 

paragraph (b)(3)(ii) of this section for 

amounts used to offset the minimum 

required contribution for the preceding 

plan year and the decreases under 

paragraphs (b)(1)(iii) and (b)(2)(ii) of this 

section, the amount of the prefunding 

balance or funding standard carryover 

balance that is used to offset the 

minimum required contribution under 

paragraph (d) of this section or reduced 

under paragraph (e) of this section is 

discounted from the valuation date to 

the first day of the plan year using the 


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53048 Federal Register / Vol. 74, No. 198 / Thursday, October 15, 2009 / Rules and Regulations 

effective interest rate under section 

430(h)(2)(A) for the plan year. 

(5) Special rule for quarterly 

contributions—(i) Quarterly 

contributions due on or after the 

valuation date. For purposes of 

applying a prefunding balance or 

funding standard carryover balance to 

required installments described in 

section 430(j)(3) that are due on or after 

the valuation date for the plan year for 

which they are due, the respective 

balances are increased from the 

beginning of the year to the date of the 

election (using the plan’s effective 

interest rate for the plan year) to 

determine the amount available to offset 

the required quarterly installment. The 

amounts used to offset required 

quarterly installments are then 

discounted from that date to the first 

day of the plan year for purposes of the 

subtraction under paragraph (b)(3)(ii) of 

this section and the decreases under 

paragraphs (b)(1)(iii) and (b)(2)(ii) of this 

section, using the effective interest rate 

for the plan year. However, see 

paragraph (d)(1)(i)(B) of this section for 

a special rule regarding late quarterly 

installments when determining the 

amount that is used to offset the 

minimum required contribution for the 

plan year. 

(ii) Quarterly contributions due before 

the valuation date. [Reserved.] 

(c) Effect of balances on the value of 

plan assets—(1) In general. In the case 

of any plan with a prefunding balance 

or a funding standard carryover balance, 

the amount of those balances is 

subtracted from the value of plan assets 

for purposes of sections 430 and 436, 

except as otherwise provided in 

paragraphs (c)(2), (c)(3), and (d)(3) of 

this section and § 1.436–1(j)(1)(ii)(B). 

(2) Subtraction of balances in 

determining new shortfall amortization 

base—(i) Prefunding balance. For 

purposes of determining whether a plan 

is exempt from the requirement to 

establish a new shortfall amortization 

base under section 430(c)(5), the amount 

of the prefunding balance is subtracted 

from the value of plan assets only if an 

election under paragraph (d) of this 

section to use the prefunding balance to 

offset the minimum required 

contribution is made for the plan year. 

(ii) Funding standard carryover 

balance. For purposes of determining 

whether a plan is exempt from the 

requirement to establish a new shortfall 

amortization base under section 

430(c)(5), the funding standard 

carryover balance is not subtracted from 

the value of plan assets regardless of 

whether any portion of either the 

funding standard carryover balance or 

the prefunding balance is used to offset 

the minimum required contribution for 

the plan year under paragraph (d) of this 

section. 

(3) Special rule for certain binding 

agreements with PBGC. If there is in 

effect for a plan year a binding written 

agreement with the Pension Benefit 

Guaranty Corporation (PBGC) which 

provides that all or a portion of the 

prefunding balance or funding standard 

carryover balance (or both balances) is 

not available to offset the minimum 

required contribution for a plan year, 

that specified amount is not subtracted 

from the value of plan assets for 

purposes of determining the funding 

shortfall under section 430(c)(4). For 

example, if a plan has no prefunding 

balance and a $20 million funding 

standard carryover balance, a PBGC 

agreement provides that $5 million of a 

plan’s funding standard carryover 

balance is unavailable to offset the 

minimum required contribution for a 

plan year, and the plan’s assets are $100 

million, then the value of plan assets for 

purposes of determining the funding 

shortfall under section 430(c)(4) is 

reduced by $15 million ($20 million less 

$5 million) to $85 million. For purposes 

of this paragraph (c)(3), an agreement 

with the PBGC is taken into account 

with respect to a plan year only if the 

agreement was executed prior to the 

valuation date for the plan year. 

(d) Election to apply balances against 

minimum required contribution—(1) In 

general—(i) Amount of offset to 

minimum required contribution—(A) 

Effect of use of balances. Subject to the 

limitations provided in this paragraph 

(d), in the case of any plan year with 

respect to which the plan sponsor elects 

to use all or a portion of the prefunding 

balance or the funding standard 

carryover balance to offset the minimum 

required contribution for the plan year, 

the minimum required contribution for 

the plan year (determined after taking 

into account any waiver under section 

412(c)) is offset as of the valuation date 

for the plan year by the amount so used. 

(B) Special rule for late quarterly 

contributions—(1) Quarterly 

contributions due on or after the 

valuation date. Notwithstanding 

paragraph (d)(1)(i)(A) of this section, if 

the plan sponsor elects to use all or a 

portion of the prefunding balance or the 

funding standard carryover balance to 

satisfy a required installment under 

section 430(j)(3) that is due on or after 

the valuation date, the amount used to 

offset the minimum required 

contribution for the plan year is the 

portion of the balance so used, 

discounted in accordance with the rules 

of paragraph (b)(5) of this section, 

unless the date of the election is after 

the due date of the required installment. 

If the election to use all or a portion of 

the prefunding balance or the funding 

standard carryover balance to satisfy the 

required installments under section 

430(j)(3) is made after the due date for 

the required installment, then the 

amount used to offset the minimum 

required contribution for the plan year 

is the portion of the balance so used, 

discounted from the date of the election 

to the due date of the required 

installment at the effective interest rate 

plus 5 percentage points, and then 

further discounted from the installment 

due date to the valuation date at the 

effective interest rate. For example, if a 

quarterly installment of $20,250 is due 

on April 15 for a calendar year plan 

with a valuation date on January 1 and 

an effective interest rate of 6 percent, 

and the installment is satisfied by an 

election to apply the funding standard 

carryover balance that is made on July 

1 (21⁄2; months after the April 15 due 

date), then the amount used to offset the 

minimum required contribution under 

this paragraph (d)(1)(i) is $19,481 (that 

is, $20,250 ÷ 1.11(2.5⁄12) ÷ 1.06(3.5⁄12). 

However, the amount by which the 

funding standard carryover balance is 

reduced under paragraph (b)(2)(ii) of 

this section is $19,669 (that is, $20,250 

÷ 1.06(6⁄12). 

(2) Quarterly contributions due before 

the valuation date. [Reserved.] 

(ii) Maximum amount of available 

balances and coordination of 

elections—(A) General requirement to 

follow chronology. In general, the 

amount of prefunding and funding 

standard carryover balances that may be 

used to offset the minimum required 

contribution for a plan year must take 

into account any decrease in those 

balances which results from a prior 

election either to use the prefunding 

balance or funding standard carryover 

balance under section 430(f)(3) and this 

paragraph (d) or to reduce those 

balances under section 430(f)(5) and 

paragraph (e) of this section (including 

deemed elections under section 

436(f)(3) and § 1.436–1(a)(5)). For 

example, for a calendar plan year with 

a January 1 valuation date, a deemed 

election under section 436(f)(3) and 

§ 1.436–1(a)(5) on April 1, 2010 (the first 

day of the 4th month of the plan year) 

will reduce the available prefunding 

balance or funding standard carryover 

balance that can be used with respect to 

an election made after April 1, 2010. 

(B) Exception to chronological rule. 

Notwithstanding the general rule of 

paragraph (d)(1)(ii)(A) of this section, all 

elections under section 430(f)(5) and 

paragraph (e) of this section to reduce 

the prefunding balance or funding 


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Federal Register / Vol. 74, No. 198 / Thursday, October 15, 2009 / Rules and Regulations 53049 

standard carryover balance for the 

current plan year (including deemed 

elections under section 436(f)(3) and 

§ 1.436–1(a)(5)) are deemed to occur on 

the valuation date for the plan year and 

before any election under section 

430(f)(3) and this paragraph (d) to offset 

the minimum required contribution for 

the current plan year. Accordingly, if an 

election to use the prefunding balance 

or funding standard carryover balance to 

offset the minimum required 

contribution for the plan year (including 

an election to satisfy the quarterly 

contribution requirement) has been 

made prior to the election to reduce the 

prefunding balance or funding standard 

carryover balance, then the amount 

available for use to offset the otherwise 

applicable minimum required 

contribution for the plan year under this 

paragraph (d) will be retroactively 

reduced. However, an election to reduce 

a prefunding balance or funding 

standard carryover balance for a plan 

year does not affect a prior election to 

use a prefunding balance or funding 

standard carryover balance to offset a 

minimum required contribution for a 

prior plan year. 

(C) Investment experience. In addition 

to reflecting any decrease in the 

prefunding balance or the funding 

standard carryover balance which 

results from a prior election for the 

previous year either to use the 

prefunding balance or funding standard 

carryover balance under section 

430(f)(3) and this paragraph (d) to offset 

the minimum required contribution for 

such prior plan year or to reduce those 

balances under section 430(f)(5) and 

paragraph (e) of this section (including 

deemed elections under section 

436(f)(3) and § 1.436–1(a)(5)), the prior 

plan year’s prefunding and funding 

standard carryover balances must be 

adjusted under the rules of paragraph 

(b)(3) of this section for investment 

experience for that prior plan year 

before determining the amount of those 

balances available for such an election 

for the current plan year. 

(D) Special rule for current year 

elections that are made before prior year 

elections. This paragraph (d)(1)(ii)(D) 

sets forth a special rule that applies if, 

for the current plan year, a plan sponsor 

makes an election under this paragraph 

(d) or paragraph (e) of this section 

(including a deemed election under 

section 436(f)(3) and § 1.436–1(a)(5)), 

and then subsequently makes an 

election under this paragraph (d) to 

offset the minimum required 

contribution for the prior plan year. 

This special rule applies solely for 

purposes of determining the amount of 

prefunding and funding standard 

carryover balances available for that 

subsequent election. Under this special 

rule, in lieu of decreasing the funding 

standard carryover balance or 

prefunding balance as of the valuation 

date for the current year to take into 

account the current year election, the 

funding standard carryover balance or 

prefunding balance as of the valuation 

date for the prior plan year is decreased 

by the amount of the prior year 

equivalent of the current year election. 

The prior year equivalent of the current 

year election is determined by dividing 

the amount of the current year election 

(as of the first day of the current plan 

year) by a number equal to 1 plus the 

rate of investment return for the prior 

plan year determined under paragraph 

(b)(3) of this section. If this paragraph 

(d)(1)(ii)(D) applies for a plan year, then 

the funding standard carryover balance 

and prefunding balance are nonetheless 

adjusted in accordance with the rules of 

paragraph (b) of this section, after the 

application of the rules of this 

paragraph (d)(1)(ii)(D). Thus, the 

amount used to offset the minimum 

required contribution for the earlier 

plan year is subtracted from the 

prefunding balance or funding standard 

carryover balance as of the valuation 

date for that year prior to the adjustment 

for investment return under paragraph 

(b)(3) of this section for that plan year, 

and the amount by which the 

prefunding balance or funding standard 

carryover balance is decreased for the 

second year is based on the elections 

made for the second year. 

(2) Requirement to use funding 

standard carryover balance before 

prefunding balance. To the extent that 

a plan has a funding standard carryover 

balance greater than zero, no amount of 

the plan’s prefunding balance may be 

used to offset the minimum required 

contribution. Thus, a plan’s funding 

standard carryover balance must be 

exhausted before the plan’s prefunding 

balance may be applied under 

paragraph (d)(1) of this section to offset 

the minimum required contribution. 

(3) Limitation for underfunded 

plans—(i) In general. An election to use 

the prefunding balance or funding 

standard carryover balance to offset the 

minimum required contribution under 

this paragraph (d) is not available for a 

plan year if the plan’s prior plan year 

funding ratio is less than 80 percent. For 

purposes of this paragraph (d)(3), except 

as otherwise provided in this paragraph 

(d)(3) or paragraph (h)(3) of this section, 

the plan’s prior plan year funding ratio 

is the fraction (expressed as a 

percentage)— 

(A) The numerator of which is the 

value of plan assets on the valuation 

date for the preceding plan year, 

reduced by the amount of any 

prefunding balance (but not the amount 

of any funding standard carryover 

balance); and 

(B) The denominator of which is the 

funding target of the plan for the 

preceding plan year (determined 

without regard to the at-risk rules of 

section 430(i)(1)). 

(ii) Special rule for second year of a 

new plan with no past service. In the 

case of a new plan that was neither the 

result of a merger nor involved in a 

spinoff, if the prior plan year was the 

first year of the plan and the funding 

target for the prior plan year was zero, 

then the plan’s prior plan year funding 

ratio is deemed to be 80 percent for 

purposes of this paragraph (d)(3). 

(iii) Special rule for plans that are the 

result of a merger. [Reserved] 

(iv) Special rules for plans that are 

involved in a spinoff. [Reserved] 

(e) Election to reduce balances—(1) In 

general. A plan sponsor may make an 

election for a plan year to reduce any 

portion of a plan’s prefunding and 

funding standard carryover balances 

under this paragraph (e). If such an 

election is made, the amount of those 

balances that must be subtracted from 

the value of plan assets pursuant to 

paragraph (c)(1) of this section will be 

smaller and, accordingly, the value of 

plan assets taken into account for 

purposes of sections 430 and 436 will be 

larger. Thus, this election to reduce a 

plan’s prefunding and funding standard 

carryover balances is taken into account 

in the determination of the value of plan 

assets for the plan year and applies for 

all purposes under sections 430 and 

436, including for purposes of 

determining the plan’s prior plan year 

funding ratio under paragraph (d)(3) of 

this section for the following plan year. 

See also section 436(f)(3) and § 1.436– 

1(a)(5) for a rule under which the plan 

sponsor is deemed to make the election 

described in this paragraph (e). The 

rules of paragraph (d)(1)(ii) of this 

section also apply for purposes of 

determining the maximum amount of 

prefunding balance or funding standard 

carryover balance that is available for an 

election under this paragraph (e). 

(2) Requirement to reduce funding 

standard carryover balance before 

prefunding balance. To the extent that 

a plan has a funding standard carryover 

balance greater than zero, no election 

under paragraph (e)(1) of this section is 

permitted to be made that reduces the 

plan’s prefunding balance. Thus, a plan 

must exhaust its funding standard 

carryover balance before it is permitted 

to make an election under paragraph 


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53050 Federal Register / Vol. 74, No. 198 / Thursday, October 15, 2009 / Rules and Regulations 

(e)(1) of this section with respect to its 

prefunding balance. 

(f) Elections—(1) Method of making 

elections—(i) In general. Any election 

under this section by the plan sponsor 

must be made by providing written 

notification of the election to the plan’s 

enrolled actuary and the plan 

administrator. The written notification 

must set forth the relevant details of the 

election, including the specific dollar 

amount involved in the election (except 

as provided in paragraph (f)(1)(ii) of this 

section). Thus, except as provided in 

paragraph (f)(1)(ii) of this section, a 

conditional or formula-based election 

generally does not satisfy the 

requirements of this paragraph (f). 

(ii) Standing elections to increase or 

use balances. A plan sponsor may 

provide a standing election in writing to 

the plan’s enrolled actuary to use the 

funding standard carryover balance and 

the prefunding balance to offset the 

minimum required contribution for the 

plan year to the extent needed to avoid 

an unpaid minimum required 

contribution under section 4971(c)(4) 

taking into account any contributions 

that are or are not made. In addition, a 

plan sponsor may provide a standing 

election in writing to the plan’s enrolled 

actuary to add the maximum amount 

possible each year to the prefunding 

balance. Any election made pursuant to 

a standing election under this paragraph 

(f)(1)(ii) is deemed to occur on the last 

day available to make the election for 

the plan year as provided under 

paragraph (f)(2)(i) of this section. Any 

standing election under this paragraph 

(f)(1)(ii) remains in effect for the plan 

with respect to the enrolled actuary 

named in the election, unless— 

(A) The standing election is revoked 

under the rules of paragraph (f)(3) of 

this section; or 

(B) The enrolled actuary who signs 

the actuarial report under section 6059 

(Schedule SB, ‘‘Single-Employer 

Defined Benefit Plan Actuarial 

Information’’ of Form 5500, ‘‘Annual 

Return/Report of Employee Benefit 

Plan’’) for the plan for the plan year is 

not the enrolled actuary named in the 

standing election. 

(2) Timing of elections—(i) General 

rule. Except as otherwise provided in 

paragraph (f)(2)(ii) or (iii) of this section, 

any election under this section with 

respect to a plan year must be made no 

later than the last date for making the 

minimum required contribution for the 

plan year as described in section 

430(j)(1). For this purpose, an election 

to add to the prefunding balance relates 

to the plan year for which excess 

contributions were made. For example, 

an election to add to the prefunding 

balance as of the first day of the plan 

year that begins on January 1, 2010 (in 

an amount not in excess of the present 

value of the excess contribution as of 

the valuation date in 2009, adjusted for 

interest under the rules of paragraph 

(b)(1)(ii) of this section), must be made 

no later than September 15, 2010, even 

though the election is reported on the 

2010 Schedule SB of Form 5500, which 

is not due until 2011. Except for the 

standing elections covered by paragraph 

(f)(1)(ii) of this section, an election 

under this section may not be made 

prior to the first day of the plan year to 

which the election relates. 

(ii) Special rule for standing election 

revoked by a change in enrolled actuary. 

If there is a change in enrolled actuary 

for the plan year which would result in 

a revocation of the standing election 

under the rule of paragraph (f)(1)(ii)(B) 

of this section, then the plan sponsor 

may reinstate the revoked standing 

election by providing a replacement to 

the new enrolled actuary by the due 

date of the Schedule SB of Form 5500. 

(iii) Election to reduce balances. Any 

election under paragraph (e) of this 

section to reduce the prefunding 

balance or funding standard carryover 

balance for a plan year (for example, in 

order to avoid or terminate a benefit 

restriction under section 436) must be 

made by the end of the plan year to 

which the election relates. 

(iv) Earlier elections. This paragraph 

(f)(2) sets forth the latest date that an 

election can be made. A plan sponsor is 

permitted to make an earlier election, 

and in certain circumstances may need 

to make such an election in order to 

timely satisfy a quarterly contribution 

requirement under section 430(j)(3). 

(3) Irrevocability of elections—(i) In 

general. Except as otherwise provided 

in this paragraph (f)(3), a plan sponsor’s 

election under this section with respect 

to the plan’s prefunding balance or 

funding standard carryover balance is 

irrevocable (and must be 

unconditional). A standing election by 

the plan sponsor may be revoked by 

providing written notification of the 

revocation to the plan’s enrolled actuary 

and the plan administrator on or before 

the date the corresponding election is 

deemed to occur pursuant to paragraph 

(f)(1)(ii) of this section. 

(ii) Exception for certain elections. An 

election to use the prefunding balance 

or funding standard carryover balance to 

offset the minimum required 

contribution for a plan year (including 

an election to satisfy the quarterly 

contribution requirements for a plan 

year) is permitted to be revoked to the 

extent the amount the plan sponsor 

elected to use to offset the minimum 

contribution requirements (including an 

election used to satisfy the quarterly 

contribution requirements) exceeds the 

minimum required contribution for a 

plan year (determined without regard to 

the election under paragraph (d) of this 

section) if and only if the election is 

revoked by providing written 

notification of the revocation to the 

plan’s enrolled actuary and the plan 

administrator by the deadline set forth 

in paragraph (f)(3)(iii) of this section. If 

no such revocation is made, then, under 

paragraph (b) of this section, the 

funding standard carryover balance or 

prefunding balance is decreased by the 

entire amount that the plan sponsor 

elected to use to offset the minimum 

required contribution for a plan year 

(including an election to satisfy the 

quarterly contribution requirements for 

a plan year). 

(iii) Deadline for revoking election. 

The deadline for revoking the election 

described in paragraph (f)(3)(ii) of this 

section is generally the end of the plan 

year. However, for plans with a 

valuation date other than the first day of 

the plan year, the deadline for the 

revocation is the deadline for 

contributions for the plan year as 

described in section 430(j)(1). In 

addition, for the first plan year 

beginning in 2008, the deadline for the 

revocation for all plans is deferred to the 

due date (including extensions) of the 

Schedule SB, ‘‘Single-Employer Defined 

Benefit Plan Actuarial Information’’ of 

Form 5500, ‘‘Annual Return/Report of 

Employee Benefit Plan’’. 

(4) Plan sponsor—(i) In general. For 

purposes of the elections described in 

this section, except as otherwise 

provided in paragraph (f)(4)(ii) of this 

section, any reference to the plan 

sponsor means the employer or 

employers responsible for making 

contributions to or under the plan. 

(ii) Certain multiple employer plans. 

For purposes of the elections described 

in this section, in the case of plans that 

are multiple employer plans to which 

section 413(c)(4)(A) does not apply, any 

reference to the plan sponsor means the 

plan administrator within the meaning 

of section 414(g). 

(g) Examples. The following examples 

illustrate the rules of this section: 

Example 1. (i) Plan P is a defined benefit 

plan with a plan year that is the calendar 

year and a valuation date of January 1. The 

funding standard carryover balance of Plan P 

is $25,000 and the prefunding balance is zero 

as of the beginning of the 2010 plan year. The 

sponsor of Plan P, Sponsor S, does not elect 

to use any portion of the balance to offset the 

minimum required contribution for 2010 

pursuant to paragraph (d)(1) of this section, 

or to reduce any portion of the funding 


srobinson on DSKHWCL6B1PROD with RULES2
Federal Register / Vol. 74, No. 198 / Thursday, October 15, 2009 / Rules and Regulations 53051 

standard carryover balance prior to the 

determination of the value of plan assets for 

2010, pursuant to paragraph (e)(1) of this 

section. The actual rate of return on Plan P’s 

assets for 2010 is 2%. Plan P’s effective 

interest rate for 2010 is 6%. The minimum 

required contribution for Plan P under 

section 430 for 2010 is $100,000, and no 

quarterly installments are required for Plan P 

for the 2010 plan year. As of January 1, 2010, 

the value of plan assets is $1,100,000 and the 

funding target is $1,000,000. Therefore, the 

prior plan year funding ratio for Plan P for 

2010, as determined under paragraph (d)(3) 

of this section, is 110%. 

(ii) Sponsor S makes a contribution to Plan 

P of $150,000 on December 1, 2010, for the 

2010 plan year and makes no other 

contributions for the 2010 plan year. Because 

this contribution was made on a date other 

than the valuation date for the 2010 plan 

year, the contribution must be adjusted to 

reflect interest that would otherwise have 

accrued between the valuation date and the 

date of the contribution, at the effective 

interest rate for the 2010 plan year. The 

amount of the contribution after adjustment 

is $142,198, determined as $150,000 

discounted for 11 months of compound 

interest at an effective annual interest rate of 

6%. 

(iii) The excess of employer contributions 

for 2010 over the minimum required 

contribution for 2010, as of the valuation 

date, is $42,198 ($142,198 less $100,000). 

Accordingly, the increase in Plan P’s 

prefunding balance as of January 1, 2011, 

cannot exceed $44,730 (which is the present 

value of the excess contribution of $42,198 

adjusted for 12 months of interest at an 

effective interest rate of 6%). 

(iv) Plan P’s funding standard carryover 

balance as of January 1, 2011, is $25,500 

(which is the funding standard carryover 

balance as of January 1, 2010, adjusted for 

investment experience during 2010 at a rate 

of 2%). 

Example 2. (i) The facts are the same as in 

Example 1, except that the contribution of 

$150,000 is made on February 1, 2011, for the 

2010 plan year. 

(ii) The amount of the contribution after 

adjustment is $140,824, which is determined 

as $150,000 discounted for 13 months of 

interest at an effective interest rate of 6%. 

Accordingly, the increase in Plan P’s 

prefunding balance as of January 1, 2011, 

cannot exceed $43,273 (which is the present 

value of the excess contribution of $40,824 

adjusted for 12 months of interest at an 

effective interest rate of 6%). 

(iii) Plan P’s funding standard carryover 

balance as of January 1, 2011, is $25,500, as 

developed in Example 1 of this section. If 

Sponsor S elects to increase the prefunding 

balance as of January 1, 2011, by the present 

value of the excess contribution adjusted for 

interest, or $43,273, the total of the funding 

standard carryover balance and prefunding 

balance as of January 1, 2011, is $68,773. 

Example 3. (i) The facts are the same as 

in Example 1, except that Sponsor S 

contributes $90,539 to Plan P on February 1, 

2011, for the 2010 plan year and makes no 

other contributions to Plan P for the 2010 

plan year. In addition, on February 1, 2011, 

Sponsor S elects to use $15,000 of the 

funding standard carryover balance to offset 

P’s minimum required contribution for 2010, 

pursuant to paragraph (d)(1) of this section. 

This is permitted because Plan P’s prior-year 

funding ratio determined under paragraph 

(d)(3) of this section is 110%, and is therefore 

not less than 80%. 

(ii) Because the contribution was made on 

a date other than the valuation date for the 

2010 plan year, the contribution must be 

adjusted to reflect interest that would 

otherwise have accrued between the 

valuation date and the date of the 

contribution, at the effective interest rate for 

the 2010 plan year. The amount of the 

contribution after adjustment is $85,000, 

determined as $90,539 discounted for 13 

months of compound interest at an effective 

interest rate of 6%. The adjusted contribution 

of $85,000 plus the $15,000 of the funding 

standard carryover balance used to offset the 

minimum required contribution equals the 

minimum required contribution for the 2010 

plan year of $100,000. Therefore, no excess 

contributions are available to increase the 

prefunding balance, and the prefunding 

balance as of January 1, 2011, remains zero. 

(iii) The funding standard carryover 

balance as of January 1, 2011, is adjusted for 

investment experience during the 2010 plan 

year, in accordance with paragraph (b)(3) of 

this section. The amount of the adjustment is 

$200, determined as the actual rate of return 

on plan assets for 2010 as applied to the 2010 

funding standard carryover balance after 

reduction for the amount of that balance used 

under paragraph (d)(1) of this section (that is, 

$25,000 less $15,000, multiplied by the 

actual rate of return of 2%). 

(iv) The funding standard carryover 

balance, as of January 1, 2011, is $10,200, 

determined as the 2010 funding standard 

carryover balance less the amount used to 

offset the 2010 minimum required 

contribution, adjusted for investment 

experience during the 2010 year ($25,000 less 

$15,000 plus $200). 

Example 4. (i) The facts are the same as 

in Example 3, except that Sponsor S 

contributes $150,000 (instead of $90,539) to 

Plan P on February 1, 2011, for the 2010 plan 

year. 

(ii) Because the contribution was made on 

a date other than the valuation date for the 

2010 plan year, the contribution must be 

adjusted to reflect interest that would 

otherwise have accrued between the 

valuation date and the date of the 

contribution, at the effective interest rate for 

the 2010 plan year. The amount of the 

contribution after adjustment is $140,824, 

determined as $150,000 discounted for 13 

months of interest at an effective interest rate 

of 6%. 

(iii) Because Sponsor S elected to use 

$15,000 of the funding standard carryover 

balance to offset the minimum required 

contribution for 2010 of $100,000, the cash 

contribution requirement for 2010, adjusted 

with interest to January 1, 2010, is $85,000. 

The adjusted contribution of $140,824 

exceeds this amount by $55,824. Of this 

amount, $15,000 exceeds the minimum 

required contribution only because of 

Sponsor S’s election to use the funding 

standard carryover balance to offset the 

minimum required contribution as provided 

in paragraph (d)(1) of this section. The 

remaining $40,824 ($140,824 minus 

$100,000) results from cash contributions 

made in excess of the minimum required 

contribution before offset by the funding 

standard carryover balance. 

(iv) The portion of the excess contribution 

resulting solely because the minimum 

required contribution was offset by a portion 

of the funding standard carryover balance is 

adjusted for investment experience during 

2009, pursuant to paragraph (b)(3)(iii) of this 

section. Accordingly, this portion of the 

present value of the excess contribution 

adjusted for interest as of January 1, 2011, is 

$15,300 ($15,000 adjusted for investment 

experience during 2010 at a rate of 2%). 

(v) The excess contribution resulting from 

cash contributions in excess of the minimum 

required contribution before offset by the 

funding standard carryover balance is 

adjusted for interest at the effective interest 

rate for 2010, pursuant to paragraph 

(b)(1)(iv)(A) of this section. Accordingly, this 

portion of the present value of the excess 

contribution adjusted for interest as of 

January 1, 2011, is $43,273 ($40,824 

increased by the effective interest rate of 6%). 

The increase in Plan P’s prefunding balance 

as of January 1, 2011, cannot exceed the total 

present value of the excess contribution 

adjusted for interest of $58, 573 ($15,300 plus 

$43,273). 

(vi) The funding standard carryover 

balance as of January 1, 2011, is $10,200, 

determined as the 2010 funding standard 

carryover balance less the $15,000 used to 

offset the 2010 minimum required 

contribution, adjusted for investment 

experience during the 2010 plan year as 

developed in Example 3 ($25,000 less 

$15,000 plus $200). 

(vii) Sponsor S elects to increase the 

prefunding balance by the maximum amount 

of the present value of the excess 

contribution adjusted for interest of $58,573, 

resulting in a total of the funding standard 

carryover balance and the prefunding balance 

as of January 1, 2011, of $68,773, the same 

amount as that developed in Example 2. 

Example 5. (i) Plan Q is a defined benefit 

plan with a plan year that is the calendar 

year and a valuation date of July 1. The 

funding standard carryover balance of Plan Q 

is $50,000 as of January 1, 2010, the 

beginning of the 2010 plan year. The 

prefunding balance of Plan Q as of the 

beginning of the 2010 plan year is $0. The 

actual rate of return on Plan Q’s assets for 

2010 is 10%. Plan Q’s effective interest rate 

for 2010 is 6.25%. The funding ratio for Plan 

Q for 2009 (the prior plan year funding ratio 

with respect to 2010, as determined under 

paragraph (d)(3) of this section) is 85%, 

which is not less than 80%. The minimum 

required contribution for Plan Q for 2010 is 

$200,000. Sponsor T makes a contribution to 

Plan Q of $190,000 on July 1, 2010, for the 

2010 plan year, and makes no other 

contributions for the 2010 plan year. Sponsor 

T elects to use $10,000 of the funding 

standard carryover balance to offset Plan Q’s 

minimum required contribution in 2010. 

(ii) Pursuant to paragraph (b)(4) of this 

section, the funding standard carryover 


srobinson on DSKHWCL6B1PROD with RULES2
53052 Federal Register / Vol. 74, No. 198 / Thursday, October 15, 2009 / Rules and Regulations 

balance is increased to $51,539 as of July 1, 

2010 (that is, an increase to reflect 6 months 

of interest at an effective interest rate of 

6.25%) for the purpose of adjusting plan 

assets under paragraph (c) of this section, and 

for applying any election to use or reduce 

Plan Q’s funding standard carryover balance 

under paragraph (d) or (e) of this section. 

However, Sponsor T does not elect in 2010 

to reduce any portion of the funding standard 

carryover balance pursuant to paragraph (e) 

of this section. The funding standard 

carryover balance ($51,539) is subtracted 

from the value of plan assets, as of July 1, 

2010, prior to the determination of the 

minimum funding contribution, and $51,539 

is the maximum amount that may applied 

against the minimum required contribution. 

(iii) The value of the funding standard 

carryover balance as of January 1, 2011, is 

determined by first discounting the amount 

used to offset the minimum required 

contribution for 2010 from July 1, 2010, to 

January 1, 2010, using the effective interest 

rate of 6.25%, and subtracting the discounted 

amount from the January 1, 2010, funding 

standard carryover balance. The resulting 

amount is adjusted for investment experience 

to January 1, 2011, using a rate equal to the 

actual rate of return on plan assets of 10% 

during 2010. Thus, the $10,000 used to offset 

Plan Q’s minimum required contribution as 

of July 1, 2010, is discounted for 6 months 

of interest, at an effective interest rate of 

6.25%, to obtain an amount of $9,701 as of 

January 1, 2010. The remaining funding 

standard carryover balance as of January 1, 

2010, solely for purposes of determining the 

adjustment for investment experience during 

2010, is $40,299 ($50,000—$9,701), and the 

adjustment for investment experience is 

$4,030 ($40,299 × 10%). The value of the 

funding standard carryover balance as of 

January 1, 2011, is $44,329 (that is, $50,000 

¥ $9,701 + $4,030). 

Example 6. (i) The facts are the same as 

in Example 5, except that Sponsor T 

contributes $200,000 on July 1, 2010, for the 

2010 plan year. 

(ii) The cash contribution required for 

2010, after offsetting the minimum required 

contribution by $10,000 of the funding 

standard carryover balance in accordance 

with T’s election, is $190,000. The difference, 

or $10,000, must be adjusted to January 1, 

2011, to determine the maximum amount 

that can be added to the prefunding balance 

as of that date. 

(iii) The excess contribution is first 

adjusted to January 1, 2010, by discounting 

for 6 months of interest using the effective 

interest rate for 2010 of 6.25%. This results 

in an excess contribution of $9,701 ($10,000 

÷ 1.0625 0.5). Because this amount is an 

excess contribution solely because of 

Sponsor T’s election to offset the minimum 

required contribution for 2010 by a portion 

of the funding standard carryover balance, 

the amount is then adjusted for investment 

experience during 2010 at a rate of 10%, in 

accordance with paragraph (b)(3)(iii) of this 

section, for a present value of the excess 

contribution adjusted for interest of $10,671 

($9,701 × 1.10) as of January 1, 2011. 

Example 7. (i) The facts are the same as 

in Example 4. Plan P’s effective interest rate 

for 2011 is 6.5%, and the rate of return on 

investments during 2011 is 7%. All required 

quarterly installments for the 2011 plan year 

were made by the applicable due dates. On 

February 1, 2012, Sponsor S elects to use 

$50,000 of Plan P’s prefunding and funding 

standard carryover balances to offset the 

minimum required contribution for the 2011 

plan year. On April 15, 2012, Sponsor S 

elects to use Plan P’s prefunding and funding 

standard carryover balances to offset the 2012 

minimum required contribution by $20,000, 

in accordance with paragraph (d) of this 

section, in order to offset the required 

quarterly installment then due. 

(ii) When adjusting Plan P’s prefunding 

and funding standard carryover balances to 

reflect Sponsor S’s election to use them to 

offset the 2011 minimum required 

contribution, the remaining $10,200 in the 

funding standard carryover balance as of 

January 1, 2011, must be used before any 

portion of the prefunding balance. The 

prefunding balance is reduced by the 

remaining $39,800 ($50,000 total election 

minus $10,200 from the funding standard 

carryover balance). 

(iii) The amount available for Sponsor S’s 

election to use Plan P’s prefunding and 

funding standard carryover balances to offset 

the 2012 minimum required contribution is 

determined by reducing the January 1, 2011, 

prefunding and funding standard carryover 

balances to reflect the election to use the 

prefunding and funding standard carryover 

balances to offset the 2011 minimum 

required contribution, and by adjusting the 

resulting amount to January 1, 2012, using 

the rate of investment return for Plan P 

during 2011. Accordingly, the available 

amount in Plan P’s funding standard 

carryover balance as of January 1, 2012, is 

zero. The available amount in Plan P’s 

prefunding balance as of January 1, 2012, is 

$20,087 ($58,573 minus $39,800, increased 

by 7%). Therefore, Sponsor S has $20,087 

available to offset the minimum required 

contribution for the 2012 plan year. 

Example 8. (i) The facts are the same as in 

Example 7, except that based on the enrolled 

actuary’s certification of the AFTAP on July 

1, 2012, Sponsor S is deemed to elect to 

reduce the January 1, 2012, prefunding 

balance by $15,000 under section 436(f)(3). 

(ii) In accordance with paragraph 

(d)(1)(ii)(B) of this section, the deemed 

election to reduce the prefunding balance is 

deemed to occur on the first day of the plan 

year, and before the date of any election to 

offset the minimum required contribution for 

the 2012 plan year. The deemed election 

does not affect Sponsor S’s election to offset 

the 2011 minimum contribution because that 

election was made on February 1, 2012, 

before the date of the deemed election, 

July 1, 2012. 

(iii) As shown in Example 7, the available 

prefunding balance as of January 1, 2012, 

after reflecting the February 1, 2012, election 

to offset the 2011 minimum required 

contribution but before reflecting the 

April 15, 2012, election to offset the 2012 

minimum required contribution, is $20,087. 

Adjusting this amount to reflect the deemed 

election to reduce the prefunding balance by 

$15,000 leaves a balance of $5,087 available 

to offset the minimum required contribution 

for 2012. 

(iv) The portion of the quarterly 

installment due April 15, 2012 that was not 

covered by the remaining $5,087 prefunding 

balance is considered unpaid retroactive to 

April 15, 2012. 

Example 9. (i) The facts are the same as 

in Example 8, except that Sponsor S does not 

make the election to offset the 2011 

minimum required contribution until August 

1, 2012, and the deemed election as of July 

1, 2012, reduces Plan P’s prefunding and 

funding standard carryover balances as of 

January 1, 2012, by $68,500. Sponsor S does 

not elect to use Plan P’s prefunding and 

funding standard carryover balances to offset 

the 2012 minimum contribution. 

(ii) In accordance with paragraph 

(d)(1)(ii)(A) of this section, the July 1, 2012, 

deemed election to reduce Plan P’s 

prefunding and funding standard carryover 

balances must be taken into account before 

determining the amount available to offset 

the 2011 minimum required contribution 

because the election to offset the 2011 

minimum required contribution was made 

after the date of the deemed election, July 1, 

2012. 

(iii) Pursuant to paragraph (d)(1)(ii)(C) of 

this section, the January 1, 2011, prefunding 

and funding standard carryover balances are 

adjusted to January 1, 2012, using Plan P’s 

rate of investment return for 2011 of 7%. 

This results in an available funding standard 

carryover balance of $10,914 ($10,200 × 1.07) 

and an available prefunding balance of 

$62,673 (58,573 × 1.07) as of 

January 1, 2012. 

(iv) Paragraph (d)(2) of this section requires 

that the funding standard carryover balance 

must be used before reducing Plan P’s 

prefunding balance. Accordingly, the funding 

standard carryover balance is eliminated, and 

the prefunding balance is reduced by the 

remaining $57,586 ($68,500 ¥ $10,914), 

resulting in an available prefunding balance 

of $5,087 ($62,673 ¥ $57,586) as of January 

1, 2012. 

(v) In accordance with paragraph 

(d)(1)(ii)(D) of this section, the remaining 

balance is adjusted to January 1, 2011, to 

determine the amount available to offset the 

2011 minimum required contribution. This 

adjustment is done by dividing the remaining 

balance by 1 plus the rate of investment 

return for 2011. Accordingly, the amount 

available to offset the 2011 minimum 

required contribution is $4,754 ($5,087 ÷ 

1.07). 

(vi) If the plan sponsor elects to use the 

$4,754 available balance to offset the 2011 

minimum required contribution, the funding 

standard carryover balance as of January 1, 

2012 (prior to the deemed reduction under 

section 436(f)(3)) is $5,827 ($10,200 less 

$4,754, plus $381 for investment experience 

at a rate of 7%). The prefunding balance as 

of January 1, 2012 (prior to the deemed 

reduction under section 436(f)(3)) is $62,673 

(that is, $58,573 × 1.07). The deemed election 

to reduce Plan P’s balance is first applied to 

eliminate the funding standard carryover 

balance, and the remaining $62,673 ($68,500 

less $5,827) reduces the January 1, 2012, 

prefunding balance to zero. 


srobinson on DSKHWCL6B1PROD with RULES2
Federal Register / Vol. 74, No. 198 / Thursday, October 15, 2009 / Rules and Regulations 53053 

Example 10. (i) Plan V is a defined benefit 

plan with a plan year that is the calendar 

year and a valuation date of December 31. 

The valuation is based on the fair market 

value of plan assets, which amounts to 

$1,000,000 as of December 31, 2010, before 

any adjustments. As of January 1, 2010, Plan 

V’s funding standard carryover balance is $0 

and its prefunding balance is $125,000. Plan 

V’s effective interest rate for 2010 is 5.5%. 

The enrolled actuary’s certification of AFTAP 

for 2010 on March 31, 2010, results in a 

deemed reduction of $15,000 in the plan’s 

prefunding balance as of January 1, 2010. 

Plan V’s sponsor elected to use the 

prefunding balance to offset any portion of 

the minimum required contribution for 2010 

not covered by cash contributions. 

(ii) In accordance with paragraph (b)(4)(i) 

of this section, the amount of the prefunding 

balance subtracted from plan assets is 

increased from the first day of the plan year 

to the valuation date using the effective 

interest rate of 5.5% for 2009. Accordingly, 

the prefunding balance used for this purpose 

is $116,050 [($125,000 ¥ $15,000 deemed 

reduction) × 1.055]. 

(iii) The fair market value of plan assets 

used for the December 31, 2010, valuation is 

$883,950 ($1,000,000 ¥ $116,050). 

Example 11. (i) The facts are the same as 

in Example 10. The minimum contribution 

for Plan V for the 2010 plan year is $45,000; 

no quarterly installments are required for 

Plan V for 2010. Plan V’s sponsor makes a 

contribution of $20,000 for the 2010 plan 

year on July 1, 2011. The actual rate of return 

on assets for Plan V during 2010 is 10%. 

(ii) The contribution of $20,000 is 

discounted to December 31, 2010, using the 

effective interest rate of 5.5% to determine 

the remaining balance of the 2010 minimum 

required contribution. Accordingly, the 

contribution is adjusted to $19,472 ($20,000 

÷ 1.055 0.5) as of December 31, 2010, and the 

balance of the minimum required 

contribution is $25,528 ($45,000 ¥ $19,472). 

This balance will be covered by the plan 

sponsor’s election to use the prefunding 

balance to offset any portion of the minimum 

required contribution not covered by cash 

contributions. 

(iii) Under section (b)(4)(ii) of this section, 

the amount used to offset the 2010 minimum 

required contribution for the purpose of 

adjusting the prefunding balance is 

discounted to January 1, 2010, using the 

effective interest rate for 2010. This amount 

is calculated as $24,197 ($25,528 ÷ 1.055). 

(iv) The prefunding balance as of January 

1, 2011, is reduced by the deemed election 

of $15,000 and the discounted amount used 

to offset the 2010 minimum required 

contribution ($24,197), and adjusted for 

investment experience for 2010 using the 

actual rate of return of 10%. Accordingly, the 

prefunding balance as of January 1, 2011 is 

$94,383 [($125,000 ¥ $15,000 ¥ $24,197) × 

1.10]. 

Example 12. (i) The facts are the same as 

in Example 11, except that the enrolled 

actuary’s certification of the AFTAP as of 

March 31, 2011, results in a deemed 

reduction of the prefunding balance as of 

January 1, 2011, of $75,000. 

(ii) Under paragraph (d)(1)(ii) of this 

section, the deemed reduction of the 

prefunding balance is applied before the 

election to use the prefunding balance to 

offset the balance of the minimum required 

contribution for 2010. To determine the 

amount of the prefunding balance available 

to cover the remaining minimum required 

contribution for 2010, the deemed reduction 

is adjusted for investment experience to 

January 1, 2010, using the actual rate of 

return of 10% for 2010. Accordingly, the 

adjusted deemed reduction is $68,182 

($75,000 ÷ 1.10) and the available prefunding 

balance as of January 1, 2010, is $41,818 

($125,000 ¥ $15,000 adjusted deemed 

reduction for 2010 ¥ $68,182 adjusted 

deemed reduction for 2011). 

(iii) This amount is then adjusted to 

December 31, 2010, using the effective 

interest rate of 5.5%. The amount of the 

prefunding balance available to offset the 

2009 minimum required contribution as of 

December 31, 2010, is $44,118 ($41,818 × 

1.055). This amount is larger than the 

election made by Plan V’s sponsor to offset 

the minimum required contribution for 2010 

($25,528) and so the election remains valid. 

(h) Effective/applicability date and 

transition rules—(1) Statutory effective 

date/applicability date. Section 430 

generally applies to plan years 

beginning on or after January 1, 2008. 

The applicability of section 430 for 

purposes of determining the minimum 

required contribution is delayed for 

certain plans in accordance with 

sections 104 through 106 of PPA ’06. 

(2) Effective date/applicability date of 

regulations. This section applies to plan 

years beginning on or after January 1, 

2010. For plan years beginning before 

January 1, 2010, plans are permitted to 

rely on the provisions set forth in this 

section for purposes of satisfying the 

requirements of section 430. 

(3) Special lookback rule for 2007 

plan year’s funding ratio—(i) Plan 

assets. For purposes of determining a 

plan’s prior plan year funding ratio 

under paragraph (d)(3) of this section 

with respect to the first plan year 

beginning on or after January 1, 2008, 

the value of plan assets on the valuation 

date of the preceding plan year (the 

‘‘2007 plan year’’) is determined under 

section 412(c)(2) as in effect for the 2007 

plan year, except that, for this 

purpose— 

(A) If the value of plan assets is less 

than 90 percent of the fair market value 

of plan assets for the 2007 plan year on 

that date, such value is considered to be 

90 percent of the fair market value; and 

(B) If the value of plan assets is greater 

than 110 percent of the fair market value 

of plan assets for the 2007 plan year on 

that date, such value is considered to be 

110 percent of the fair market value. 

(ii) Funding target. For purposes of 

determining a plan’s prior plan year 

funding ratio under paragraph (d)(3) of 

this section with respect to the first plan 

year beginning on or after January 1, 

2008, the funding target of the plan for 

the preceding plan year is equal to the 

plan’s current liability under section 

412(l)(7) (as in effect prior to 

amendment by PPA ’06) on the 

valuation date for the 2007 plan year. 

(iii) Special rules for new plans, 

mergers, and spinoffs. In the case of a 

plan described in paragraph (d)(3)(ii), 

(d)(3)(iii), or (d)(3)(iv) of this section, 

the plan’s prior plan year funding ratio 

with respect to the first plan year 

beginning on or after January 1, 2008 is 

determined using rules similar to the 

rules of paragraphs (d)(3)(ii), (d)(3)(iii), 

and (d)(3)(iv) of this section. 

(4) First effective plan year. For 

purposes of this section, the term first 

effective plan year means the first plan 

year beginning on or after the date 

section 430 applies for purposes of 

determining the minimum required 

contribution for the plan. 

(5) Pre-effective plan year. For 

purposes of this section, the term preeffective plan year means the plan year 

immediately preceding the first effective 

plan year. 

■ Par. 4. Section 1.430(g)–1 is added to 

read as follows: 

§ 1.430(g)–1 Valuation date and valuation 

of plan assets. 

(a) In general—(1) Overview. This 

section provides rules relating to a 

plan’s valuation date and the valuation 

of a plan’s assets for a plan year under 

section 430(g). Section 430 and this 

section apply to single employer 

defined benefit plans (including 

multiple employer plans as defined in 

section 413(c)) that are subject to the 

rules of section 412, but do not apply to 

multiemployer plans (as defined in 

section 414(f)). Paragraph (b) of this 

section describes valuation date rules. 

Paragraph (c) of this section describes 

rules regarding the determination of the 

asset value for purposes of a plan’s 

actuarial valuation. Paragraph (d) of this 

section contains rules for taking 

employer contributions into account in 

the determination of the value of plan 

assets. Paragraph (e) of this section 

contains examples. Paragraph (f) of this 

section sets forth effective/applicability 

dates and transition rules. 

(2) Special rules for multiple 

employer plans. In the case of a multiple 

employer plan to which section 

413(c)(4)(A) applies, the rules of section 

430 and this section are applied 

separately for each employer under the 

plan as if each employer maintained a 

separate plan. Thus, in such a case, the 

value of plan assets is determined 

separately for each employer under the 

plan. In the case of a multiple employer 


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plan to which section 413(c)(4)(A) does 

not apply (that is, a plan described in 

section 413(c)(4)(B) that has not made 

the election for section 413(c)(4)(A) to 

apply), the rules of section 430 and this 

section are applied as if all participants 

in the plan were employed by a single 

employer. 

(b) Valuation date—(1) In general. 

The determination of the funding target, 

target normal cost, and value of plan 

assets for a plan year is made as of the 

valuation date for that plan year. Except 

as otherwise provided in paragraph 

(b)(2) of this section, the valuation date 

for any plan year is the first day of the 

plan year. 

(2) Exception for small plans—(i) In 

general. If, on each day during the 

preceding plan year, a plan had 100 or 

fewer participants determined by 

applying the rules of § 1.430(d)–1(e)(1) 

and (2) (including active and inactive 

participants and all other individuals 

entitled to future benefits), then the plan 

may designate any day during the plan 

year as its valuation date for that plan 

year and succeeding plan years. For 

purposes of this paragraph (b)(2)(i), all 

defined benefit plans (other than 

multiemployer plans as defined in 

section 414(f)) maintained by an 

employer are treated as one plan, but 

only participants with respect to that 

employer are taken into account. 

(ii) Employer determination. For 

purposes of this paragraph (b)(2), the 

employer includes all members of the 

employer’s controlled group determined 

pursuant to section 414(b), (c), (m), and 

(o) and includes any predecessor of the 

employer that, during the prior year, 

employed any employees of the 

employer who are covered by the plan. 

(iii) Application of exception in first 

plan year. In the case of the first plan 

year of any plan, the exception for small 

plans under paragraph (b)(2)(i) of this 

section is applied by taking into account 

the number of participants that the plan 

is reasonably expected to have on each 

day during the first plan year. 

(iv) Valuation date is part of funding 

method. The selection of a plan’s 

valuation date is part of the plan’s 

funding method and, accordingly, may 

only be changed with the consent of the 

Commissioner. A change of a plan’s 

valuation date that is required by 

section 430 is treated as having been 

approved by the Commissioner and 

does not require the Commissioner’s 

prior specific approval. Thus, if a plan 

that ceases to be eligible for the small 

plan exception under this paragraph 

(b)(2) for a plan year because the 

number of participants exceeded 100 in 

the prior plan year, then the resulting 

change in the valuation date to the first 

day of the plan year is automatically 

approved by the Commissioner. 

(c) Determination of asset value—(1) 

In general—(i) General use of fair 

market value. Except as otherwise 

provided in this paragraph (c), the value 

of plan assets for purposes of section 

430 is equal to the fair market value of 

plan assets on the valuation date. Prior 

year contributions made after the 

valuation date and current year 

contributions made before the valuation 

date are taken into account to the extent 

provided in paragraph (d) of this 

section. 

(ii) Fair market value. The fair market 

value of an asset is determined as the 

price at which the asset would change 

hands between a willing buyer and a 

willing seller, neither being under any 

compulsion to buy or sell and both 

having reasonable knowledge of 

relevant facts. Except as otherwise 

provided by the Commissioner, any 

guidance on the valuation of insurance 

contracts under Subchapter D of 

Chapter 1 the Internal Revenue Code 

applies for purposes of this paragraph 

(c)(1)(ii). 

(2) Averaging of fair market values— 

(i) In general. Subject to the plan asset 

corridor rules of paragraph (c)(2)(iii) of 

this section, a plan is permitted to 

determine the value of plan assets on 

the valuation date as the average of the 

fair market value of assets on the 

valuation date and the adjusted fair 

market value of assets determined for 

one or more earlier determination dates 

(adjusted using the method described in 

paragraph (c)(2)(ii) of this section). The 

method of determining the value of 

assets is part of the plan’s funding 

method and, accordingly, may only be 

changed with the consent of the 

Commissioner. 

(ii) Adjusted fair market value—(A) 

Determination dates. The period of time 

between each determination date 

(treating the valuation date as a 

determination date) must be equal and 

that period of time cannot exceed 12 

months. In addition, the earliest 

determination date with respect to a 

plan year cannot be earlier than the last 

day of the 25th month before the 

valuation date of the plan year (or a 

similar period in the case of a valuation 

date that is not the first day of a month). 

In a typical situation, the earlier 

determination dates will be the two 

immediately preceding valuation dates. 

However, these rules also permit the use 

of more frequent determination dates. 

For example, monthly or quarterly 

determination dates may be used. 

(B) Adjustments for contributions and 

distributions. The adjusted fair market 

value of plan assets for a prior 

determination date is the fair market 

value of plan assets on that date, 

increased for contributions included in 

the plan’s asset balance on the valuation 

date that were not included in the plan’s 

asset balance on the earlier 

determination date, reduced for benefits 

and all other amounts paid from plan 

assets during the period beginning with 

the prior determination date and ending 

immediately before the valuation date, 

and adjusted for expected earnings as 

described in paragraph (c)(2)(ii)(D) of 

this section. For this purpose, the fair 

market value of assets as of a 

determination date includes any 

contribution for a plan year that ends 

with or prior to the determination date 

that is receivable as of the determination 

date (but only if the contribution is 

actually made within 81⁄2 months after 

the end of the applicable plan year). If 

the contribution that is receivable as of 

the determination date is for a plan year 

beginning on or after January 1, 2008, 

then only the present value as of the 

determination date (determined using 

the effective interest rate under section 

430(h)(2)(A) for the plan year for which 

the contribution is made) is included in 

the fair market value of assets. 

(C) Treatment of spin-offs and planto-plan transfers. For purposes of 

determining the adjusted fair market 

value of plan assets, assets spun-off 

from a plan as a result of a spin-off 

described in § 1.414(l)–1(b)(4) are 

treated as an amount paid from plan 

assets. Except as otherwise provided by 

the Commissioner, for purposes of 

determining the adjusted fair market 

value of plan assets, assets that are 

added to a plan as a result of a plan-toplan transfer described in § 1.414(l)– 

1(b)(3) are treated in the same manner 

as contributions. 

(D) Adjustments for expected 

earnings. [Reserved] 

(E) Assumed rate of return. [Reserved] 

(F) Limitation on the assumed rate of 

return for periods within plan years for 

which the three segment rates were 

used. [Reserved] 

(G) Limitation on the assumed rate of 

return for periods within plan years for 

which the full yield curve was used. 

[Reserved] 

(iii) Restriction to 90–110 percent 

corridor—(A) In general. This paragraph 

(c)(2)(iii) provides rules for applying the 

90 to 110 percent corridor set forth in 

section 430(g)(3)(B)(iii). The rules for 

accounting for contribution receipts 

under paragraphs (d)(1) and (d)(2) of 

this section are applied prior to the 

application of the 90 to 110 percent 

corridor under this paragraph (c)(2)(iii). 

(B) Asset value less than 90 percent of 

fair market value. If the value of plan 


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Federal Register / Vol. 74, No. 198 / Thursday, October 15, 2009 / Rules and Regulations 53055 

assets determined under paragraph 

(c)(2)(i) of this section is less than 90 

percent of the fair market value of plan 

assets, then the value of plan assets 

under this paragraph (c)(2) is equal to 90 

percent of the fair market value of plan 

assets. 

(C) Asset value greater than 110 

percent of fair market value. If the value 

of plan assets determined under 

paragraph (c)(2)(i) of this section is 

greater than 110 percent of the fair 

market value of plan assets, then the 

value of plan assets under this 

paragraph (c)(2) is equal to 110 percent 

of the fair market value of plan assets. 

(3) Qualified transfers to health 

benefit accounts. In the case of a 

qualified transfer (as defined in section 

420), any assets so transferred are not 

treated as plan assets for purposes of 

section 430 and this section. 

(d) Accounting for contribution 

receipts—(1) Prior year contributions— 

(i) In general. For purposes of 

determining the value of plan assets 

under paragraph (c) of this section, if an 

employer makes a contribution to the 

plan after the valuation date for the 

current plan year and the contribution 

is for an earlier plan year, then the 

present value of the contribution 

determined as of that valuation date is 

taken into account as an asset of the 

plan as of the valuation date, but only 

if the contribution is made before the 

deadline for contributions as described 

in section 430(j)(1) for the plan year 

immediately preceding the current plan 

year. For this purpose, the present value 

is determined using the effective 

interest rate under section 430(h)(2)(A) 

for the plan year for which the 

contribution is made. 

(ii) Special rule for contributions for 

the 2007 plan year—(A) Timely 

contributions. Notwithstanding 

paragraph (d)(1)(i) of this section, if the 

employer makes a contribution to the 

plan after the valuation date for the first 

plan year that begins on or after January 

1, 2008, and the contribution is for the 

immediately preceding plan year and is 

made by the deadline for contributions 

for that preceding plan year under 

section 412(c)(10) (as in effect before 

amendment by the Pension Protection 

Act of 2006 (PPA ’06), Public Law 109– 

280 (120 Stat. 780)), then the 

contribution is taken into account as a 

plan asset under paragraph (d)(1)(i) of 

this section without applying any 

present value discount. 

(B) Late contributions. If a 

contribution is for the plan year that 

immediately precedes the first plan year 

that begins on or after January 1, 2008, 

and is not described in paragraph 

(d)(1)(ii)(A) of this section, then the 

rules of paragraph (d)(1)(i) apply to the 

contribution except that the present 

value is determined using the valuation 

interest rate under section 412(c)(2) for 

that plan year. 

(iii) Ordering rules. For purposes of 

this paragraph (d)(1), the ordering rules 

of section 4971(c)(4)(B) apply for 

purposes of determining the plan year 

for which a contribution is made. 

(2) Current year contributions made 

before valuation date. In the case of a 

plan with a valuation date that is not the 

first day of the plan year, for purposes 

of determining the value of plan assets 

under paragraph (c) of this section, if an 

employer makes a contribution for a 

plan year before that year’s valuation 

date, that contribution (and any interest 

on the contribution for the period 

between the contribution date and the 

valuation date, determined using the 

effective interest rate under section 

430(h)(2)(A) for the plan year) must be 

subtracted from plan assets in 

determining the value of plan assets as 

of the valuation date. If the result of this 

subtraction is a number less than zero, 

the value of plan assets as of the 

valuation date is equal to zero. 

(e) Examples. [Reserved] 

(f) Effective/applicability dates and 

transition rules—(1) Statutory effective 

date/applicability date. Section 430 

generally applies to plan years 

beginning on or after January 1, 2008. 

The applicability of section 430 for 

purposes of determining the minimum 

required contribution is delayed for 

certain plans in accordance with 

sections 104 through 106 of PPA ’06. 

(2) Effective date/applicability date of 

regulations—(i) In general. This section 

applies to plan years beginning on or 

after January 1, 2010, regardless of 

whether section 430 applies to 

determine the minimum required 

contribution for the plan year. For plan 

years beginning before January 1, 2010, 

plans are permitted to rely on the 

provisions set forth in this section for 

purposes of satisfying the requirements 

of section 430. 

(ii) Permission to use averaging for 

2008. For purposes of determining the 

actuarial value of assets for a plan year 

beginning during 2008 using the 

averaging rules of paragraph (c)(2) of 

this section, a plan is permitted to apply 

an assumed earnings rate of zero under 

paragraph (c)(2)(ii)(E) of this section 

(even if zero is not the actuary’s best 

estimate of the anticipated annual rate 

of return on plan assets). 

(3) Approval for changes in the 

valuation date and valuation method. 

Any change in a plan’s valuation date or 

asset valuation method that satisfies the 

rules of this section and is made for 

either the first plan year beginning in 

2008, the first plan year beginning in 

2009, or the first plan year beginning in 

2010 is treated as having been approved 

by the Commissioner and does not 

require the Commissioner’s specific 

prior approval. In addition, a change in 

a plan’s valuation date or asset 

valuation method for the first plan year 

to which section 430 applies to 

determine the plan’s minimum required 

contribution (even if that plan year 

begins after December 31, 2010) that 

satisfies the rules of this section is 

treated as having been approved by the 

Commissioner and does not require the 

Commissioner’s specific prior approval. 

■ Par. 5. Section 1.430(h)(2)–1 is added 

to read as follows: 

§ 1.430(h)(2)–1 Interest rates used to 

determine present value. 

(a) In general—(1) Overview. This 

section provides rules relating to the 

interest rates to be applied for a plan 

year under section 430(h)(2). Section 

430(h)(2) and this section apply to 

single employer defined benefit plans 

(including multiple employer plans as 

defined in section 413(c)) that are 

subject to section 412 but do not apply 

to multiemployer plans (as defined in 

section 414(f)). Paragraph (b) of this 

section describes how the segment 

interest rates are used for a plan year. 

Paragraph (c) of this section describes 

those segment rates. Paragraph (d) of 

this section describes the monthly 

corporate bond yield curve that is used 

to develop the segment rates. Paragraph 

(e) of this section describes certain 

elections that are permitted to be made 

under this section. Paragraph (f) of this 

section describes other rules related to 

interest rates. Paragraph (g) of this 

section contains examples. Paragraph 

(h) of this section contains effective/ 

applicability dates and transition rules. 

(2) Special rules for multiple 

employer plans. In the case of a multiple 

employer plan to which section 

413(c)(4)(A) applies, the rules of section 

430 and this section are applied 

separately for each employer under the 

plan as if each employer maintained a 

separate plan. Thus, each employer 

under such a multiple employer plan 

may make elections with respect to the 

interest rate rules under this section that 

are independent of the elections of other 

employers under the plan. In the case of 

a multiple employer plan to which 

section 413(c)(4)(A) does not apply (that 

is, a plan described in section 

413(c)(4)(B) that has not made the 

election for section 413(c)(4)(A) to 

apply), the rules of section 430 and this 

section are applied as if all participants 


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53056 Federal Register / Vol. 74, No. 198 / Thursday, October 15, 2009 / Rules and Regulations 

in the plan were employed by a single 

employer. 

(b) Interest rates for determining plan 

liabilities—(1) In general. The interest 

rates used in determining the present 

value of the benefits that are included 

in the target normal cost and the 

funding target for the plan for a plan 

year are determined as set forth in this 

paragraph (b). 

(2) Benefits payable within 5 years— 

(i) Plans with valuation dates at the 

beginning of the plan year. If the 

valuation date is the first day of the plan 

year, in the case of benefits expected to 

be payable during the 5-year period 

beginning on the valuation date for the 

plan year, the interest rate used in 

determining the present value of the 

benefits that are included in the target 

normal cost and the funding target for 

the plan is the first segment rate with 

respect to the applicable month, as 

described in paragraph (c)(2)(i) of this 

section. 

(ii) Plans with valuation dates other 

than the first day of the plan year. 

[Reserved] 

(3) Benefits payable after 5 years and 

within 20 years. In the case of benefits 

expected to be payable during the 15- 

year period beginning after the end of 

the period described in paragraph (b)(2) 

of this section, the interest rate used in 

determining the present value of the 

benefits that are included in the target 

normal cost and the funding target for 

the plan is the second segment rate with 

respect to the applicable month, as 

described in paragraph (c)(2)(ii) of this 

section. 

(4) Benefits payable after 20 years. In 

the case of benefits expected to be 

payable after the period described in 

paragraph (b)(3) of this section, the 

interest rate used in determining the 

present value of the benefits that are 

included in the target normal cost and 

the funding target for the plan is the 

third segment rate with respect to the 

applicable month, as described in 

paragraph (c)(2)(iii) of this section. 

(5) Applicable month. Except as 

otherwise provided in paragraph (e) of 

this section, the term applicable month 

for purposes of this paragraph (b) means 

the month that includes the valuation 

date of the plan for the plan year. 

(6) Special rule for certain airlines— 

(i) In general. Pursuant to section 6615 

of the U.S. Troop Readiness, Veterans’ 

Care, Katrina Recovery, and Iraq 

Accountability Appropriations Act, 

2007, Public Law 110–28 (121 Stat. 

112), for a plan sponsor that makes the 

election described in section 402(a)(2) of 

the Pension Protection Act of 2006 (PPA 

’06), Public Law 109–280 (120 Stat. 

780), the interest rate required to be 

used to determine the plan’s funding 

target for each of the 10 years under that 

election is 8.25 percent (rather than the 

segment rates otherwise described in 

this paragraph (b) or the full yield curve 

as permitted under paragraph (e)(4) of 

this section). 

(ii) Special interest rate not applicable 

for other purposes. The special interest 

rate described in paragraph (b)(6)(i) of 

this section does not apply for other 

purposes such as the determination of 

the plan’s target normal cost. 

(c) Segment rates—(1) Overview. This 

paragraph (c) sets forth rules for 

determining the first, second, and third 

segment rates for purposes of paragraph 

(b) of this section. The first, second, and 

third segment rates are set forth in 

revenue rulings, notices, or other 

guidance published in the Internal 

Revenue Bulletin. See § 601.601(d)(2) 

relating to objectives and standards for 

publishing regulations, revenue rulings 

and revenue procedures in the Internal 

Revenue Bulletin. See paragraph (h)(4) 

of this section for a transition rule under 

which the definition of the segment 

rates is modified for plan years 

beginning in 2008 and 2009. 

(2) Definition of segment rates—(i) 

First segment rate. For purposes of this 

section, except as otherwise provided 

under the transition rule of paragraph 

(h)(4) of this section, the first segment 

rate is, with respect to any month, the 

single rate of interest determined by the 

Commissioner on the basis of the 

average of the monthly corporate bond 

yield curves (described in paragraph (d) 

of this section) for the 24-month period 

ending with the month preceding that 

month, taking into account only the first 

5 years of each of those yield curves. 

(ii) Second segment rate. For purposes 

of this section, except as otherwise 

provided under the transition rule of 

paragraph (h)(4) of this section, the 

second segment rate is, with respect to 

any month, the single rate of interest 

determined by the Commissioner on the 

basis of the average of the monthly 

corporate bond yield curves (described 

in paragraph (d) of this section) for the 

24-month period ending with the month 

preceding that month, taking into 

account only the portion of each of 

those yield curves corresponding to the 

15-year period that follows the end of 

the 5-year period described in paragraph 

(c)(2)(i) of this section. 

(iii) Third segment rate. For purposes 

of this section, except as otherwise 

provided under the transition rule of 

paragraph (h)(4) of this section, the third 

segment rate is, with respect to any 

month, the single rate of interest 

determined by the Commissioner on the 

basis of the average of the monthly 

corporate bond yield curves (described 

in paragraph (d) of this section) for the 

24-month period ending with the month 

preceding that month, taking into 

account only the portion of each of 

those yield curves corresponding to the 

40-year period that follows the end of 

the 15-year period described in 

paragraph (c)(2)(ii) of this section. 

(d) Monthly corporate bond yield 

curve—(1) In general. For purposes of 

this section, the monthly corporate bond 

yield curve is, with respect to any 

month, a yield curve that is prescribed 

by the Commissioner for that month 

based on yields for that month on 

investment grade corporate bonds with 

varying maturities that are in the top 

three quality levels available. 

(2) Determination and publication of 

yield curve. A description of the 

methodology for determining the 

monthly corporate bond yield curve is 

provided in guidance issued by the 

Commissioner that is published in the 

Internal Revenue Bulletin. The yield 

curve for a month will be set forth in 

revenue rulings, notices, or other 

guidance published in the Internal 

Revenue Bulletin. See § 601.601(d)(2) 

relating to objectives and standards for 

publishing regulations, revenue rulings 

and revenue procedures in the Internal 

Revenue Bulletin. 

(e) Elections—(1) In general. This 

paragraph (e) describes elections for a 

plan year that a plan sponsor can make 

to use alternative interest rates under 

this section. Any election under this 

paragraph (e) must be made by 

providing written notification of the 

election to the plan’s enrolled actuary. 

Any election in this paragraph (e) may 

be adopted for a plan year without 

obtaining the consent of the 

Commissioner, but, once adopted, that 

election will apply for that plan year 

and all future plan years and may be 

changed only with the consent of the 

Commissioner. 

(2) Election for alternative applicable 

month. As an alternative to defining the 

applicable month as the month that 

includes the valuation date for the plan 

year, a plan sponsor that is using 

segment rates as provided under 

paragraph (b) of this section may elect 

to use one of the 4 months preceding 

that month as the applicable month. 

(3) Election not to apply transition 

rule. The plan sponsor may elect not to 

apply the transition rule in paragraph 

(h)(4) of this section. 

(4) Election to use full yield curve— 

(i) In general. For purposes of 

determining the plan’s funding target 

and target normal cost, and for all other 

purposes under section 430 (including 

the determination of shortfall 


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amortization installments, waiver 

installments, and the present values of 

those installments as described in 

paragraph (f)(2) of this section), the plan 

sponsor may elect to use interest rates 

under the monthly corporate bond yield 

curve described in paragraph (d) of this 

section for the month preceding the 

month that includes the valuation date 

in lieu of the segment rates determined 

under paragraph (c) of this section. In 

order to address the timing of benefit 

payments during a year, reasonable 

approximations are permitted to be used 

to value benefit payments that are 

expected to be made during a plan year. 

(ii) Reasonable techniques permitted. 

In the case of a plan sponsor using the 

monthly corporate bond yield curve 

under this paragraph (e)(4), if with 

respect to a decrement the benefit is 

only expected to be paid for one-half of 

a year (because the decrement was 

assumed to occur in the middle of the 

year), the interest rate for that year can 

be determined as if the benefit were 

being paid for the entire year. See 

§ 1.430(d)–1(f)(7) for additional 

reasonable techniques that can be used 

in determining present value. 

(5) Plan sponsor. For purposes of the 

elections described in this section, any 

reference to the plan sponsor generally 

means the employer or employers 

responsible for making contributions to 

or under the plan. In the case of plans 

that are multiple employer plans to 

which section 413(c)(4)(A) does not 

apply, any reference to the plan sponsor 

means the plan administrator within the 

meaning of section 414(g). 

(f) Interest rates used for other 

purposes—(1) Effective interest 

rate—(i) In general. Except as otherwise 

provided in paragraph (f)(2) of this 

section, the effective interest rate 

determined under section 430(h)(2)(A) 

for the plan year is the single interest 

rate that, if used to determine the 

present value of the benefits that are 

taken into account in determining the 

plan’s funding target for the plan year, 

would result in an amount equal to the 

plan’s funding target determined for the 

plan year under section 430(d) as 

described in § 1.430(d)–1(b)(2) (without 

regard to calculations for plans in at-risk 

status under section 430(i)). 

(ii) Zero funding target. If, for the plan 

year, the plan’s funding target is equal 

to zero, then the effective interest rate 

determined under section 430(h)(2)(A) 

for the plan year is the single interest 

rate that, if used to determine the 

present value of the benefits that are 

taken into account in determining the 

plan’s target normal cost for the plan 

year, would result in an amount equal 

to the plan’s target normal cost 

determined for the plan year under 

section 430(b) as described in 

§ 1.430(d)–1(b)(1) (without regard to 

calculations for plans in at-risk status 

under section 430(i)). 

(2) Interest rates used for determining 

shortfall amortization installments and 

waiver amortization installments. The 

interest rates used to determine the 

amount of shortfall amortization 

installments and waiver amortization 

installments and the present value of 

those installments are determined based 

on the dates those installments are 

assumed to be paid, using the same 

timing rules that apply in determining 

target normal cost as described in 

paragraph (b) of this section. Thus, for 

a plan that uses the segment rates 

described in paragraph (c) of this 

section, the first segment rate applies to 

the installments assumed to be paid 

during the first 5-year period beginning 

on the valuation date for the plan year, 

and the second segment rate applies to 

the installments assumed to be paid 

during the subsequent 15-year period. 

For purposes of this paragraph (f)(2), the 

shortfall amortization installments for a 

plan year are assumed to be paid on the 

valuation date for that plan year. For 

example, for a plan that uses the 

segment rates described in paragraph (c) 

of this section, the shortfall amortization 

installment for the fifth plan year 

following the current plan year (the 

sixth installment) is assumed to be paid 

on the valuation date for that year so 

that such shortfall amortization 

installment will be determined using 

the second segment rate. 

(g) Examples. The following examples 

illustrate the rules of this section: 

Example 1. (i) The January 1, 2009, 

valuation of Plan P is performed using the 

segment rates applicable for September 2008 

(determined without regard to the transition 

rule of section 430(h)(2)(G)), and the 2009 

annuitant and nonannuitant (male and 

female) mortality tables as published in 

Notice 2008–85. See § 601.601(d)(2) relating 

to objectives and standards for publishing 

regulations, revenue rulings and revenue 

procedures in the Internal Revenue Bulletin. 

Plan P provides for early retirement benefits 

as early as age 50, and offers a single-sum 

distribution payable immediately at 

retirement. The single-sum payment is equal 

to the present value of the participant’s 

accrued benefit, based on the applicable 

interest rates and the applicable mortality 

table under section 417(e)(3). Participant E is 

the only participant in the plan, and is a male 

age 46 as of January 1, 2009, with an annual 

accrued benefit of $23,000 payable beginning 

at age 65. The actuary assumes a 100% 

probability that Participant E will terminate 

at age 50 and will elect to receive his benefit 

in the form of a single-sum payment. 

(ii) Plan P’s funding target is $68,908 as of 

January 1, 2009. This figure is based on the 

male nonannuitant rates for ages prior to age 

50, the applicable mortality rates under 

section 417(e)(3) for ages 50 and later, and 

segment interest rates of 5.07% for the first 

5 years after the valuation date, 6.09% for the 

next 15 years, and 6.56% for periods more 

than 20 years after the valuation date. (See 

§ 1.430(d)–1(f)(9), Example 10, for additional 

details.) 

(iii) The present value of Participant E’s 

benefits as of January 1, 2009, is $68,908 if 

a single interest rate of 6.52805% is 

substituted for the segment interest rates but 

all other assumptions remain the same. Thus 

(rounded), the effective interest rate for Plan 

P is 6.53% for 2009. 

Example 2. (i) The facts are the same as 

for Example 1, except that Plan P offers a 

single-sum distribution equal to the present 

value of the accrued benefit based on the 

applicable interest rates under section 

417(e)(3) or an interest rate of 6.25%, 

whichever produces the higher amount. The 

applicable mortality table under section 

417(e)(3) is used for both calculations. 

(ii) The present value of Participant E’s 

age-50 single-sum distribution as of January 

1, 2009 (when Participant E is age 46) is 

$77,392. This amount is determined by 

calculating the projected single-sum 

distribution at age 50 using the applicable 

mortality table under section 417(e)(3) and an 

interest rate of 6.25%, and discounting the 

result to January 1, 2009, using the first 

segment rate of 5.07% and male 

nonannuitant mortality rates for 2009. 

Because this amount is larger than the 

present value of Participant E’s single-sum 

payment based on the applicable interest 

rates under section 417(e)(3) (that is, 

$68,908), the funding target for Plan P is 

$77,392 as of January 1, 2009. (See 

§ 1.430(d)–1(f)(9), Example 12 for additional 

details.) 

(iii) The effective interest rate is the single 

interest rate that will produce the same 

funding target if substituted for the segment 

interest rates keeping all other assumptions 

the same, including the fixed interest rate 

used by the plan to determine single-sum 

payments. The only segment interest rate 

used to develop the funding target of $77,392 

was the first segment rate of 5.07%. 

Therefore, considering only this calculation, 

the single interest rate that would produce 

the same funding target would be 5.07%. 

(iv) However, the effective interest rate 

must also reflect the fact that the single-sum 

payment under Plan P is equal to the greater 

of the present value of Participant E’s 

accrued benefit based on the fixed rate of 

6.25% or the applicable interest rates under 

section 417(e)(3). If the single rate of 5.07% 

is substituted for the segment rates used to 

calculate the present value of the single-sum 

payment based on the applicable interest 

rates, the resulting funding target would be 

higher than $77,392. 

(v) Using a single interest rate of 6.0771%, 

the January 1, 2009, present value of 

Participant E’s single-sum payment based on 

the applicable interest rates is $77,392, and 

the present value of Participant E’s single 

sum payment based on the plan’s interest 

rate of 6.25% is $74,494. Plan P’s funding 

target is the larger of the two, or $77,392, 


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53058 Federal Register / Vol. 74, No. 198 / Thursday, October 15, 2009 / Rules and Regulations 

which is the same as the funding target based 

on the segment interest rates used for the 

2009 valuation. Therefore, Plan P’s effective 

interest rate for 2009 (rounded) is 6.08%. 

(h) Effective/applicability dates and 

transition rules—(1) Statutory effective 

date/applicability date. Section 430 

generally applies to plan years 

beginning on or after January 1, 2008. 

The applicability of section 430 for 

purposes of determining the minimum 

required contribution is delayed for 

certain plans in accordance with 

sections 104 through 106 of PPA’06. 

(2) Effective date/applicability date of 

regulations. This section applies to plan 

years beginning on or after January 1, 

2010, regardless of whether section 430 

applies to determine the minimum 

required contribution for the plan year. 

For plan years beginning before January 

1, 2010, plans are permitted to rely on 

the provisions set forth in this section 

for purposes of satisfying the 

requirements of section 430. 

(3) Approval for changes in interest 

rate. Any change to an election under 

paragraph (e) of this section that is made 

for the first plan year beginning in 2009 

or the first plan year beginning in 2010 

is treated as having been approved by 

the Commissioner and does not require 

the Commissioner’s specific prior 

approval. 

(4) Transition rule—(i) In general. 

Notwithstanding the general rules for 

determination of segment rates under 

paragraph (c)(2) of this section, for plan 

years beginning in 2008 or 2009, the 

first, second, or third segment rate for a 

plan with respect to any month is equal 

to the sum of— 

(A) The product of that rate for that 

month determined without regard to 

this paragraph (h)(4), multiplied by the 

applicable percentage; and 

(B) The product of the weighted 

average interest rate determined under 

the rules of paragraph (h)(4)(iii) of this 

section, multiplied by a percentage 

equal to 100 percent minus the 

applicable percentage. 

(ii) Applicable percentage. For 

purposes of this paragraph (h)(4), the 

applicable percentage is 331⁄3 percent 

for plan years beginning in 2008 and 

662⁄3 percent for plan years beginning in 

2009. 

(iii) Weighted average interest rate. 

The weighted average interest rate for 

purposes of paragraph (h)(4)(i)(B) of this 

section is the weighted average interest 

rate under section 412(b)(5)(B)(ii)(II) (as 

that provision was in effect for plan 

years beginning in 2007) as of— 

(A) The month which contains the 

first day of the plan year; 

(B) The month which contains the 

valuation date (if the applicable month 

is determined under paragraph (b)(5) of 

this section); or 

(C) The applicable month (if the 

applicable month is determined under 

paragraph (e)(2) of this section). 

(iv) New plans ineligible. The 

transition rule of this paragraph (h)(4) 

does not apply if the first plan year of 

the plan begins on or after January 1, 

2008. 

■ Par. 6. Section 1.430(i)–1 is added to 

read as follows: 

§ 1.430(i)–1 Special rules for plans in atrisk status. 

(a) In general—(1) Overview. This 

section provides special rules related to 

determining the funding target and 

making other computations for certain 

defined benefit plans that are in at-risk 

status for the plan year. Section 430(i) 

and this section apply to single 

employer defined benefit plans 

(including multiple employer plans) but 

do not apply to multiemployer plans (as 

defined in section 414(f)). Paragraph (b) 

of this section describes rules for 

determining whether a plan is in at-risk 

status for a plan year, including the 

determination of a plan’s funding target 

attainment percentage and at-risk 

funding target attainment percentage. 

Paragraph (c) of this section describes 

the funding target for a plan in at-risk 

status. Paragraph (d) of this section 

describes the target normal cost for a 

plan in at-risk status. Paragraph (e) of 

this section describes rules regarding 

how the funding target and the target 

normal cost are determined for a plan 

that has been in at-risk status for fewer 

than 5 consecutive plan years. 

Paragraph (f) of this section sets forth 

effective/applicability dates and 

transition rules. 

(2) Special rules for multiple 

employer plans. In the case of a multiple 

employer plan to which section 

413(c)(4)(A) applies, the rules of section 

430 and this section are applied 

separately for each employer under the 

plan, as if each employer maintained a 

separate plan. For example, at-risk 

status is determined separately for each 

employer under such a multiple 

employer plan. In the case of a multiple 

employer plan to which section 

413(c)(4)(A) does not apply (that is, a 

plan described in section 413(c)(4)(B) 

that has not made the election for 

section 413(c)(4)(A) to apply), the rules 

of section 430 and this section are 

applied as if all participants in the plan 

were employed by a single employer. 

(b) Determination of at-risk status of 

a plan—(1) General rule. Except as 

otherwise provided in this section, a 

plan is in at-risk status for a plan year 

if— 

(i) The funding target attainment 

percentage for the preceding plan year 

(determined under paragraph (b)(3) of 

this section) is less than 80 percent; and 

(ii) The at-risk funding target 

attainment percentage for the preceding 

plan year (determined under paragraph 

(b)(4) of this section) is less than 70 

percent. 

(2) Small plan exception. If, on each 

day during the preceding plan year, a 

plan had 500 or fewer participants 

(including both active and inactive 

participants), determined in accordance 

with the same rules that apply for 

purposes of § 1.430(g)–1(b)(2)(ii), then 

the plan is not treated as being in at-risk 

status for the plan year. 

(3) Funding target attainment 

percentage. For purposes of this section, 

except as otherwise provided in 

paragraph (b)(5) of this section, the 

funding target attainment percentage of 

a plan for a plan year is the funding 

target attainment percentage as defined 

in § 1.430(d)–1(b)(3). 

(4) At-risk funding target attainment 

percentage. Except as otherwise 

provided in paragraph (b)(5) of this 

section, the at-risk funding target 

attainment percentage of a plan for a 

plan year is a fraction (expressed as a 

percentage)— 

(i) The numerator of which is the 

value of plan assets for the plan year 

after subtraction of the prefunding 

balance and the funding standard 

carryover balance under section 

430(f)(4)(B); and 

(ii) The denominator of which is the 

at-risk funding target of the plan for the 

plan year (determined under paragraph 

(c) of this section, but without regard to 

the loading factor imposed under 

paragraph (c)(2)(ii) of this section). 

(5) Special rules—(i) Special rule for 

new plans. Except as otherwise 

provided in paragraph (b)(5)(iii) of this 

section, in the case of a new plan that 

was neither the result of a merger nor 

involved in a spinoff, the funding target 

attainment percentage under paragraph 

(b)(3) of this section and the at-risk 

funding target attainment percentage 

under paragraph (b)(4) of this section 

are equal to 100 percent for years before 

the plan exists. 

(ii) Special rule for plans with zero 

funding target. Except as otherwise 

provided in paragraph (b)(5)(iii) of this 

section, if the funding target of the plan 

is equal to zero for a plan year, then the 

funding target attainment percentage 

under paragraph (b)(3) of this section 

and the at-risk funding target attainment 

percentage under paragraph (b)(4) of 

this section are equal to 100 percent for 

that plan year. 


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Federal Register / Vol. 74, No. 198 / Thursday, October 15, 2009 / Rules and Regulations 53059 

(iii) Exception when plan has 

predecessor plan that was in at-risk 

status. [Reserved] 

(iv) Special rules for plans that are the 

result of a merger. [Reserved] 

(v) Special rules for plans that are 

involved in a spinoff. [Reserved] 

(6) Special rule for determining at-risk 

status of plans of specified automobile 

manufacturers. See section 430(i)(4)(C) 

for special rules for determining the atrisk status of plans of specified 

automobile and automobile parts 

manufacturers. 

(c) Funding target for plans in at-risk 

status—(1) In general. If the plan has 

been in at-risk status for 5 consecutive 

years, including the current plan year, 

then the funding target for the plan is 

the at-risk funding target determined 

under paragraph (c)(2) of this section. 

See paragraph (e) of this section for the 

determination of the funding target 

where the plan is in at-risk status for the 

plan year but was not in at-risk status 

for one or more of the 4 preceding plan 

years. 

(2) At-risk funding target—(i) Use of 

modified actuarial assumptions. Except 

as otherwise provided in this paragraph 

(c)(2), the at-risk funding target of the 

plan under this paragraph (c)(2) for the 

plan year is equal to the present value 

of all benefits accrued or earned under 

the plan as of the beginning of the plan 

year, as determined in accordance with 

§ 1.430(d)–1 but using the additional 

actuarial assumptions described in 

paragraph (c)(3) of this section. 

(ii) Funding target includes load. The 

at-risk funding target is increased by the 

sum of— 

(A) $700 multiplied by the number of 

participants in the plan (including 

active participants, inactive 

participants, and beneficiaries); plus 

(B) Four percent of the funding target 

(determined under § 1.430(d)–1(b)(2) as 

if the plan was not in at-risk status) of 

the plan for the plan year. 

(iii) Minimum amount. 

Notwithstanding any otherwise 

applicable provisions of this section, the 

at-risk funding target of a plan for a plan 

year is not less than the plan’s funding 

target for the plan year determined 

without regard to this section. 

(3) Additional actuarial 

assumptions—(i) In general. The 

actuarial assumptions used to determine 

a plan’s at-risk funding target for a plan 

year are the actuarial assumptions that 

are applied under section 430, with the 

modifications described in this 

paragraph (c)(3). 

(ii) Special retirement age 

assumption—(A) Participants eligible to 

retire and collect benefits within 11 

years. Subject to paragraph (c)(3)(ii)(B) 

of this section, if a participant would be 

eligible to commence an immediate 

distribution by the end of the 10th plan 

year after the current plan year (that is, 

the end of the 11th plan year beginning 

with the current plan year), that 

participant is assumed to commence an 

immediate distribution at the earliest 

retirement age under the plan, or, if 

later, at the end of the current plan year. 

The rule of this paragraph (c)(3)(ii)(A) 

does not affect the application of plan 

assumptions regarding an employee’s 

termination of employment prior to the 

employee’s earliest retirement age. 

(B) Participants otherwise assumed to 

retire immediately. The special 

retirement age assumption of paragraph 

(c)(3)(ii)(A) of this section does not 

apply to a participant to the extent the 

participant is otherwise assumed to 

commence benefits during the current 

plan year under the actuarial 

assumptions for the plan. For example, 

if generally applicable retirement 

assumptions would provide for a 25 

percent probability that a participant 

will commence benefits during the 

current plan year, the special retirement 

age assumption of paragraph (c)(3)(ii)(A) 

of this section requires the plan’s 

enrolled actuary to assume a 75 percent 

probability that the participant will 

commence benefits at the end of the 

plan year. 

(C) Definition of earliest retirement 

date. For purposes of this paragraph 

(c)(3)(ii), a plan’s earliest retirement 

date for an employee is the earliest date 

on which the employee can commence 

receiving an immediate distribution of a 

fully vested benefit under the plan. See 

§ 1.401(a)–20, Q&A–17(b). 

(iii) Requirement to assume most 

valuable benefit. All participants and 

beneficiaries who are assumed to retire 

on a particular date are assumed to elect 

the optional form of benefit available 

under the plan that would result in the 

highest present value of benefits 

commencing at that date. 

(iv) Reasonable techniques permitted. 

The plan’s actuary is permitted to use 

reasonable techniques in determining 

the actuarial assumptions that are 

required to be used pursuant to this 

paragraph (c)(3). For example, the plan’s 

actuary is permitted to use reasonable 

assumptions in determining the 

optional form of benefit under the plan 

that would result in the highest present 

value of benefits for this purpose. 

(d) Target normal cost of plans in atrisk status—(1) General rule. If the plan 

has been in at-risk status for 5 

consecutive years, including the current 

plan year, then the target normal cost for 

the plan is the at-risk target normal cost 

determined under paragraph (d)(2) of 

this section. See paragraph (e) of this 

section for the determination of the 

target normal cost where the plan is in 

at-risk status for the plan year but was 

not in at-risk status for one or more of 

the 4 preceding plan years. 

(2) At-risk target normal cost—(i) Use 

of modified actuarial assumptions—(A) 

In general. Except as otherwise 

provided in this paragraph (d)(2), the atrisk target normal cost of a plan for the 

plan year is equal to the present value 

(determined as of the valuation date) of 

all benefits that accrue during, are 

earned during, or are otherwise 

allocated to service in the plan year, as 

determined in accordance with 

§ 1.430(d)–1 but using the additional 

actuarial assumptions described in 

paragraph (c)(3) of this section. 

(B) Special adjustments. The target 

normal cost of the plan for the plan year 

(determined under paragraph 

(d)(2)(i)(A) of this section) is adjusted 

(not below zero) by adding the amount 

of plan-related expenses expected to be 

paid from plan assets during the plan 

year and subtracting the amount of any 

mandatory employee contributions 

expected to be made during the plan 

year. 

(C) Plan-related expenses. For 

purposes of this paragraph (d)(2), planrelated expenses are determined using 

the rules of § 1.430(d)–1(b)(1)(iii)(B). 

(ii) Loading factor. The at-risk target 

normal cost is increased by a loading 

factor equal to 4 percent of the present 

value (determined as of the valuation 

date) of all benefits under the plan that 

accrue, are earned, or are otherwise 

allocated to service for the plan year 

under the applicable rules of § 1.430(d)– 

1(c)(1)(ii)(B), (C), or (D), determined as 

if the plan were not in at-risk status. 

(iii) Minimum amount. The at-risk 

target normal cost of a plan for a plan 

year is not less than the plan’s target 

normal cost determined without regard 

to section 430(i) and this section. 

(e) Transition between applicable 

funding targets and applicable target 

normal costs—(1) Funding target. If a 

plan that is in at-risk status for the plan 

year has not been in at-risk status for 

one or more of the preceding 4 plan 

years, the plan’s funding target for the 

plan year is determined as the sum of— 

(i) The funding target determined 

without regard to section 430(i) and this 

section; plus 

(ii) The phase-in percentage for the 

plan year multiplied by the excess of— 

(A) The at-risk funding target 

determined under paragraph (c)(2) of 

this section (determined taking into 

account paragraph (e)(4) of this section); 

over 


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53060 Federal Register / Vol. 74, No. 198 / Thursday, October 15, 2009 / Rules and Regulations 

(B) The funding target determined 

without regard to section 430(i) and this 

section. 

(2) Target normal cost. If a plan that 

is in at-risk status for the plan year has 

not been in at-risk status for one or more 

of the preceding 4 plan years, the plan’s 

target normal cost for the plan year is 

determined as the sum of— 

(i) The target normal cost determined 

without regard to section 430(i) and this 

section; plus 

(ii) The phase-in percentage for the 

plan year multiplied by the excess of— 

(A) The at-risk target normal cost 

determined under paragraph (d)(2) of 

this section (determined taking into 

account paragraph (e)(4) of this section); 

over 

(B) The target normal cost determined 

without regard to section 430(i) and this 

section. 

(3) Phase-in percentage. For purposes 

of this paragraph (e), the phase-in 

percentage is 20 percent multiplied by 

the number of consecutive plan years 

that the plan has been in at-risk status 

(including the current plan year) and 

not taking into account years before the 

first effective plan year for a plan. 

(4) Transition funding target and 

target normal cost determined without 

load. Notwithstanding paragraph 

(c)(2)(ii) of this section, if a plan has not 

been in at-risk status for 2 or more of the 

preceding 4 plan years (not taking into 

account years before the first effective 

plan year for a plan), then the plan’s atrisk funding target that is used for 

purposes of paragraph (e)(1)(ii)(A) of 

this section (to calculate the plan’s 

funding target where the plan has been 

in at-risk status for fewer than 5 plan 

years) is determined without regard to 

the loading factor set forth in paragraph 

(c)(2)(ii) of this section. Similarly, if a 

plan has not been in at-risk status for 2 

or more of the preceding 4 plan years 

(not taking into account years before the 

first effective plan year for a plan), then 

the plan’s at-risk target normal cost that 

is used for purposes of paragraph 

(e)(2)(ii)(A) of this section (to calculate 

the plan’s target normal cost where the 

plan has been in at-risk status for fewer 

than 5 plan years) is determined 

without regard to the loading factor set 

forth in paragraph (d)(2)(ii) of this 

section. 

(f) Effective/applicability dates and 

transition rules—(1) Statutory effective 

date/applicability date—(i) General 

rule. Section 430 generally applies to 

plan years beginning on or after January 

1, 2008. The applicability of section 430 

for purposes of determining the 

minimum required contribution is 

delayed for certain plans in accordance 

with sections 104 through 106 of the 

Pension Protection Act of 2006 (PPA 

’06), Public Law 109–280 (120 Stat. 

780). 

(ii) Applicability of special 

adjustments to target normal cost. The 

special adjustments of paragraph 

(d)(2)(i)(B) of this section (relating to 

adjustments to the target normal cost for 

plan-related expenses and mandatory 

employee contributions) apply to plan 

years beginning after December 31, 

2008. In addition, a plan sponsor may 

elect to make the special adjustments of 

paragraph (d)(2)(i)(B) of this section for 

plan years beginning in 2008. This 

election is made in the same manner 

and is subject to the same rules as an 

election to add an amount to the plan’s 

prefunding balance pursuant to 

§ 1.430(f)–1(f). Thus, the election can be 

made no later than the last day for 

making the minimum required 

contribution for the plan year to which 

the election relates. 

(2) Effective date/applicability date of 

regulations. This section applies to plan 

years beginning on or after January 1, 

2010. For plan years beginning before 

January 1, 2010, plans are permitted to 

rely on the provisions set forth in this 

section for purposes of satisfying the 

requirements of section 430. 

(3) First effective plan year. For 

purposes of this section, the first 

effective plan year for a plan is the first 

plan year to which section 430 applies 

to the plan for purposes of determining 

the minimum required contribution. 

(4) Transition rule for determining atrisk status. In the case of plan years 

beginning in 2008, 2009, and 2010, 

paragraph (b)(1)(i) of this section is 

applied by substituting the following 

percentages for ‘‘80 percent’’— 

(i) 65 percent in the case of 2008; 

(ii) 70 percent in the case of 2009; and 

(iii) 75 percent in the case of 2010. 

■ Par. 7. Section 1.436–0 is added to 

read as follows: 

§ 1.436–0 Table of contents. 

This section contains a listing of the 

major headings of § 1.436–1. 

§ 1.436–1 Limits on benefits and benefit 

accruals under single employer defined 

benefit plans. 

(a) General rules. 

(1) Qualification requirement. 

(2) Organization of the regulation. 

(3) Special rules for certain plans. 

(4) Treatment of plan as of close of 

prohibited or cessation period. 

(5) Deemed election to reduce funding 

balances. 

(b) Limitation on shutdown benefits and 

other unpredictable contingent event 

benefits. 

(1) In general. 

(2) Exemption if section 436 contribution 

is made. 

(3) Rules of application. 

(4) Prior unpredictable contingent event. 

(c) Limitations on plan amendments 

increasing liability for benefits. 

(1) In general. 

(2) Exemption if section 436 contribution 

is made. 

(3) Rules of application regarding preexisting plan provisions. 

(4) Exceptions. 

(5) Rule for determining when an 

amendment takes effect. 

(6) Treatment of mergers, consolidations, 

and transfers of plan assets into a plan. 

[Reserved] 

(d) Limitations on prohibited payments. 

(1) AFTAP less than 60 percent. 

(2) Bankruptcy. 

(3) Limited payment if AFTAP at least 60 

percent but less than 80 percent. 

(4) Exception for cessation of benefit 

accruals. 

(5) Right to delay commencement. 

(6) Plan alternative for special optional 

forms. 

(7) Exception for distributions permitted 

without consent of the participant under 

section 411(a)(11). 

(e) Limitation on benefit accruals for plans 

with severe funding shortfalls. 

(1) In general. 

(2) Exemption if section 436 contribution 

is made. 

(3) Special rule under section 203 of the 

Worker, Retiree, and Employer Recovery Act 

of 2008. [Reserved] 

(f) Methods to avoid or terminate benefit 

limitations. 

(1) In general. 

(2) Current year contributions to avoid or 

terminate benefit limitations. 

(3) Security to increase adjusted funding 

target attainment percentage. 

(4) Examples. 

(g) Rules of operation for periods prior to 

and after certification. 

(1) In general. 

(2) Periods prior to certification during 

which a presumption applies. 

(3) Periods prior to certification during 

which no presumption applies. 

(4) Modification of the presumed AFTAP. 

(5) Periods after certification of AFTAP. 

(6) Examples. 

(h) Presumed underfunding for purposes of 

benefit limitations. 

(1) Presumption of continued 

underfunding. 

(2) Presumption of underfunding beginning 

on first day of 4th month for certain 

underfunded plans. 

(3) Presumption of underfunding beginning 

on first day of 10th month. 

(4) Certification of AFTAP. 

(5) Examples of rules of paragraphs (h)(1), 

(h)(2), and (h)(3) of this section. 

(6) Examples of application of paragraph 

(h)(4) of this section. 

(i) [Reserved] 

(j) Definitions. 

(1) Adjusted funding target attainment 

percentage. 

(2) Annuity starting date. 

(3) First effective plan year. 

(4) Funding target. 

(5) Prior year adjusted funding target 

attainment percentage. 


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Federal Register / Vol. 74, No. 198 / Thursday, October 15, 2009 / Rules and Regulations 53061 

(6) Prohibited payment. 

(7) Section 436 contributions. 

(8) Section 436 measurement date. 

(9) Unpredictable contingent event. 

(10) Examples. 

(k) Effective/applicability dates. 

(1) Statutory effective date. 

(2) Collectively bargained plan exception. 

(3) Effective date/applicability date of 

regulations. 

■ Par. 8. Section 1.436–1 is added to 

read as follows: 

§ 1.436–1 Limits on benefits and benefit 

accruals under single employer defined 

benefit plans. 

(a) General rules—(1) Qualification 

requirement. Section 401(a)(29) 

provides that a defined benefit pension 

plan that is subject to section 412 and 

that is not a multiemployer plan (within 

the meaning of section 414(f)) is a 

qualified plan only if it satisfies the 

requirements of section 436. This 

section provides rules relating to 

funding-based limitations on certain 

benefits under section 436, and the 

requirements of section 436 are satisfied 

only if the plan meets the requirements 

of this section beginning with the plan’s 

first effective plan year. This section 

applies to single employer defined 

benefit plans (including multiple 

employer plans), but does not apply to 

multiemployer plans. 

(2) Organization of the regulation. 

Paragraph (b) of this section describes 

limitations on shutdown benefits and 

other unpredictable contingent event 

benefits. Paragraph (c) of this section 

describes limitations on plan 

amendments increasing liabilities. 

Paragraph (d) of this section describes 

limitations on prohibited payments. 

Paragraph (e) of this section describes 

limitations on benefit accruals. 

Paragraph (f) of this section provides 

rules relating to methods to avoid or 

terminate benefit limitations. Paragraph 

(g) of this section provides rules for the 

operation of the plan in relation to 

benefit limitations under section 436. 

Paragraph (h) of this section describes 

related presumptions regarding 

underfunding that apply for purposes of 

the benefit limitations under section 436 

and requirements relating to 

certifications. Paragraph (j) of this 

section contains definitions. Paragraph 

(k) of this section contains effective/ 

applicability date provisions. 

(3) Special rules for certain plans—(i) 

New plans. The limitations described in 

paragraphs (b), (c), and (e) of this 

section do not apply to a plan for the 

first 5 plan years of the plan. Except as 

otherwise provided by the 

Commissioner in guidance of general 

applicability, plan years of the plan 

include the following (in addition to 

plan years during which the plan was 

maintained by the employer or plan 

sponsor): 

(A) Plan years when the plan was 

maintained by a predecessor employer 

within the meaning of § 1.415(f)–1(c)(1). 

(B) Plan years of another defined 

benefit plan maintained by a 

predecessor employer within the 

meaning of § 1.415(f)–1(c)(2) within the 

preceding five years if any participants 

in the plan participated in that other 

defined benefit plan (even if the plan 

maintained by the employer is not the 

plan that was maintained by the 

predecessor employer). 

(C) Plan years of another defined 

benefit plan maintained by the 

employer within the preceding five 

years if any participants in the plan 

participated in that other defined 

benefit plan. 

(ii) Application of section 436 after 

termination of a plan—(A) In general. 

Except as otherwise provided in 

paragraph (a)(3)(ii)(B) of this section, 

any section 436 limitations in effect 

immediately before the termination of a 

plan do not cease to apply thereafter. 

(B) Exception for payments pursuant 

to plan termination. The limitations 

under section 436(d) and paragraph (d) 

of this section do not apply to 

prohibited payments (within the 

meaning of paragraph (j)(6) of this 

section) that are made to carry out the 

termination of a plan in accordance 

with applicable law. For example, a 

plan sponsor’s purchase of an 

irrevocable commitment from an insurer 

to pay benefit liabilities in connection 

with the standard termination of a plan 

in accordance with section 4041(b)(3) of 

the Employee Retirement Income 

Security Act of 1974, as amended 

(ERISA), and in accordance with 29 CFR 

4041.28, does not violate section 436(d) 

or this section. 

(iii) Multiple employer plans. In the 

case of a multiple employer plan to 

which section 413(c)(4)(A) applies, this 

section applies separately with respect 

to each employer under the plan, as if 

each employer maintained a separate 

plan. Thus, the benefit limitations under 

section 436 and this section could apply 

differently to participants who are 

employees of different employers under 

such a multiple employer plan. In the 

case of a multiple employer plan to 

which section 413(c)(4)(A) does not 

apply (that is, a plan described in 

section 413(c)(4)(B) that has not made 

the election for section 413(c)(4)(A) to 

apply), this section applies as if all 

participants in the plan were employed 

by a single employer. 

(4) Treatment of plan as of close of 

prohibited or cessation period—(i) 

Application to prohibited payments and 

accruals—(A) Resumption of prohibited 

payments. If a limitation on prohibited 

payments under paragraph (d) of this 

section applied to a plan as of a section 

436 measurement date (as defined in 

paragraph (j)(8) of this section), but that 

limit no longer applies to the plan as of 

a later section 436 measurement date, 

then the limitation on prohibited 

payments under the plan does not apply 

to benefits with annuity starting dates 

(as defined in paragraph (j)(2) of this 

section) that are on or after that later 

section 436 measurement date. Any 

amendment to eliminate an optional 

form of benefit that contains a 

prohibited payment with respect to an 

annuity starting date during a period in 

which the limitations of section 436(d) 

and paragraph (d) of this section do not 

apply to the plan is subject to the rules 

of section 411(d)(6). 

(B) Resumption of benefit accruals. If 

a limitation on benefit accruals under 

paragraph (e) of this section applied to 

a plan as of a section 436 measurement 

date, but that limit no longer applies to 

the plan as of a later section 436 

measurement date, then that limitation 

does not apply to benefit accruals that 

are based on service on or after that later 

section 436 measurement date, except to 

the extent that the plan provides that 

benefit accruals will not resume when 

the limitation ceases to apply. The plan 

must comply with the rules relating to 

partial years of participation and the 

prohibition on double proration under 

Department of Labor regulation 29 CFR 

2530.204–2(c) and (d). 

(ii) Restoration of options and missed 

benefit accruals—(A) Option to amend 

plan. A plan is permitted to be amended 

to provide participants who had an 

annuity starting date within a period 

during which a limitation under 

paragraph (d) of this section applied to 

the plan with the opportunity to make 

a new election under which the form of 

benefit previously elected is modified, 

subject to applicable qualification 

requirements. A participant who makes 

such a new election is treated as having 

a new annuity starting date under 

sections 415 and 417. Similarly, a plan 

is permitted to be amended to provide 

that any benefit accruals which were 

limited under the rules of paragraph (e) 

of this section are credited under the 

plan when the limitation no longer 

applies, subject to applicable 

qualification requirements. Any such 

plan amendment with respect to a new 

annuity starting date or crediting of 

benefit accruals is subject to the 


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53062 Federal Register / Vol. 74, No. 198 / Thursday, October 15, 2009 / Rules and Regulations 

requirements of section 436(c) and 

paragraph (c) of this section. 

(B) Automatic plan provisions. A plan 

is permitted to provide that participants 

who had an annuity starting date within 

a period during which a limitation 

under paragraph (d) of this section 

applied to the plan will be provided 

with the opportunity to have a new 

annuity starting date (which would 

constitute a new annuity starting date 

under sections 415 and 417) under 

which the form of benefit previously 

elected may be modified, subject to 

applicable qualification requirements, 

once the limitations of paragraph (d) of 

this section cease to apply. In addition, 

subject to the rules of paragraph (c)(3) 

of this section, a plan is permitted to 

provide for the automatic restoration of 

benefit accruals that had been limited 

under section 436(e) as of the section 

436 measurement date that the 

limitation ceases to apply. 

(iii) Shutdown and other 

unpredictable contingent event benefits. 

If unpredictable contingent event 

benefits with respect to an 

unpredictable contingent event that 

occurs during the plan year are not 

permitted to be paid after the 

occurrence of the event because of the 

limitations of section 436(b) and 

paragraph (b) of this section, but are 

permitted to be paid later in the plan 

year as a result of additional 

contributions under paragraph (f)(2) of 

this section or pursuant to the enrolled 

actuary’s certification of the adjusted 

funding target attainment percentage for 

the plan year that meets the 

requirements of paragraph (g)(5)(ii)(B) of 

this section, then those unpredictable 

contingent event benefits must 

automatically become payable, 

retroactive to the period those benefits 

would have been payable under the 

terms of the plan (other than plan terms 

implementing the requirements of 

section 436(b)). If the benefits do not 

become payable during the plan year in 

accordance with the preceding sentence, 

then the plan is treated as if it does not 

provide for those benefits. However, all 

or any portion of those benefits can be 

restored pursuant to a plan amendment 

that meets the requirements of section 

436(c) and paragraph (c) of this section 

and other applicable qualification 

requirements. 

(iv) Treatment of plan amendments 

that do not take effect. If a plan 

amendment does not take effect as of the 

effective date of the amendment because 

of the limitations of section 436(c) and 

paragraph (c) of this section, but is 

permitted to take effect later in the plan 

year as a result of additional 

contributions under paragraph (f)(2) of 

this section or pursuant to the enrolled 

actuary’s certification of the adjusted 

funding target attainment percentage for 

the plan year that meets the 

requirements of paragraph (g)(5)(ii)(C) of 

this section, then the plan amendment 

must automatically take effect as of the 

first day of the plan year (or, if later, the 

original effective date of the 

amendment). If the plan amendment 

cannot take effect during the plan year, 

then it must be treated as if it were 

never adopted, unless the plan 

amendment provides otherwise. 

(v) Example. The following example 

illustrates the rules of this paragraph 

(a)(4): 

Example. (i) Plan T is a non-collectively 

bargained defined benefit plan with a plan 

year that is the calendar year and a valuation 

date of January 1. As of January 1, 2011, Plan 

T does not have a funding standard carryover 

balance or a prefunding balance. Plan T’s 

sponsor is not in bankruptcy. Beginning 

January 1, 2011, Plan T is subject to the 

restriction on prohibited payments under 

paragraph (d)(3) of this section based on a 

presumed adjusted funding target attainment 

percentage (AFTAP) of 75%. 

(ii) U is a participant in Plan T. Participant 

U retires on February 1, 2011, and elects to 

receive benefits in the form of a single sum. 

Plan T may pay only a portion (generally, 

50%) of the prohibited payment. 

Accordingly, U elects in accordance with 

paragraph (d)(3)(ii) of this section to receive 

50% of U’s benefit in a single sum (up to the 

2011 PBGC maximum benefit guarantee 

amount described in paragraph (d)(3)(iii)(C) 

of this section) and the remainder as an 

immediately commencing straight life 

annuity. 

(iii) On March 1, 2011, the enrolled actuary 

for the Plan certifies that the AFTAP for 2011 

is 80%. Accordingly, beginning March 1, 

2011, Plan T is no longer subject to the 

restriction under paragraph (d)(3) of this 

section. 

(iv) Effective March 1, 2011, Plan T is 

amended to provide that a participant whose 

benefits were restricted under paragraph 

(d)(3) of this section with respect to an 

annuity starting date between January 1, 

2011, and February 28, 2011, may elect, 

within a specified period on or after March 

1, 2011, a new annuity starting date and 

receive the remainder of his or her pension 

benefits in an accelerated form of payment. 

Plan T’s enrolled actuary determines that the 

AFTAP, taking into account the amendment, 

would still be 80%. The amendment is 

permitted to take effect because Plan T would 

have an AFTAP of 80% taking into account 

the amendment and is therefore neither 

subject to the restriction on plan 

amendments in paragraph (c) of this section 

nor the restrictions on prohibited payments 

under paragraphs (d)(1) and (d)(3) of this 

section. Accordingly, Participant U may 

elect, within the specified period and subject 

to otherwise applicable qualification rules, 

including spousal consent, to receive the 

remainder of U’s benefits in the form of a 

single sum on or after March 1, 2011. 

(5) Deemed election to reduce funding 

balances—(i) Limitations on accelerated 

benefit payments. If a benefit limitation 

under paragraph (d)(1) or (d)(3) of this 

section would (but for this paragraph 

(a)(5)) apply to a plan, the employer is 

treated as having made an election 

under section 430(f) to reduce the 

prefunding balance or funding standard 

carryover balance by such amount as is 

necessary for the adjusted funding target 

attainment percentage to be at the 

applicable threshold (60 or 80 percent, 

as the case may be) in order for the 

benefit limitation not to apply to the 

plan. The determination of whether a 

benefit limitation under paragraph (d) of 

this section would apply to a plan is 

based on whether the plan provides for 

an optional form of benefit that would 

be limited under section 436(d) and is 

not based on whether any participant 

elects payment of benefits in such a 

form. 

(ii) Other limitations for collectively 

bargained plans—(A) General rule. In 

the case of a collectively bargained plan 

to which a benefit limitation under 

paragraph (b), (c), or (e) of this section 

would (but for this paragraph (a)(5)) 

apply, the employer is treated as having 

made an election under section 430(f) to 

reduce the prefunding balance or 

funding standard carryover balance by 

such amount as is necessary for the 

adjusted funding target attainment 

percentage to be at the applicable 

threshold (60 or 80 percent, as the case 

may be) in order for the benefit 

limitation not to apply to the plan, 

taking into account the adjustments 

described in paragraph (g)(2)(iii)(A), 

(g)(3)(ii)(A), or (g)(5)(i)(B) of this section, 

whichever applies. 

(B) Collectively bargained plans. A 

plan is considered a collectively 

bargained plan for purposes of this 

paragraph (a)(5)(ii) if— 

(1) At least 50 percent of the 

employees benefiting under the plan 

(within the meaning of § 1.410(b)–3(a)) 

are members of collective bargaining 

units for which the benefit levels under 

the plan are specified under a collective 

bargaining agreement; or 

(2) At least 25 percent of the 

participants in the plan are members of 

collective bargaining units for which the 

benefit levels under the plan are 

specified under a collective bargaining 

agreement. 

(iii) Exception for insufficient funding 

balances—(A) In general. Paragraphs 

(a)(5)(i) and (a)(5)(ii) of this section 

apply with respect to a benefit 

limitation for any plan year only if the 

application of those paragraphs would 

result in the corresponding benefit 

limitation not applying for such plan 


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Federal Register / Vol. 74, No. 198 / Thursday, October 15, 2009 / Rules and Regulations 53063 

year. Thus, if the plan’s prefunding and 

funding standard carryover balances 

were reduced to zero and the resulting 

increase in plan assets taken into 

account would still not increase the 

plan’s adjusted funding target 

attainment percentage enough to reach 

the threshold percentage applicable to 

the benefit limitation, the deemed 

election to reduce those balances 

pursuant to paragraph (a)(5)(i) or 

(a)(5)(ii) of this section does not apply. 

(B) Presumed adjusted funding target 

attainment percentage less than 60 

percent. During any period when a plan 

is presumed to have an adjusted funding 

target attainment percentage of less than 

60 percent as a result of paragraph (h)(3) 

of this section, the plan is treated as if 

the prefunding balance and the funding 

standard carryover balance are 

insufficient to increase the adjusted 

funding target attainment percentage to 

the threshold percentage of 60 percent. 

Accordingly, the deemed election to 

reduce those balances pursuant to 

paragraphs (a)(5)(i) and (a)(5)(ii) of this 

section does not apply to the plan. 

(iv) Other rules—(A) Date of deemed 

election. If an election is deemed to be 

made pursuant to this paragraph (a)(5), 

then the plan sponsor is treated as 

having made that election on the date as 

of which the applicable benefit 

limitation would otherwise apply. 

(B) Coordination with section 436 

contributions. The determination of 

whether one of the benefit limitations 

described in paragraph (a)(5)(ii)(A) of 

this section would otherwise apply is 

made without regard to any contribution 

described in paragraph (f)(2) of this 

section. Thus, the requirement to reduce 

the prefunding balance or funding 

standard carryover balance under 

paragraph (a)(5)(ii) of this section 

cannot be avoided through the use of a 

section 436 contribution. 

(C) Coordination with elections to 

offset minimum required contribution. 

See § 1.430(f)–1(d)(1)(ii) for rules on the 

coordination of elections to offset the 

minimum required contribution and the 

deemed election to reduce the 

prefunding and funding standard 

carryover balances under this paragraph 

(a)(5). 

(v) Example. The following example 

illustrates the rules of this paragraph 

(a)(5): 

Example. (i) Plan W is a collectively 

bargained, single employer defined benefit 

plan sponsored by Sponsor X, with a plan 

year that is the calendar year and a valuation 

date of January 1. 

(ii) The enrolled actuary for Plan W issues 

a certification on March 1, 2010, that the 

2010 AFTAP is 81%. Sponsor X adopts an 

amendment on March 25, 2010, to increase 

benefits under a formula based on participant 

compensation, with an effective date of May 

1, 2010. (Because the formula is based on 

compensation, the exception in paragraph 

(c)(4)(i) of this section does not apply.) The 

plan’s enrolled actuary determines that the 

plan’s AFTAP for 2010 would be 75% if the 

benefits attributable to the plan amendment 

were taken into account in determining the 

funding target. 

(iii) Because the AFTAP would be below 

the 80% threshold if the benefits attributable 

to the plan amendment were taken into 

account in determining the funding target, 

Sponsor X is deemed pursuant to paragraph 

(a)(5)(ii) of this section to have made an 

election to reduce Plan W’s prefunding and 

funding standard carryover balances by the 

amount necessary for the AFTAP to reach the 

80% threshold (reflecting the increase in 

funding target attributable to the plan 

amendment), provided that the amount of 

those balances is sufficient for this purpose. 

(iv) If the deemed election described in 

paragraph (iii) of this example occurs, the 

plan amendment takes effect on its effective 

date (May 1, 2010). See paragraph (f) of this 

section for other methods to avoid or 

terminate benefit limitations (where, for 

example, the amount necessary for a benefit 

limitation not to apply for a plan year 

exceeds the sum of the prefunding balance 

and the funding standard carryover balance). 

(6) Notice requirements. See section 

101(j) of ERISA for rules requiring the 

plan administrator of a single employer 

plan to provide a written notice to 

participants and beneficiaries within 30 

days after certain specified dates, which 

depend on whether the plan has become 

subject to a restriction described in the 

ERISA provisions that are parallel to 

Internal Revenue Code sections 436(b), 

436(d), and 436(e) (ERISA sections 

206(g)(1), 206(g)(3), and 206(g)(4), 

respectively). 

(b) Limitation on shutdown benefits 

and other unpredictable contingent 

event benefits—(1) In general. Except as 

otherwise provided in this paragraph 

(b), a plan satisfies section 436(b) and 

this paragraph (b) only if it provides that 

unpredictable contingent event benefits 

with respect to any unpredictable 

contingent events occurring during a 

plan year will not be paid if the adjusted 

funding target attainment percentage for 

the plan year is— 

(i) Less than 60 percent; or 

(ii) 60 percent or more, but would be 

less than 60 percent if the adjusted 

funding target attainment percentage 

were redetermined applying an actuarial 

assumption that the likelihood of 

occurrence of the unpredictable 

contingent event during the plan year is 

100 percent. 

(2) Exemption if section 436 

contribution is made. The prohibition 

on payment of unpredictable contingent 

event benefits under paragraph (b)(1) of 

this section ceases to apply with respect 

to benefits attributable to an 

unpredictable contingent event 

occurring during the plan year upon 

payment by the plan sponsor of the 

contribution described in paragraph 

(f)(2)(iii) of this section with respect to 

that event. If the prior sentence applies 

with respect to an unpredictable 

contingent event, then all benefits with 

respect to the unpredictable contingent 

event must be paid, including benefits 

for periods prior to the contribution. See 

paragraph (f) of this section for 

additional rules. 

(3) Rules of application—(i) 

Participant-by-participant application. 

The limitations of section 436(b) and 

this paragraph (b) apply on a 

participant-by-participant basis. Thus, 

whether payment or commencement of 

an unpredictable contingent event 

benefit under a plan is restricted with 

respect to a participant is determined 

based on whether the participant 

satisfies the plan’s eligibility 

requirements (other than the attainment 

of any age, performance of any service, 

receipt or derivation of any 

compensation, or the occurrence of 

death or disability) for such a benefit in 

a plan year in which the limitations of 

section 436(b) and this paragraph (b) 

apply. 

(ii) Multiple contingencies. In the case 

of a plan that provides for a benefit that 

depends upon the occurrence of more 

than one unpredictable contingent event 

with respect to a participant, the 

unpredictable contingent event for 

purposes of section 436(b) and this 

paragraph (b) occurs upon the last to 

occur of those unpredictable contingent 

events. 

(iii) Cessation of benefits. Cessation of 

a benefit under a plan upon the 

occurrence of a specified event is not an 

unpredictable contingent event for 

purposes of section 436(b) and this 

paragraph (b). Thus, section 436(b) and 

this paragraph (b) do not prohibit 

provisions of a plan that provide for 

cessation, suspension, or reduction of 

any benefits upon occurrence of any 

event. However, upon any subsequent 

recommencement of benefits (including 

any restoration of benefits), the rules of 

section 436 and this section will apply. 

(4) Prior unpredictable contingent 

event. Unpredictable contingent event 

benefits attributable to an unpredictable 

contingent event that occurred within a 

period during which no limitation 

under this paragraph (b) applied to the 

plan are not affected by the limitation 

described in this paragraph (b) as it 

applies in a subsequent period. For 

example, if a plant shutdown occurs in 

2010 and the plan’s funded status is 

such that benefits contingent upon that 


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53064 Federal Register / Vol. 74, No. 198 / Thursday, October 15, 2009 / Rules and Regulations 

plant shutdown are not subject to the 

limitation described in this paragraph 

(b) for that calendar plan year, this 

paragraph (b) does not apply to restrict 

payment of those benefits even if 

another plant shutdown occurs in 2012 

that results in the restriction of benefits 

that are contingent upon that later plant 

shutdown under this paragraph (b) 

(where the plan’s adjusted funding 

target attainment percentage for 2012 

would be less than 60 percent taking 

into account the liability attributable to 

those shutdown benefits). 

(c) Limitations on plan amendments 

increasing liability for benefits—(1) In 

general. Except as otherwise provided 

in this paragraph (c), a plan satisfies 

section 436(c) and this paragraph (c) 

only if the plan provides that no 

amendment to the plan that has the 

effect of increasing liabilities of the plan 

by reason of increases in benefits, 

establishment of new benefits, changing 

the rate of benefit accrual, or changing 

the rate at which benefits become 

nonforfeitable will take effect in a plan 

year if the adjusted funding target 

attainment percentage for the plan year 

is— 

(i) Less than 80 percent; or 

(ii) 80 percent or more, but would be 

less than 80 percent if the benefits 

attributable to the amendment were 

taken into account in determining the 

adjusted funding target attainment 

percentage. 

(2) Exemption if section 436 

contribution is made—(i) General rule. 

The limitations on plan amendments in 

paragraph (c)(1) of this section cease to 

apply with respect to an amendment 

upon payment by the plan sponsor of 

the contribution described in paragraph 

(f)(2)(iv) of this section, so that the 

amendment is permitted to take effect as 

of the later of the first day of the plan 

year or the effective date of the 

amendment. See paragraph (f) of this 

section for additional rules. 

(ii) Amendments that do not increase 

funding target. If the amount of the 

contribution described in paragraph 

(f)(2)(iv) of this section is $0 (because 

the amendment increases benefits solely 

for future periods), the amendment is 

permitted to take effect without regard 

to this paragraph (c). However, see 

§ 1.430(d)–1(d)(2) for a rule that requires 

such an amendment to be taken into 

account in determining the funding 

target and the target normal cost in 

certain situations. 

(3) Rules of application regarding preexisting plan provisions. If a plan 

contains a provision that provides for 

the automatic restoration of benefit 

accruals that were not permitted to 

accrue because of the application of 

section 436(e) and paragraph (e) of this 

section, the restoration of those accruals 

is generally treated as a plan 

amendment that is subject to section 

436(c). However, such a provision is 

permitted to take effect without regard 

to the limits of section 436(c) and this 

paragraph (c) if— 

(i) The continuous period of the 

limitation is 12 months or less; and 

(ii) The plan’s enrolled actuary 

certifies that the adjusted funding target 

attainment percentage for the plan 

would not be less than 60 percent taking 

into account the restored benefit 

accruals for the prior plan year. 

(4) Exceptions—(i) Benefit increases 

based on compensation—(A) In general. 

In accordance with section 436(c)(3), 

section 436(c) and this paragraph (c) do 

not apply to any amendment that 

provides for an increase in benefits 

under a formula that is not based on a 

participant’s compensation, but only if 

the rate of increase in benefits does not 

exceed the contemporaneous rate of 

increase in average wages of 

participants covered by the amendment. 

The determination of the rate of increase 

in average wages is made by taking into 

consideration the net increase in 

average wages from the period of time 

beginning with the effective date of the 

most recent benefit increase applicable 

to all of those participants who are 

covered by the current amendment and 

ending on the effective date of the 

current amendment. 

(B) Application to participants who 

are not currently employed. If an 

amendment applies to both currently 

employed participants and other 

participants, all participants to whom 

the amendment applies are included in 

determining the increase in average 

wages of the participants covered by the 

amendment for purposes of this 

paragraph (c)(4)(i). For this purpose, 

participants who are not employees at 

any time during the period from the 

effective date of the most recent earlier 

benefit increase applicable to all of the 

participants who are covered by the 

current amendment and ending on the 

effective date of the current amendment 

are treated as having no increase or 

decrease in wages for the period after 

severance from employment. 

(C) Separate amendments for different 

plan populations. In lieu of a single 

amendment that applies to both 

currently employed participants and 

other participants as described in 

paragraph (c)(4)(i)(B) of this section, the 

employer can adopt multiple 

amendments—such as one that 

increases benefits for participants 

currently employed on the effective date 

of the current amendment and another 

one that increases benefits for other 

participants. In that case, the two 

amendments are considered separately 

in determining the increase in average 

wages, and the exception in this 

paragraph (c)(4)(i) applies separately to 

each amendment. Thus, the increase in 

benefits for currently employed 

participants takes effect if it satisfies the 

exception under this paragraph (c)(4), 

but the amendment increasing benefits 

for other participants who received no 

increase in wages from the employer 

during the period over which the 

increase in average wages is separately 

subject to the rules of this paragraph (c) 

without regard to the rules of this 

paragraph (c)(4). 

(ii) Plan provisions providing for 

accelerated vesting. To the extent that 

any amendment provides for (or any 

pre-existing plan provision results in) a 

mandatory increase in the vesting of 

benefits under the Code or ERISA (such 

as vesting rate increases pursuant to 

statute, plan termination amendments 

or partial terminations under section 

411(d)(3), and vesting increases required 

by the rules for top-heavy plans under 

section 416), that amendment (or preexisting plan provision) does not 

constitute an amendment that changes 

the rate at which benefits become 

nonforfeitable for purposes of section 

436(c) and this paragraph (c). However, 

this paragraph (c)(4)(ii) applies only to 

the extent the increase in vesting is 

necessary to enable the plan to continue 

to satisfy the requirements for qualified 

plans. 

(iii) Authority for additional 

exceptions. The Commissioner may, in 

guidance of general applicability, issue 

additional rules under which other 

amendments to a plan are not treated as 

amendments to which section 436(c) 

and this paragraph (c) apply. See 

§ 601.601(d)(2) relating to objectives and 

standards for publishing regulations, 

revenue rulings and revenue procedures 

in the Internal Revenue Bulletin. 

(5) Rule for determining when an 

amendment takes effect. For purposes of 

section 436(c) and this paragraph (c), in 

the case of an amendment that increases 

benefits, the amendment takes effect 

under a plan on the first date on which 

any individual who is or could be a 

participant or beneficiary under the 

plan would obtain a legal right to the 

increased benefit if the individual were 

on that date to satisfy the applicable 

requirements for entitlement to the 

benefit (such as the attainment of any 

age, performance of any service, receipt 

or derivation of any compensation, or 

the occurrence of death, disability, or 

severance from employment). 


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Federal Register / Vol. 74, No. 198 / Thursday, October 15, 2009 / Rules and Regulations 53065 

(6) Treatment of mergers, 

consolidations, and transfers of plan 

assets into a plan. [Reserved] 

(d) Limitations on prohibited 

payments—(1) AFTAP less than 60 

percent. A plan satisfies the 

requirements of section 436(d)(1) and 

this paragraph (d)(1) only if the plan 

provides that, if the plan’s adjusted 

funding target attainment percentage for 

a plan year is less than 60 percent, a 

participant or beneficiary is not 

permitted to elect an optional form of 

benefit that includes a prohibited 

payment, and the plan will not pay any 

prohibited payment, with an annuity 

starting date on or after the applicable 

section 436 measurement date. 

(2) Bankruptcy. A plan satisfies the 

requirements of section 436(d)(2) and 

this paragraph (d)(2) only if the plan 

provides that a participant or 

beneficiary is not permitted to elect an 

optional form of benefit that includes a 

prohibited payment, and the plan will 

not pay any prohibited payment, with 

an annuity starting date that occurs 

during any period in which the plan 

sponsor is a debtor in a case under title 

11, United States Code, or similar 

Federal or State law, except for 

payments made within a plan year with 

an annuity starting date that occurs on 

or after the date on which the enrolled 

actuary of the plan certifies that the 

plan’s adjusted funding target 

attainment percentage for that plan year 

is not less than 100 percent. 

(3) Limited payment if AFTAP at least 

60 percent but less than 80 percent—(i) 

In general. A plan satisfies the 

requirements of section 436(d)(3) and 

this paragraph (d)(3) only if the plan 

provides that, in any case in which the 

plan’s adjusted funding target 

attainment percentage for a plan year is 

60 percent or more but is less than 80 

percent, a participant or beneficiary is 

not permitted to elect the payment of an 

optional form of benefit that includes a 

prohibited payment, and the plan will 

not pay any prohibited payment, with 

an annuity starting date on or after the 

applicable section 436 measurement 

date, unless the present value, 

determined in accordance with section 

417(e)(3), of the portion of the benefit 

that is being paid in a prohibited 

payment (which portion is determined 

under paragraph (d)(3)(iii)(B) of this 

section) does not exceed the lesser of— 

(A) 50 percent of the present value 

(determined in accordance with section 

417(e)(3)) of the benefit payable in the 

optional form of benefit that includes 

the prohibited payment; or 

(B) 100 percent of the PBGC 

maximum benefit guarantee amount 

described in paragraph (d)(3)(iii)(C) of 

this section. 

(ii) Bifurcation if optional form 

unavailable—(A) Requirement to offer 

bifurcation. If an optional form of 

benefit that is otherwise available under 

the terms of the plan is not available as 

of the annuity starting date because of 

the application of paragraph (d)(3)(i) of 

this section, then the plan must permit 

the participant or beneficiary to elect 

to— 

(1) Receive the unrestricted portion of 

that optional form of benefit 

(determined under the rules of 

paragraph (d)(3)(iii)(D) of this section) at 

that annuity starting date, determined 

by treating the unrestricted portion of 

the benefit as if it were the participant’s 

or beneficiary’s entire benefit under the 

plan; 

(2) Commence benefits with respect to 

the participant’s or beneficiary’s entire 

benefit under the plan in any other 

optional form of benefit available under 

the plan at the same annuity starting 

date that satisfies paragraph (d)(3)(i) of 

this section; or 

(3) Defer commencement of the 

payments to the extent described in 

paragraph (d)(5) of this section. 

(B) Rules relating to bifurcation. If the 

participant or beneficiary elects 

payment of the unrestricted portion of 

the benefit as described in paragraph 

(d)(3)(ii)(A)(1) of this section, then the 

plan must permit the participant or 

beneficiary to elect payment of the 

remainder of the participant’s or 

beneficiary’s benefits under the plan in 

any optional form of benefit at that 

annuity starting date otherwise available 

under the plan that would not have 

included a prohibited payment if that 

optional form applied to the entire 

benefit of the participant or beneficiary. 

The rules of § 1.417(e)–1 are applied 

separately to the separate optional forms 

for the unrestricted portion of the 

benefit and the remainder of the benefit 

(the restricted portion). 

(C) Plan alternative that anticipates 

election of payment that includes a 

prohibited payment. With respect to an 

optional form of benefit that includes a 

prohibited payment and that is not 

permitted to be paid under paragraph 

(d)(3)(i) of this section, for which no 

additional information from the 

participant or beneficiary (such as 

information regarding a social security 

leveling optional form of benefit) is 

needed to make that determination, 

rather than wait for the participant or 

beneficiary to elect such optional form 

of benefit, a plan is permitted to provide 

for separate elections with respect to the 

restricted and unrestricted portions of 

that optional form of benefit. However, 

the rule in the preceding sentence 

applies only if— 

(1) The plan applies the rule to all 

such optional forms; and 

(2) The plan identifies the option that 

the bifurcation election replaces. 

(iii) Definitions applicable to limited 

payment option—(A) In general. The 

definitions in this paragraph (d)(3)(iii) 

apply for purposes of this paragraph 

(d)(3). 

(B) Portion of benefit being paid in a 

prohibited payment. If a benefit is being 

paid in an optional form for which any 

of the payments is greater than the 

amount payable under a straight life 

annuity to the participant or beneficiary 

(plus any social security supplements 

described in the last sentence of section 

411(a)(9) payable to the participant or 

beneficiary) with the same annuity 

starting date, then the portion of the 

benefit that is being paid in a prohibited 

payment is the excess of each payment 

over the smallest payment during the 

participant’s lifetime under the optional 

form of benefit (treating a period after 

the annuity starting date and during the 

participant’s lifetime in which no 

payments are made as a payment of 

zero). 

(C) PBGC maximum benefit guarantee 

amount. The PBGC maximum benefit 

guarantee amount described in this 

paragraph (d)(3)(iii)(C) is the present 

value (determined under guidance 

prescribed by the Pension Benefit 

Guaranty Corporation, using the interest 

and mortality assumptions under 

section 417(e)) of the maximum benefit 

guarantee with respect to a participant 

(based on the participant’s age or the 

beneficiary’s age at the annuity starting 

date) under section 4022 of ERISA for 

the year in which the annuity starting 

date occurs. 

(D) Unrestricted portion of the 

benefit—(1) General rule. Except as 

otherwise provided in this paragraph 

(d)(3)(iii)(D), the unrestricted portion of 

the benefit with respect to any optional 

form of benefit is 50 percent of the 

amount payable under the optional form 

of benefit. 

(2) Special rule for forms which 

include social security leveling or a 

refund of employee contributions. For 

an optional form of benefit that is a 

prohibited payment on account of a 

social security leveling feature (as 

defined in § 1.411(d)–3(g)(16)) or a 

refund of employee contributions 

feature (as defined in § 1.411(d)– 

3(g)(11)), the unrestricted portion of the 

benefit is the optional form of benefit 

that would apply if the participant’s or 

beneficiary’s accrued benefit were 50 

percent smaller. 


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53066 Federal Register / Vol. 74, No. 198 / Thursday, October 15, 2009 / Rules and Regulations 

(3) Limited to PBGC maximum benefit 

guarantee amount. After the application 

of the preceding rules of this paragraph 

(d)(3)(iii)(D), the unrestricted portion of 

the benefit with respect to the optional 

form of benefit is reduced, to the extent 

necessary, so that the present value 

(determined in accordance with section 

417(e)) of the unrestricted portion of 

that optional form of benefit does not 

exceed the PBGC maximum benefit 

guarantee amount (described in 

paragraph (d)(3)(iii)(C) of this section). 

(iv) Other rules—(A) One time 

application. A plan satisfies the 

requirements of this paragraph (d)(3) 

only if the plan provides that, in the 

case of a participant with respect to 

whom a prohibited payment (or series of 

prohibited payments under a single 

optional form of benefit) is made 

pursuant to paragraph (d)(3)(i) or (ii) of 

this section, no additional prohibited 

payment may be made with respect to 

that participant during any period of 

consecutive plan years for which 

prohibited payments are limited under 

this paragraph (d). 

(B) Treatment of beneficiaries. For 

purposes of this paragraph (d)(3), 

benefits provided with respect to a 

participant and any beneficiary of the 

participant (including an alternate 

payee, as defined in section 414(p)(8)) 

are aggregated. If the only benefits paid 

under the plan with respect to the 

participant are death benefits payable to 

the beneficiary, then paragraph 

(d)(3)(iii)(B) of this section is applied by 

substituting the lifetime of the 

beneficiary for the lifetime of the 

participant. If the accrued benefit of a 

participant is allocated to such an 

alternate payee and one or more other 

persons, then the unrestricted amount 

under paragraph (d)(3)(iii)(D) of this 

section is allocated among such persons 

in the same manner as the accrued 

benefit is allocated, unless a qualified 

domestic relations order (as defined in 

section 414(p)(1)(A)) with respect to the 

participant or the alternate payee 

provides otherwise. See paragraphs 

(j)(2)(ii) and (j)(6)(ii) of this section for 

other special rules relating to 

beneficiaries. 

(C) Treatment of annuity purchases 

and plan transfers. This paragraph 

(d)(3)(iv)(C) applies for purposes of 

applying paragraphs (d)(3)(i) and (iii)(D) 

of this section. In the case of a 

prohibited payment described in 

paragraph (j)(6)(i)(B) of this section 

(relating to purchase from an insurer), 

the present value of the portion of the 

benefit that is being paid in a prohibited 

payment is the cost to the plan of the 

irrevocable commitment and, in the case 

of a prohibited payment described in 

paragraph (j)(6)(i)(C) of this section 

(relating to certain plan transfers), the 

present value of the portion of the 

benefit that is being paid in a prohibited 

payment is the present value of the 

liabilities transferred (determined in 

accordance with section 414(l)). In 

addition, the present value of the 

accrued benefit is substituted for the 

present value of the benefit payable in 

the optional form of benefit that 

includes the prohibited payment in 

paragraph (d)(3)(i)(A) of this section. 

(Further, see § 1.411(d)–4, A–2(a)(3)(ii), 

for a rule under section 411(d)(6) that 

applies to an optional form of benefit 

that includes a prohibited payment 

described in paragraph (j)(6)(i)(B) of this 

section.) 

(v) Examples. The following examples 

illustrate the rules of this paragraph 

(d)(3): 

Example 1. (i) Plan A has a plan year that 

is the calendar year, and is subject to the 

restriction on prohibited payments under 

paragraph (d)(3) of this section for the 2010 

plan year. Participant P is not married, and 

retires at age 65 during 2010, while the 

restriction under paragraph (d)(3) of this 

section applies to Plan A. P’s accrued benefit 

is $10,000 per month, payable commencing 

at age 65 as a straight life annuity. Plan A 

provides for an optional single-sum payment 

(subject to the restrictions under section 436) 

equal to the present value of the participant’s 

accrued benefit using actuarial assumptions 

under section 417(e). P’s single-sum 

payment, determined without regard to this 

paragraph (d), is calculated to be $1,416,000, 

payable at age 65. 

(ii) The PBGC guaranteed monthly benefit 

for a straight life annuity payable at age 65 

in 2010 (for purposes of this example) is 

assumed to be $4,500. The PBGC maximum 

benefit guarantee amount at age 65 is 

assumed to be $637,200 for 2010. 

(iii) Because Participant P retires during a 

period when the restriction in paragraph 

(d)(3) of this section applies to Plan A, only 

a portion of the benefit can be paid in the 

form of a single sum. P elects a single-sum 

payment. Because a single-sum payment is a 

prohibited payment, a determination must be 

made whether the payment can be paid 

under paragraph (d)(3)(i) of this section. In 

this case, because the present value of the 

portion of Participant P’s benefit that is being 

paid in a prohibited payment exceeds the 

lesser of 50% of the benefit or the PBGC 

maximum benefit guarantee amount, it 

cannot be paid under paragraph (d)(3)(i) of 

this section. Accordingly, the maximum 

single sum that P can receive is $637,200 

(that is, the lesser of 50% of $1,416,000 or 

$637,200). 

(iv) Pursuant to paragraph (d)(3)(ii) of this 

section, Plan A must offer P the option to 

bifurcate the benefit into unrestricted and 

restricted portions. The unrestricted portion 

is a monthly straight life annuity of $4,500, 

which can be paid in a single sum of 

$637,200. If P elects to receive the 

unrestricted portion of the benefit in the form 

of a single sum, then, with respect to the 

$5,500 restricted portion, Plan A must permit 

P to elect any form of benefit that would 

otherwise be permitted with respect to the 

full $10,000 and that is not a prohibited 

payment. Alternatively, Plan A may provide 

that P is permitted to elect to defer 

commencement of the restricted portion, 

subject to applicable qualification rules. 

Example 2. (i) The facts are the same as in 

Example 1. In addition, Plan A provides an 

optional form of payment (subject to any 

benefit restrictions under section 436) that 

consists of a partial payment equal to the 

total return of employee contributions to the 

plan accumulated with interest, with an 

annuity payment for the remainder of the 

participant’s benefit. 

(ii) Participant Q is not married, and retires 

at age 65 during 2010, while Plan A is subject 

to the restriction under paragraph (d)(3) of 

this section. Participant Q has an accrued 

benefit equal to a straight life annuity of 

$3,000 per month. Under the optional form 

described in paragraph (i) of this Example 2, 

Q may elect a partial payment of $99,120 

(representing the return of employee 

contributions accumulated with interest), 

plus a straight life annuity of $2,300 per 

month. The present value of Participant Q’s 

accrued benefit, using actuarial assumptions 

under section 417(e), is $424,800. 

(iii) Because the present value of the 

portion of Q’s benefit that is being paid in a 

prohibited payment ($99,120) does not 

exceed the lesser of 50% of the present value 

of benefits (50% of $424,800) or 100% of the 

PBGC maximum benefit guarantee amount 

($637,200 at age 65 for 2010), the optional 

form described in paragraph (i) of this 

Example 2 is permitted to be paid under 

paragraph (d)(3)(i) of this section. 

Example 3. (i) The facts are the same as in 

Example 1. In addition, Plan A provides an 

optional form of payment under a social 

security leveling option (subject to any 

benefit restrictions under section 436) that 

consists of an increased temporary benefit 

payable until age 62, with reduced payments 

beginning at age 62. The benefit is structured 

so that the combination of the participant’s 

pension benefit and Social Security benefit 

provides an approximately level income for 

the participant’s lifetime. The PBGC 

maximum benefit guarantee amount at age 55 

is assumed to be $362,776 for 2010. 

(ii) Participant R retires at age 55 in 2010 

and is eligible to receive a level lifetime 

annuity of $1,200 per month beginning 

immediately. Instead, Participant R elects to 

receive a benefit under the social security 

leveling optional form of payment. 

Participant R’s Social Security benefit 

payable at age 62 is projected, under the 

terms specified in Plan A, to be $1,500 per 

month. The Plan A adjustment factor for the 

social security leveling option using the 

minimum present value requirements of 

section 417(e)(3) is .590 at age 55. Therefore, 

Participant R’s benefit payable from age 55 to 

age 62 is $2,085 per month ($1,200 + .590 × 

$1,500), and the benefit payable for 

Participant’s lifetime, beginning after age 62, 

is $585 per month ($2,085¥$1,500). 

(iii) Because the optional form provides 

some payments which are greater than 


srobinson on DSKHWCL6B1PROD with RULES2
Federal Register / Vol. 74, No. 198 / Thursday, October 15, 2009 / Rules and Regulations 53067 

payments described in paragraph (j)(6)(i)(A) 

of this section ($1,200), the portion of the 

benefit that is being paid in a prohibited 

payment is $1,500 per month which is 

payable from age 55 to age 62. Using the 

applicable interest and mortality rates under 

section 417(e) as in effect for Plan A at the 

time the benefit commences, the present 

value of a temporary benefit of $1,500 per 

month ($2,085¥$585) payable from age 55 to 

age 62 is $106,417, and the present value of 

the entire benefit (a temporary benefit of 

$2,085 per month payable from age 55 to age 

62 plus a deferred lifetime benefit of $585 

commencing at age 62) is $207,468. 

(iv) Because $106,417 is more than 50% of 

$207,468 (and because 50% of Participant R’s 

benefit is less than $362,776, which is the 

PBGC maximum guaranteed benefit amount 

at age 55 for 2010), Participant R can only 

receive 50% of the benefit in the form of the 

social security leveling option. Pursuant to 

paragraph (d)(3)(ii) of this section, Plan A 

must offer Participant R the option to 

bifurcate the benefit into unrestricted and 

restricted portions. Participant R elects to 

receive the restricted portion of the early 

retirement benefit as a level lifetime annuity 

of $600 commencing at age 55. 

(v) Participant R elects to receive the 

unrestricted portion of the early retirement 

benefit in the social security leveling form of 

payment. This portion of the benefit is 

determined under the social security leveling 

form of payment as if Participant R’s benefit 

was one-half of the early retirement benefit, 

or $600. However, using a monthly level 

lifetime benefit of $600 and a monthly social 

security benefit of $1,500, Participant R 

would have a negative benefit after age 62 

($600 + .590 × $1,500 is only $1,485; 

offsetting $1,500 at age 62 would produce a 

negative amount). Plan A provides that in 

this situation, the benefit under the social 

security leveling option is an actuarially 

equivalent monthly annuity payable until age 

62, with zero payable thereafter. Using the 

actuarial equivalence factor of .590 at age 55, 

the plan administrator determines that the 

unrestricted portion of Participant R’s benefit 

is $1,463 per month, payable from age 55 to 

age 62 ($600 + .590 × $1,463 = $1,463 

payable until age 62; $1,463¥$1,463 = zero 

payable after age 62). 

(vi) Combining the unrestricted and 

restricted portions of the benefit, Participant 

R will receive a total of $2,063 per month 

from age 55 to age 62 ($1,463 from the 

unrestricted portion of the benefit plus $600 

from the restricted portion of the benefit), 

and $600 per month beginning at age 62 (zero 

from the unrestricted portion of the benefit 

plus $600 from the restricted portion of the 

benefit). 

(4) Exception for cessation of benefit 

accruals. This paragraph (d) does not 

apply to a plan for a plan year if the 

terms of the plan, as in effect for the 

period beginning on September 1, 2005, 

provided for no benefit accruals with 

respect to any participants. If a plan that 

is described in this paragraph (d)(4) 

provides for benefit accruals during any 

time on or after September 1, 2005 

(treating benefit increases pursuant to a 

plan amendment as benefit accruals), 

this paragraph (d)(4) ceases to apply for 

the plan as of the date any benefits 

accrue under the plan (or the date the 

amendment takes effect). For example, 

the exception in this paragraph (d)(4) 

does not apply to a plan after the plan 

increases benefits to take into account 

increases in the limitations under 

section 415(b) on or after September 1, 

2005. 

(5) Right to delay commencement. If 

a participant or beneficiary requests a 

distribution in an optional form of 

benefit that includes a prohibited 

payment that is not permitted to be paid 

under paragraph (d)(1), (d)(2), or (d)(3) 

of this section, the participant retains 

the right to delay commencement of 

benefits in accordance with the terms of 

the plan and applicable qualification 

requirements (such as sections 

411(a)(11) and 401(a)(9)). 

(6) Plan alternative for special 

optional forms. A plan is permitted to 

offer optional forms of benefit that are 

solely available during the period in 

which paragraph (d)(1), (d)(2), or (d)(3) 

of this section applies to limit 

prohibited payments under the plan. 

For example, a plan may permit 

participants or beneficiaries who 

commence benefits during the period in 

which paragraph (d)(1) of this section 

(or paragraph (d)(2) of this section) 

applies to limit prohibited payments 

under the plan to elect, within a 

specified period after the date on which 

that paragraph ceases to apply to limit 

prohibited payments under the plan, to 

receive the remaining benefit in the 

form of a single-sum payment equal to 

the present value of the remaining 

benefit, but only to the extent then 

permitted under this paragraph (d). As 

another example, during a period when 

paragraph (d)(3) of this section applies 

to a plan, the plan may permit 

participants and beneficiaries to elect 

payment in an optional form of benefit 

that provides for the current payment of 

the unrestricted portion of the benefit, 

with a delayed commencement for the 

restricted portion of the benefit (subject 

to other applicable qualification 

requirements, such as sections 

411(a)(11) and 401(a)(9)), or may satisfy 

paragraph (d)(3)(i) of this section by 

permitting participants and 

beneficiaries to elect an optional form of 

benefit that combines an unsubsidized 

single-sum payment for over 50 percent 

of the accrued benefit with a subsidized 

early retirement life annuity for the 

remainder of the accrued benefit. Any 

such optional forms must satisfy this 

paragraph (d) and applicable 

qualification requirements, including 

satisfaction of section 417(e) and section 

415 (at each annuity starting date). 

(7) Exception for distributions 

permitted without consent of the 

participant under section 411(a)(11). 

[Reserved] 

(e) Limitation on benefit accruals for 

plans with severe funding shortfalls—(1) 

In general. Except as otherwise 

provided in this paragraph (e), a plan 

satisfies the requirements of section 

436(e) and this paragraph (e) only if it 

provides that, in any case in which the 

plan’s adjusted funding target 

attainment percentage for a plan year is 

less than 60 percent, benefit accruals 

under the plan will cease as of the 

applicable section 436 measurement 

date. If a plan is required to cease 

benefit accruals under this paragraph 

(e), then the plan is not permitted to be 

amended in a manner that would 

increase the liabilities of the plan by 

reason of an increase in benefits or 

establishment of new benefits. The 

preceding sentence applies regardless of 

whether an amendment would 

otherwise be permissible under 

paragraph (c)(2) or (c)(3) of this section. 

(2) Exemption if section 436 

contribution is made. The prohibition 

on additional benefit accruals under a 

plan described in paragraph (e)(1) of 

this section ceases to apply with respect 

to a plan year, effective as of the first 

day of the plan year, upon payment by 

the plan sponsor of the contribution 

described in paragraph (f)(2)(v) of this 

section. See paragraph (f) of this section 

for additional rules. 

(3) Special rule under section 203 of 

the Worker, Retiree, and Employer 

Recovery Act of 2008. [Reserved] 

(f) Methods to avoid or terminate 

benefit limitations—(1) In general. This 

paragraph (f) sets forth rules relating to 

employer contributions and other 

methods to avoid or terminate the 

application of section 436 limitations 

under a plan for a plan year. In general, 

there are four methods a plan sponsor 

may utilize to avoid or terminate one or 

more of the benefit limitations under 

this section for a plan year. Two of these 

methods (where the plan sponsor elects 

to reduce the prefunding balance or 

funding standard carryover balance and 

where the plan sponsor makes 

additional contributions under section 

430 for the prior plan year within the 

time period provided by section 

430(j)(1) that are not added to the 

prefunding balance) involve increasing 

the amount of plan assets which are 

taken into account in determining the 

adjusted funding target attainment 

percentage. The other two methods 

(making a contribution that is 

specifically designated as a current year 


srobinson on DSKHWCL6B1PROD with RULES2
53068 Federal Register / Vol. 74, No. 198 / Thursday, October 15, 2009 / Rules and Regulations 

contribution to avoid or terminate 

application of a benefit limitation under 

paragraph (b), (c), or (e) of this section, 

and providing security under section 

436(f)(1)) are described in paragraphs 

(f)(2) and (f)(3) of this section, 

respectively. 

(2) Current year contributions to avoid 

or terminate benefit limitations—(i) 

General rules—(A) Amount of 

contribution—(1) In general. This 

paragraph (f)(2) sets forth rules 

regarding contributions to avoid or 

terminate the application of section 436 

limitations under a plan for a plan year 

that apply to unpredictable contingent 

event benefits, plan amendments that 

increase liabilities for benefits, and 

benefit accruals. 

(2) Interest adjustment. Any 

contribution made by a plan sponsor 

pursuant to this paragraph (f)(2) on a 

date other than the valuation date for 

the plan year must be adjusted with 

interest at the plan’s effective interest 

rate under section 430(h)(2)(A) for the 

plan year. If the plan’s effective interest 

rate for the plan year has not been 

determined at the time of the 

contribution, then this interest 

adjustment must be made using the 

highest of the three segment rates as 

applicable for the plan year under 

section 430(h)(2)(C). In such a case, if 

the effective interest rate for the plan 

year under section 430(h)(2)(A) is 

subsequently determined to be less than 

that highest rate, the excess is 

recharacterized as an employer 

contribution taken into account under 

section 430 for the current plan year. 

(B) Timing requirement for section 

436 contributions. Any contribution 

described in this paragraph (f)(2) must 

be paid before the unpredictable 

contingent event benefits are permitted 

to be paid, the plan amendment is 

permitted to take effect, or the benefit 

accruals are permitted to resume. In 

addition, any contribution described in 

this paragraph (f)(2) must be paid during 

the plan year. 

(C) Prefunding balance or funding 

standard carryover balance may not be 

used. No prefunding balance or funding 

standard carryover balance under 

section 430(f) may be used as a 

contribution described in this paragraph 

(f)(2). However, a plan sponsor is 

permitted to elect to reduce the funding 

standard carryover balance or the 

prefunding balance in order to increase 

the adjusted funding target attainment 

percentage for a plan year. See 

paragraph (a)(5) of this section for a rule 

mandating such a reduction in certain 

situations. 

(ii) Section 436 contributions separate 

from minimum required contributions— 

(A) In general. The contributions 

described in this paragraph (f)(2) are 

contributions described in sections 

436(b)(2), 436(c)(2), and 436(e)(2), and 

are separate from any minimum 

required contributions under section 

430. Thus, if a plan sponsor makes a 

contribution described in this paragraph 

(f)(2) for a plan year but does not make 

the minimum required contribution for 

the plan year, the plan fails to satisfy the 

minimum funding requirements under 

section 430 for the plan year. In 

addition, a contribution described in 

this paragraph (f)(2) is disregarded in 

determining the maximum addition to 

the prefunding balance under section 

430(f)(6) and § 1.430(f)–1(b)(1)(ii). 

(B) Designation requirement. Any 

contribution made by a plan sponsor 

pursuant to this paragraph (f)(2) must be 

designated as such at the time the 

contribution is used to avoid or 

terminate the limitations under this 

paragraph (f)(2), including designation 

of the benefits or amendments to which 

the limits do not apply because of the 

contribution. Except as specifically 

provided in paragraph (f)(2)(i)(A)(2), (g) 

or (h) of this section, such a 

contribution cannot be subsequently 

recharacterized with respect to any plan 

year as a contribution to satisfy a 

minimum required contribution 

obligation, or otherwise. The 

designation must be made in accordance 

with the rules and procedures that 

otherwise apply to elections under 

§ 1.430(f)–1(f) with respect to the 

prefunding and funding standard 

carryover balances. 

(C) Requirement to recertify AFTAP. If 

the plan’s enrolled actuary has already 

certified the adjusted funding target 

attainment percentage for the plan year, 

a plan sponsor is treated as making the 

contribution described in paragraph 

(f)(2)(iii)(B), (f)(2)(iv)(B), or (f)(2)(v) of 

this section for the plan year only after 

the plan’s enrolled actuary certifies an 

updated adjusted funding target 

attainment percentage for the plan year 

that takes into account the increased 

liability for the unpredictable 

contingent event benefits, the plan 

amendments, or restored accruals, and 

the associated section 436 contribution, 

under the rules of paragraph (h)(4)(v) of 

this section. See also paragraph (g)(4)(i) 

of this section for a requirement to 

modify the presumed adjusted funding 

target attainment percentage to take the 

liability for the unpredictable 

contingent event benefits or plan 

amendments, and the associated section 

436 contribution, into account (if the 

contribution described in paragraph 

(f)(2)(iii)(B), (f)(2)(iv)(B), or (f)(2)(v) of 

this section is made before the plan’s 

enrolled actuary certifies the adjusted 

funding target attainment percentage for 

the plan year). 

(iii) Contribution for unpredictable 

contingent event benefits. In the case of 

a contribution to avoid or terminate the 

application of the limitation on benefits 

attributable to an unpredictable 

contingent event under section 436(b)— 

(A) In the event that the adjusted 

funding target attainment percentage for 

the plan year determined without taking 

into account the liability attributable to 

the unpredictable contingent event 

benefits is less than 60 percent, the 

amount of the contribution under 

section 436(b)(2) is equal to the amount 

of the increase in the funding target of 

the plan for the plan year if the benefits 

attributable to the unpredictable 

contingent event were included in the 

determination of the funding target. 

(B) In the event that the adjusted 

funding target attainment percentage for 

the plan year determined without taking 

into account the liability attributable to 

the unpredictable contingent event 

benefits is 60 percent or more, the 

amount of the contribution under 

section 436(b)(2) is the amount that 

would be sufficient to result in an 

adjusted funding target attainment 

percentage for the plan year of 60 

percent if the contribution (and any 

prior section 436 contributions made for 

the plan year) were included as part of 

the plan assets and the funding target 

were to take into account the 

adjustments described in paragraph 

(g)(2)(iii)(A), (g)(3)(ii)(A), or (g)(5)(i)(B) 

of this section, whichever applies. 

(iv) Contribution for plan 

amendments increasing liability for 

benefits. In the case of a contribution to 

avoid or terminate the application of the 

limitation on benefits attributable to a 

plan amendment under section 436(c)— 

(A) In the event that the adjusted 

funding target attainment percentage for 

the plan year determined without taking 

into account the liability attributable to 

the plan amendment is less than 80 

percent, the amount of the contribution 

under section 436(c)(2) is equal to the 

amount of the increase in the funding 

target of the plan for the plan year if the 

liabilities attributable to the amendment 

were included in the determination of 

the funding target. 

(B) In the event that the adjusted 

funding target attainment percentage for 

the plan year determined without taking 

into account the liability attributable to 

the plan amendment is 80 percent or 

more, the amount of the contribution 

under section 436(c)(2) is the amount 

that would be sufficient to result in an 

adjusted funding target attainment 

percentage for the plan year of 80 


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Federal Register / Vol. 74, No. 198 / Thursday, October 15, 2009 / Rules and Regulations 53069 

percent if the contribution (and any 

prior section 436 contributions made for 

the plan year) were included as part of 

the plan assets and the funding target 

were to take into account the 

adjustments described in paragraph 

(g)(2)(iii)(A), (g)(3)(ii)(A), or (g)(5)(i)(B) 

of this section, whichever applies. 

(v) Contribution required for 

continued benefit accruals. In the case 

of a contribution to avoid or terminate 

the application of the limitation on 

accruals under section 436(e), the 

amount of the contribution under 

section 436(e)(2) is equal to the amount 

sufficient to result in an adjusted 

funding target attainment percentage for 

the plan year of 60 percent if the 

contribution (and any prior section 436 

contributions made for the plan year) 

were included as part of the plan assets 

and the funding target were to take into 

account the adjustments described in 

paragraph (g)(2)(iii)(A) or (g)(5)(i)(B) of 

this section, whichever applies. 

(3) Security to increase adjusted 

funding target attainment percentage— 

(i) In general. For purposes of avoiding 

benefit limitations under section 436, a 

plan sponsor may provide security in 

the form described in paragraph (f)(3)(ii) 

of this section. In such a case, the 

adjusted funding target attainment 

percentage for the plan year is 

determined by treating as an asset of the 

plan any security provided by a plan 

sponsor by the valuation date for the 

plan year in a form meeting the 

requirements of paragraph (f)(3)(ii) of 

this section. However, this security is 

not taken into account as a plan asset for 

any other purpose, including section 

430. 

(ii) Form of security. The forms of 

security permitted under paragraph 

(f)(3)(i) of this section are limited to— 

(A) A bond issued by a corporate 

surety company that is an acceptable 

surety for purposes of section 412 of 

ERISA; or 

(B) Cash, or United States obligations 

which mature in 3 years or less, held in 

escrow by a bank or an insurance 

company. 

(iii) Enforcement. Any form of 

security provided under paragraph 

(f)(3)(i) of this section must provide— 

(A) That it will be paid to the plan 

upon the earliest of— 

(1) The plan termination date as 

defined in section 4048 of ERISA; 

(2) If there is a failure to make a 

payment of the minimum required 

contribution for any plan year beginning 

after the security is provided, the due 

date for the payment under section 

430(j)(1) or 430(j)(3); or 

(3) If the plan’s adjusted funding 

target attainment percentage is less than 

60 percent (without regard to any 

security provided under this paragraph 

(f)(3)) for a consecutive period of 7 plan 

years, the valuation date for the last 

plan year in the 7-year period; and 

(B) That the plan administrator must 

notify the surety, bank, or insurance 

company that issued or holds the 

security of any event described in 

paragraph (f)(3)(iii)(A) of this section 

within 10 days of its occurrence. 

(iv) Release of security. The form of 

security is permitted to provide that it 

will be released (and any amounts 

thereunder will be refunded to the plan 

sponsor together with any interest 

accrued thereon) as provided in the 

agreement governing the security, but 

such release is not permitted until the 

plan’s enrolled actuary has certified that 

the plan’s adjusted funding target 

attainment percentage for a plan year is 

at least 90 percent (without regard to 

any security provided under this 

paragraph (f)(3)) or until replacement 

security has been provided in 

accordance with paragraph (f)(3)(vi) of 

this section. 

(v) Contribution of security to plan. 

Any security provided under this 

paragraph (f)(3) that is subsequently 

turned over to the plan (whether 

pursuant to the enforcement mechanism 

of paragraph (f)(3)(iii) of this section or 

after its release under paragraph 

(f)(3)(iv) of this section) is treated as a 

contribution by the plan sponsor taken 

into account under section 430 when 

contributed and, if turned over pursuant 

to paragraph (f)(3)(iii) of this section, is 

not a contribution under paragraph (f)(2) 

of this section. 

(vi) Replacement security. If security 

has been provided to a plan pursuant to 

this paragraph (f)(3), the plan sponsor 

may provide new security to the plan 

and subsequently or simultaneously 

have the original security released, but 

only if— 

(A) The new security is in a form that 

satisfies the requirements of paragraph 

(f)(3)(ii) of this section; 

(B) The amount of the new security is 

no less than the amount of the original 

security, determined at the time the 

original security is released; and 

(C) The period described in paragraph 

(f)(3)(iii)(A)(3) of this section with 

respect to the new security is the same 

as the period that applied under that 

paragraph to the original security. 

(4) Examples. The following examples 

illustrate the rules of this paragraph (f): 

Example 1. (i) Plan Z is a non-collectively 

bargained defined benefit plan with a plan 

year that is the calendar year and a valuation 

date of January 1. Plan Z’s sponsor is not in 

bankruptcy, and Plan Z did not purchase any 

annuities in 2009 or 2010. As of January 1, 

2011, Plan Z does not have a funding 

standard carryover balance or a prefunding 

balance, and is not in at-risk status. As of that 

date, Plan Z has plan assets (and adjusted 

plan assets) of $2,000,000 and a funding 

target (and an adjusted funding target) of 

$2,550,000. On March 1, 2011, the enrolled 

actuary for the plan certifies that the AFTAP 

as of January 1, 2011, is 78.43%. The 

effective interest rate for Plan Z for the 2011 

plan year is 5.5%. 

(ii) On May 1, 2011, the plan sponsor 

amends Plan Z to increase benefits. The 

enrolled actuary for the plan determines that 

the present value, as of January 1, 2011, of 

the increase in the funding target due to the 

amendment is $400,000. Because the AFTAP 

prior to the plan amendment is less than 

80%, Plan Z is subject to the restriction on 

plan amendments in paragraph (c) of this 

section, and the amendment cannot take 

effect unless the employer utilizes one of the 

methods described in paragraph (f) of this 

section to avoid benefit limitations. 

(iii) In order for the amendment to be 

permitted to take effect, the plan sponsor 

makes a contribution described in paragraph 

(f)(2) of this section. Because the AFTAP 

prior to the amendment was less than 80%, 

the provisions of paragraph (f)(2)(iv)(A) of 

this section apply. The amount of the 

contribution as of January 1, 2011, needed to 

avoid the restriction on plan amendments 

under paragraph (c) of this section is equal 

to the amount of the increase in funding 

target attributable to the amendment, or 

$400,000. Under the provisions of paragraph 

(f)(2)(iv)(A) of this section, this contribution 

is required even though, if the contribution 

were included as part of the plan assets and 

the liabilities attributable to the plan 

amendment were included in the funding 

target, the AFTAP would be 81.36% (that is, 

adjusted plan assets of $2,000,000 plus the 

contribution of $400,000 as of January 1, 

2011; divided by the adjusted funding target 

of $2,550,000 increased to reflect the 

additional $400,000 in the funding target 

attributable to the plan amendment). 

(iv) However, because the contribution is 

not paid until May 1, 2011, the necessary 

contribution amount must be adjusted to 

reflect interest from the valuation date to the 

date of the contribution, at Plan Z’s effective 

interest rate for the 2011 plan year. The 

amount of the required contribution after 

adjustment is $407,203, determined as 

$400,000 increased for 4 months of 

compound interest at an effective annual 

interest rate of 5.5%. 

(v) A contribution of $407,203 is made on 

May 1, 2011, and is designated as a 

contribution under paragraph (f)(2) of this 

section with respect to the May 1, 2011, plan 

amendment. Accordingly, the contribution is 

not applied toward minimum funding 

requirements under section 430, and is not 

eligible for inclusion in the prefunding 

balance under § 1.430(f)–1(b)(1). Since this 

contribution meets the requirements of 

paragraph (f)(2) of this section, the plan 

amendment takes effect in accordance with 

its terms. 

Example 2. (i) The facts are the same as in 

Example 1, except that the plan is in at-risk 

status under section 430(i). The funding 


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53070 Federal Register / Vol. 74, No. 198 / Thursday, October 15, 2009 / Rules and Regulations 

target determined under section 430(i) is 

$2,600,000, and the funding target 

determined without regard to section 430(i) 

is $2,550,000. 

(ii) On May 1, 2011, the plan sponsor 

amends Plan Z to increase benefits. The 

plan’s enrolled actuary determines that the 

present value as of January 1, 2011 of the 

increase in the funding target due to the 

amendment (taking into account the at-risk 

status of the plan) is $440,000. Because the 

AFTAP prior to the plan amendment is 

78.43% (determined taking into account the 

at-risk status of Plan Z), Plan Z is subject to 

the restriction on plan amendments in 

paragraph (c) of this section, and the 

amendment cannot take effect unless the 

employer utilizes one of the methods 

described in this paragraph (f) to avoid 

benefit limitations. 

(iii) In order for this amendment to be 

permitted to take effect, the plan sponsor 

makes a contribution described in paragraph 

(f)(2) of this section. Because the AFTAP 

prior to the amendment was less than 80%, 

the provisions of paragraph (f)(2)(iv)(A) of 

this section apply. The amount of the 

contribution as of January 1, 2011, needed to 

avoid the restriction on plan amendments 

under paragraph (c) of this section is equal 

to the amount of the increase in funding 

target attributable to the amendment, or 

$440,000. Under the provisions of paragraph 

(f)(2)(iv)(A) of this section, this contribution 

is required even though, if the contribution 

were included as part of the plan assets and 

the liability attributable to the plan 

amendment were included in the funding 

target, the AFTAP would exceed 80%. 

(iv) However, because the contribution is 

not paid until May 1, 2011, the necessary 

contribution amount must be adjusted to 

reflect interest from the valuation date to the 

date of the contribution, at Plan Z’s effective 

interest rate for the 2011 plan year. The 

amount of the required contribution after 

adjustment is $447,923, determined as 

$440,000 increased for 4 months of 

compound interest at an effective annual 

interest rate of 5.5%. 

(v) A contribution of $447,923 is made on 

May 1, 2011, and is designated as a 

contribution under paragraph (f)(2) of this 

section with respect to the May 1, 2011, plan 

amendment. Accordingly, the contribution is 

not applied toward minimum funding 

requirements under section 430, and is not 

eligible for inclusion in the prefunding 

balance under § 1.430(f)–1(b)(1). Since this 

contribution meets the requirements of 

paragraph (f)(2) of this section, the plan 

amendment takes effect in accordance with 

its terms. 

Example 3. (i) The facts are the same as in 

Example 1, except that the enrolled actuary 

for the plan does not issue the certification 

of the 2011 AFTAP until September 1, 2011. 

Prior to October 1, 2010, the enrolled actuary 

had certified the 2010 AFTAP to be 82%. 

Other than this amendment, no other 

amendment or unpredictable contingent 

event has occurred that requires a 

recertification. As of May 1, 2011, the plan’s 

effective interest rate for the 2011 plan year 

has not yet been determined. The highest of 

the three segment rates applicable to the 2011 

plan year under section 430(h)(2)(C) is 6%. 

(ii) Because the enrolled actuary has not 

certified the actual AFTAP as of January 1, 

2011, and the amendment is scheduled to 

take effect after April 1, 2011, the rules of 

paragraph (h)(2)(iii) of this section apply. 

Accordingly, the AFTAP for 2011 (prior to 

reflecting the effect of the amendment) is 

presumed to be 10 percentage points lower 

than the 2010 AFTAP, or 72%. Because this 

presumed AFTAP is less than 80%, the 

restriction on plan amendments in paragraph 

(c) of this section applies, and the plan 

amendment cannot take effect. 

(iii) In order to allow the plan amendment 

to take effect, the plan sponsor decides to 

make a contribution under paragraph (f)(2) of 

this section on May 1, 2011. Because the 

presumed AFTAP was less than 80% prior to 

reflecting the plan amendment, the rules of 

paragraph (f)(2)(iv)(A) of this section apply, 

and the amount of the contribution under 

section 436(c)(2) is the amount of the 

increase in the funding target for the year if 

the plan amendment were included in the 

determination of the funding target. 

Accordingly, an additional contribution of 

$400,000 is required as of January 1, 2011, to 

avoid the restriction on plan amendments 

under paragraph (c) of this section. 

(iv) However, since the contribution is not 

made until May 1, 2011, the amount of the 

required contribution must be adjusted to 

reflect interest from the valuation date to the 

date of the contribution. Since the effective 

interest rate has not yet been determined, the 

interest adjustment is based on the highest of 

the three segment rates applicable for the 

2011 plan year under section 430(h)(2)(C), or 

6%. The amount of the required contribution 

after adjustment is $407,845, determined as 

$400,000 increased for 4 months of 

compound interest at the highest segment 

interest rate for 2011, or 6%. 

(v) A contribution of $407,845 is made on 

May 1, 2011, and is designated as a 

contribution under paragraph (f)(2) of this 

section with respect to the May 1, 2011, plan 

amendment. Accordingly, the contribution is 

not applied toward minimum funding 

requirements under section 430, and is not 

eligible for inclusion in the prefunding 

balance under § 1.430(f)–1(b)(1). Since this 

contribution meets the requirements of 

paragraph (f)(2) of this section, the plan 

amendment takes effect in accordance with 

its terms. 

(vi) After the plan’s effective interest rate 

for 2011 has been determined to be 5.5%, the 

amount of excess interest previously 

contributed is recharacterized as an employer 

contribution taken into account under 

section 430 for 2011 (because that rate for the 

year is less than 6%). 

(g) Rules of operation for periods prior 

to and after certification—(1) In general. 

Section 436(h) and paragraph (h) of this 

section set forth a series of 

presumptions that apply before the 

enrolled actuary for a plan issues a 

certification of the plan’s adjusted 

funding target attainment percentage for 

the plan year. This paragraph (g) sets 

forth rules for the application of 

limitations under sections 436(b), 

436(c), 436(d), and 436(e) prior to and 

during the period those presumptions 

apply to the plan, and describes the 

interaction of those presumptions with 

plan operations after the plan’s enrolled 

actuary has issued a certification of the 

plan’s adjusted funding target 

attainment percentage for the plan year. 

Paragraph (g)(2) of this section sets forth 

rules that apply to periods during which 

a presumption under section 436(h) and 

paragraph (h) of this section applies. 

Paragraph (g)(3) of this section sets forth 

rules that apply to periods during which 

no presumptions under section 436(h) 

and paragraph (h) of this section apply 

but which are prior to the enrolled 

actuary’s certification of the plan’s 

adjusted funding target attainment 

percentage for the plan year. Paragraph 

(g)(4) of this section sets forth rules for 

modifying the plan’s presumed adjusted 

funding target attainment percentage in 

certain situations. Paragraph (g)(5) of 

this section sets forth rules that apply 

after the enrolled actuary’s certification 

of the plan’s adjusted funding target 

attainment percentage for a plan year. 

Paragraph (g)(6) of this section sets forth 

examples illustrating the rules in this 

paragraph (g). 

(2) Periods prior to certification 

during which a presumption applies— 

(i) Plan must follow presumptions. A 

plan must provide that, for any period 

during which a presumption under 

section 436(h) and paragraph (h)(1), (2), 

or (3) of this section applies to the plan, 

the limitations applicable under section 

436 and paragraphs (b), (c), (d), and (e) 

of this section are applied to the plan as 

if the adjusted funding target attainment 

percentage for the year were the 

presumed adjusted funding target 

attainment percentage determined 

under the rules of section 436(h) and 

paragraph (h)(1), (2), or (3) of this 

section, as applicable, updated to take 

into account certain unpredictable 

contingent event benefits and plan 

amendments in accordance with section 

436 and the rules of this paragraph (g). 

(ii) Determination of amount of 

reduction in balances—(A) In general. 

During the period described in this 

paragraph (g)(2), the rules of paragraph 

(a)(5) of this section (relating to the 

deemed election to reduce the funding 

standard carryover balance and the 

prefunding balance) must be applied 

based on the presumed adjusted funding 

target attainment percentage. This 

paragraph (g)(2)(ii) provides rules for 

the determination of the reduction that 

applies as of the first day of the plan 

year, and, in certain circumstances, that 

applies later in the plan year. Paragraph 

(g)(2)(iii) of this section provides 

additional rules that apply with respect 

to unpredictable contingent event 


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Federal Register / Vol. 74, No. 198 / Thursday, October 15, 2009 / Rules and Regulations 53071 

benefits or plan amendments, which 

rules must be applied prior to the 

application of paragraph (g)(2)(iv) of this 

section relating to section 436 

contributions. The reapplication of the 

rules under this paragraph (g)(2) 

regarding the deemed election in 

paragraph (a)(5) of this section may 

require an additional reduction in the 

prefunding and funding standard 

carryover balances if the amount of the 

reduction in those balances that is 

necessary to reach the applicable 

threshold to avoid the application of a 

section 436 limitation exceeds the 

amount that was initially reduced. Prior 

reductions of the prefunding and 

funding standard carryover balances 

continue to apply. 

(B) Reduction in balances at the first 

day of plan year—(1) Plans with a 

certified AFTAP for the prior plan year. 

If section 436(h)(1) and paragraph (h)(1) 

of this section apply to determine the 

presumed adjusted funding target 

attainment percentage as of the first day 

of the current plan year based on the 

plan’s enrolled actuary certification of 

the adjusted funding target attainment 

percentage for the prior plan year made 

during that prior plan year, then, in 

order to determine the amount of the 

reduction (if any) in the funding 

standard carryover balance and 

prefunding balance under this 

paragraph (g)(2)(ii), a presumed adjusted 

funding target must be established as of 

the first day of the plan year, and that 

amount is then compared to the interim 

value of adjusted plan assets as of that 

date. For this purpose, the interim value 

of adjusted plan assets is equal to the 

value of adjusted plan assets (within the 

meaning of paragraph (j)(1)(ii) of this 

section) as of the first day of the plan 

year, determined without regard to 

future contributions and future elections 

with respect to the plan’s prefunding 

and funding standard carryover 

balances under section 430(f) (for 

example, elections to add to the 

prefunding balance for the prior plan 

year, elections to use the prefunding 

and funding standard carryover 

balances to offset the minimum required 

contribution for a year, and elections 

(including deemed elections under 

paragraph (a)(5) of this section) to 

reduce the prefunding and funding 

standard carryover balances for the 

current plan year), and the presumed 

adjusted funding target is equal to the 

interim value of adjusted plan assets for 

the plan year divided by the presumed 

adjusted funding target attainment 

percentage. As provided in § 1.430(f)– 

1(e)(1), the rules of § 1.430(f)–1(d)(1)(ii) 

apply for purposes of determining the 

amount of the prefunding balance or the 

funding standard carryover balance that 

is available for reduction. 

(2) Plans with presumed AFTAP 

deemed under 60 percent. If paragraph 

(g)(2)(ii)(B)(1) of this section does not 

apply to the plan for a plan year and the 

last day of the plan year is on or after 

the first day of the 10th month of the 

plan year, such that the presumed 

adjusted funding target attainment 

percentage for the prior plan year is 

conclusively presumed to be less than 

60 percent under section 436(h)(2) and 

paragraph (h)(3) of this section, then no 

reduction in the funding standard 

carryover balance and prefunding 

balance is required under this paragraph 

(g)(2)(ii)(B). However, see paragraph 

(g)(2)(iv)(A) of this section for rules for 

determining the amount of a section 436 

contribution that would permit 

unpredictable contingent event benefits 

to be paid in such a case. 

(3) Treatment of short plan years. If 

paragraph (g)(2)(ii)(B)(1) of this section 

does not apply to the plan for a plan 

year but the last day of the plan year is 

before the first day of the 10th month of 

the plan year, such that section 

436(h)(2) and paragraph (h)(3) of this 

section did not apply for that plan year, 

then paragraph (g)(2)(ii)(B)(1) of this 

section must be applied as of the first 

day of the next plan year based on the 

presumed adjusted funding target 

attainment percentage as of that last day 

of the prior short plan year. 

(C) Change in presumed AFTAP later 

in the plan year. If the presumed 

adjusted funding target attainment 

percentage for the plan year changes 

during the year, the rules regarding the 

deemed election to reduce the 

prefunding and funding standard 

carryover balances described in 

paragraph (a)(5) of this section must be 

reapplied based on the new presumed 

adjusted funding target attainment 

percentage. This will typically occur on 

the first day of the 4th month of a plan 

year, but could happen at a different 

date if the enrolled actuary certifies the 

adjusted funding target attainment 

percentage for the prior plan year during 

the current plan year. In order to 

determine the amount of any reduction 

in the prefunding and funding standard 

carryover balances that would apply in 

such a situation, a new presumed 

adjusted funding target must be 

established, which is then compared to 

the updated interim value of adjusted 

plan assets. For this purpose, the 

updated interim value of adjusted plan 

assets for the plan year is determined as 

the interim value of adjusted plan assets 

as of the first day of the plan year 

updated to take into account 

contributions for the prior plan year and 

section 430(f) elections with respect to 

the plan’s prefunding and funding 

standard carryover balances made 

before the date of the change in the 

presumed adjusted funding target 

attainment percentage, and the new 

presumed adjusted funding target is 

equal to the updated interim value of 

adjusted plan assets divided by the new 

presumed adjusted funding target 

attainment percentage. 

(D) Plans funded below the threshold. 

If, after application of paragraph 

(g)(2)(ii)(B) and (C) of this section, the 

presumed adjusted funding target 

attainment percentage under this 

paragraph (g)(2)(ii) is less than the 60 

percent threshold under section 436(e), 

then no benefit accruals are permitted 

under the plan unless the plan sponsor 

makes a section 436 contribution as 

provided in paragraph (g)(2)(iv)(A) of 

this section. See paragraph (g)(5)(ii) of 

this section for rules that apply on and 

after the date the enrolled actuary for 

the plan issues a certification of the 

adjusted funding target attainment 

percentage of the plan for the current 

plan year. 

(iii) Calculation of inclusive presumed 

AFTAP for application to unpredictable 

contingent event benefits and plan 

amendments—(A) Requirement to 

calculate inclusive presumed AFTAP. 

For purposes of applying the limitations 

under paragraphs (b) and (c) of this 

section during the period described in 

this paragraph (g)(2), an inclusive 

presumed adjusted funding target 

attainment percentage must be 

calculated. The inclusive presumed 

adjusted funding target attainment 

percentage is the ratio (expressed as a 

percentage) of the interim value of 

adjusted plan assets (updated to take 

into account contributions for the prior 

plan year, any prior section 436 

contributions made for the plan year to 

the extent not previously taken into 

account in the interim value of adjusted 

plan assets for the plan year, and section 

430(f) elections with respect to the 

plan’s prefunding and funding standard 

carryover balances made before the date 

of the unpredictable contingent event or 

the date the plan amendment would 

take effect) to the inclusive presumed 

adjusted funding target. The inclusive 

presumed adjusted funding target is 

calculated as the presumed adjusted 

funding target determined under 

paragraph (g)(2)(ii)(B) or (C) of this 

section, increased to take into account— 

(1) The unpredictable contingent 

event benefits or plan amendment; 

(2) Any unpredictable contingent 

event benefits that are permitted to be 

paid as a result of any unpredictable 


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53072 Federal Register / Vol. 74, No. 198 / Thursday, October 15, 2009 / Rules and Regulations 

contingent event that occurred, or plan 

amendment that has taken effect, in the 

prior plan year to the extent not taken 

into account in the prior plan year 

adjusted funding target attainment 

percentage; and 

(3) Any other unpredictable 

contingent event benefits that are 

permitted to be paid as a result of any 

unpredictable contingent event that 

occurred, or plan amendment that has 

taken effect, in the current plan year to 

the extent not previously taken into 

account in the presumed adjusted 

funding target for the plan year. 

(B) Mandatory reduction for 

collectively bargained plans. During the 

period described in this paragraph 

(g)(2), the rules of paragraph (a)(5)(ii) of 

this section (relating to the deemed 

election to reduce the funding standard 

carryover balance and the prefunding 

balance) must be applied by treating the 

inclusive presumed adjusted funding 

target attainment percentage determined 

under this paragraph (g)(2)(iii) as if it 

were the adjusted funding target 

attainment percentage. 

(C) Optional reduction for plans that 

are not collectively bargained plans. A 

plan sponsor of a plan that is not a 

collectively bargained plan (and, thus, is 

not required to reduce the funding 

standard carryover balance and the 

prefunding balance under the rules of 

paragraph (a)(5)(ii) of this section) is 

permitted to elect to reduce those 

balances in order to increase the 

updated interim value of adjusted plan 

assets that is used to determine the 

inclusive presumed adjusted funding 

target attainment percentage under this 

paragraph (g)(2)(iii). 

(D) Plans funded below the threshold. 

If, after application of paragraph 

(g)(2)(iii)(B) and (C) of this section, the 

inclusive presumed adjusted funding 

target attainment percentage determined 

under this paragraph (g)(2)(iii) is less 

than the applicable threshold under 

section 436(b) or 436(c), then the plan 

is not permitted to provide any benefits 

attributable to the unpredictable 

contingent event, nor is the plan 

amendment permitted to take effect, 

unless the plan sponsor makes a section 

436 contribution as provided in 

paragraph (g)(2)(iv) of this section. See 

paragraph (g)(5)(ii) of this section for 

rules that apply on and after the date the 

enrolled actuary for the plan issues a 

certification of the adjusted funding 

target attainment percentage of the plan 

for the current plan year. 

(E) Plans funded at or above the 

threshold. If, after application of 

paragraph (g)(2)(iii)(B) or (C) of this 

section, the inclusive presumed 

adjusted funding target attainment 

percentage is greater than or equal to the 

applicable threshold under section 

436(b) or 436(c), then the plan is not 

permitted to limit the payment of 

unpredictable contingent event benefits 

described in paragraph (b) of this 

section, nor is the plan permitted to 

restrict a plan amendment increasing 

benefit liabilities described in paragraph 

(c) of this section from taking effect, 

based on an expectation that the 

limitations under paragraph (b) or (c) of 

this section will apply following the 

enrolled actuary’s certification of the 

adjusted funding target attainment 

percentage for the plan year. 

(iv) Section 436 contributions—(A) 

Plans with presumed AFTAP below 60 

percent—(1) Unpredictable contingent 

event benefits. If the presumed adjusted 

funding target attainment percentage for 

a plan is less than 60 percent, then 

unpredictable contingent event benefits 

are permitted to be paid as a result of 

an unpredictable contingent event 

occurring during the period described in 

this paragraph (g)(2) if the plan sponsor 

makes the section 436 contribution 

described in paragraph (f)(2)(iii)(A) of 

this section. 

(2) Plan amendments. If the presumed 

adjusted funding target attainment 

percentage for a plan is less than 60 

percent, then no plan amendment 

increasing plan liabilities is permitted to 

take effect during the period described 

in this paragraph (g)(2). See paragraph 

(e)(1) of this section. 

(3) Benefit accruals. If the presumed 

adjusted funding target attainment 

percentage for a plan year of less than 

60 percent is determined based on the 

plan’s enrolled actuary certification of 

the adjusted funding target attainment 

percentage for the prior plan year made 

during that prior plan year (as opposed 

to being presumed to be less than 60 

percent under the rules of section 

436(h)(2) and paragraph (h)(3) of this 

section because the actuary has not 

certified the adjusted funding target 

attainment percentage for the prior plan 

year before the first day of the 10th 

month of the prior plan year), then 

benefits are permitted to accrue if the 

plan sponsor makes a section 436 

contribution in the amount necessary to 

bring the ratio of the updated interim 

value of adjusted plan assets to the 

presumed adjusted funding target up to 

60 percent, as described in paragraph 

(f)(2)(v) of this section. 

(B) Plan amendments for plans with 

presumed AFTAP below 80 percent. If 

the presumed adjusted funding target 

attainment percentage for a plan is less 

than 80 percent, but is not less than 60 

percent, then a plan amendment 

increasing plan liabilities is permitted to 

take effect during the period described 

in this paragraph (g)(2) if the plan 

sponsor makes a section 436 

contribution described in paragraph 

(f)(2)(iv)(A) of this section. 

(C) Contributions required to reach 

threshold. If a plan is described in 

paragraph (g)(2)(iii)(D) of this section 

and neither paragraph (g)(2)(iv)(A) nor 

(B) of this section apply to the plan, 

then unpredictable contingent event 

benefits are permitted to be paid or the 

plan amendment is permitted to become 

effective during the period this 

paragraph (g)(2) applies to the plan only 

if the plan sponsor makes a section 436 

contribution in the amount necessary to 

bring the ratio of the updated interim 

value of adjusted plan assets to the 

inclusive presumed adjusted funding 

target up to the applicable threshold 

under section 436(b) or (c), as described 

in paragraph (f)(2)(iii)(B) or (f)(2)(iv)(B) 

of this section. This paragraph 

(g)(2)(iv)(C) applies, for example, if an 

unpredictable contingent event occurs 

in the case of a plan with a presumed 

adjusted funding target attainment 

percentage of more than 60 percent 

where taking into account the 

unpredictable contingent event benefit 

in the inclusive presumed adjusted 

funding target would cause the ratio of 

the interim value of adjusted plan assets 

to the inclusive presumed adjusted 

funding target to be less than 60 percent. 

(v) Bankruptcy of plan sponsor. 

Pursuant to section 436(d)(2), during 

any period in which the plan sponsor of 

a plan is a debtor in a case under title 

11, United States Code, or any similar 

Federal or State law (as described in 

paragraph (d)(2) of this section), no 

prohibited payment within the meaning 

of paragraph (j)(6) of this section may be 

paid if the plan’s enrolled actuary has 

not yet certified the plan’s adjusted 

funding target attainment percentage for 

the plan year to be at least 100 percent. 

Thus, the presumption rules of 

paragraph (h) of this section do not 

apply for purposes of section 436(d)(2) 

and this paragraph (g)(2)(v). 

(3) Periods prior to certification 

during which no presumption applies— 

(i) Prohibited payments and benefit 

accruals. If no presumptions under 

section 436(h) apply to a plan during a 

period and the plan’s enrolled actuary 

has not yet issued the certification of the 

plan’s actual adjusted funding target 

attainment percentage for the plan year, 

the plan is not permitted to limit 

prohibited payments under paragraph 

(d) of this section or the accrual of 

benefits under paragraph (e) of this 

section based on an expectation that 

those paragraphs will apply to the plan 

once an actuarial certification is issued. 


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Federal Register / Vol. 74, No. 198 / Thursday, October 15, 2009 / Rules and Regulations 53073 

However, see paragraph (g)(2)(v) of this 

section for a restriction on prohibited 

payments during any period in which 

the plan sponsor of a plan is a debtor 

in a case under title 11, United States 

Code, or any similar Federal or State 

law. 

(ii) Unpredictable contingent event 

benefits and plan amendments 

increasing benefit liability—(A) In 

general. If no presumptions under 

section 436(h) apply to a plan during a 

period and the plan’s enrolled actuary 

has not yet issued a certification of the 

plan’s adjusted funding target 

attainment percentage for the plan year, 

the limitations on unpredictable 

contingent event benefits under 

paragraph (b) of this section and plan 

amendments increasing benefit 

liabilities under paragraph (c) of this 

section must be applied during that 

period by following the rules of 

paragraphs (g)(2)(iii) of this section, 

based on the inclusive presumed 

adjusted funding target determined 

using the prior plan year adjusted 

funding target attainment percentage. 

Thus, whether unpredictable contingent 

event benefits are permitted to be paid 

or a plan amendment is permitted to 

take effect during a plan year is 

determined by calculating the ratio of 

the interim value of adjusted plan assets 

to the inclusive presumed adjusted 

funding target, where the inclusive 

presumed adjusted funding target is 

determined by dividing the interim 

value of adjusted plan assets by the 

prior plan year adjusted funding target 

attainment percentage and then adding 

the adjustments described in paragraphs 

(g)(2)(iii)(A)(1), (2) and (3) of this 

section. If, after application of 

paragraphs (g)(2)(iii)(B) and (C) of this 

section, that ratio is less than the 

applicable threshold under section 

436(b) or 436(c), then the plan is not 

permitted to provide any benefits 

attributable to the unpredictable 

contingent event, nor is the plan 

amendment permitted to take effect, 

unless the plan sponsor makes the 

contribution described in paragraph 

(g)(2)(iv)(C) of this section. 

(B) Recharacterization of 

contributions made to avoid benefit 

limitations. In any case where, pursuant 

to paragraph (g)(3)(ii)(A) of this section, 

the plan sponsor makes section 436 

contributions to avoid the application of 

the applicable benefit limitation, to the 

extent those contributions would not be 

needed to permit the payment of the 

unpredictable contingent event benefits 

or for the plan amendment to go into 

effect based on a subsequent 

certification of the adjusted funding 

target attainment percentage for the 

current plan year that takes into account 

the increase in the liability attributable 

to the unpredictable contingent event 

benefits or plan amendment, the excess 

section 436 contributions are 

recharacterized as employer 

contributions taken into account under 

section 430 for the current plan year. 

(4) Modification of the presumed 

AFTAP—(i) Section 436 contributions. 

If, in accordance with the rules of 

paragraph (g)(2)(iv) of this section, 

unpredictable contingent event benefits 

are permitted to be paid, or a plan 

amendment takes effect, during the plan 

year because the plan sponsor makes a 

contribution described in paragraph 

(f)(2)(iii)(B) or (f)(2)(iv)(B) of this 

section, then the presumed adjusted 

funding target must be adjusted to 

reflect any increase in the funding target 

attributable to the unpredictable 

contingent event benefits or the plan 

amendment and the interim value of 

plan assets must be increased by the 

present value of the contribution. 

Similarly, if benefit accruals are 

permitted to resume in a plan year 

because the plan sponsor makes the 

contribution described in paragraph 

(f)(2)(v) of this section, then the 

presumed adjusted funding target must 

be adjusted to reflect any increase in the 

funding target attributable to the benefit 

accruals for the prior plan year and the 

interim value of adjusted plan assets 

must be increased by the present value 

of the contribution. The adjustment to 

the presumed adjusted funding target is 

made as of the date of the contribution, 

and that date is a section 436 

measurement date. 

(ii) Modification of the presumed 

AFTAP for reduction in balances. If a 

plan’s funding standard carryover 

balance or prefunding balance is 

reduced under the rules of paragraph 

(g)(2) or (g)(3) of this section, then the 

presumed adjusted funding target 

attainment percentage for the plan year 

is increased to reflect the higher interim 

value of adjusted plan assets resulting 

from the reduction in the funding 

standard carryover balance or 

prefunding balance. The date of the 

event that causes the reduction is a 

section 436 measurement date. 

(5) Periods after certification of 

AFTAP—(i) Plan must follow certified 

AFTAP—(A) In general. The rules of 

paragraphs (g)(2) and (g)(3) of this 

section no longer apply for a plan year 

on and after the date the enrolled 

actuary for the plan issues a certification 

of the adjusted funding target 

attainment percentage of the plan for the 

current plan year, provided that the 

certification is issued before the first 

day of the 10th month of the plan year. 

For example, the plan must provide that 

the limitations on prohibited payments 

apply for distributions with annuity 

starting dates on and after the date of 

that certification using the certified 

adjusted funding target attainment 

percentage of the plan for the plan year. 

Similarly, the plan must provide that 

any prohibition on accruals under 

paragraph (e) of this section as a result 

of the enrolled actuary’s certification 

that the adjusted funding target 

attainment percentage of the plan for the 

plan year is less than 60 percent is 

effective as of the date of the 

certification and that any prohibition on 

accruals ceases to be effective on the 

date the enrolled actuary issues a 

certification that the adjusted funding 

target attainment percentage of the plan 

for the plan year is at least 60 percent. 

(B) Unpredictable contingent events 

and plan amendments. In the case of a 

plan that has been issued a certification 

of the plan’s adjusted funding target 

attainment percentage for a plan year by 

the plan’s enrolled actuary, the plan 

sponsor must comply with the 

requirements of paragraphs (b) and (c) of 

this section for an unpredictable 

contingent event that occurs or a plan 

amendment that takes effect on or after 

the date of the enrolled actuary’s 

certification. Thus, the plan 

administrator must determine if the 

adjusted funding target attainment 

percentage would be at or above the 

applicable threshold if it were modified 

to take into account— 

(1) The unpredictable contingent 

event or plan amendment; 

(2) Any other unpredictable 

contingent event benefits that were 

permitted to be paid as a result of any 

unpredictable contingent event that 

occurred, and any other plan 

amendment that took effect, earlier 

during the plan year to the extent not 

taken into account in the certified 

adjusted funding target attainment 

percentage for the plan year; and 

(3) Any earlier section 436 

contributions made for the plan year to 

the extent those contributions were not 

taken into account in the certified 

adjusted funding target attainment 

percentage. 

(C) Application of rule for deemed 

election to reduce funding balances. 

After the adjusted funding target 

attainment percentage for a plan year is 

certified by the plan’s enrolled actuary, 

the deemed election to reduce the 

prefunding and funding standard 

carryover balances under paragraph 

(a)(5) of this section must be reapplied 

based on the actual funding target for 

the year (provided the certification is 

issued before the first day of the 10th 


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53074 Federal Register / Vol. 74, No. 198 / Thursday, October 15, 2009 / Rules and Regulations 

month of the plan year). The 

reapplication of the rules under this 

paragraph (g)(5) regarding the deemed 

election in paragraph (a)(5) of this 

section may require an additional 

reduction in the prefunding and funding 

standard carryover balances if the 

amount of the reduction in the 

prefunding and funding standard 

carryover balances that is necessary to 

reach the applicable threshold to avoid 

the application of a section 436 

limitation exceeds the amount that was 

initially reduced. Prior reductions of the 

prefunding and funding standard 

carryover balances continue to apply. 

(ii) Applicability to prior periods—(A) 

In general. Except as otherwise 

provided in this paragraph (g)(5)(ii), the 

enrolled actuary’s certification of the 

adjusted funding target attainment 

percentage for the plan for the plan year 

does not affect prior periods. For 

example, the certification does not affect 

the application of the limitation under 

paragraph (d) of this section for 

distributions with annuity starting dates 

before the certification or the 

application of the limitation under 

paragraph (e) of this section prior to the 

date of that certification. See paragraph 

(a)(4) of this section for rules relating to 

the period of time after benefits cease to 

be limited. Except as otherwise 

provided in this paragraph (g)(5)(ii), the 

enrolled actuary’s certification of the 

adjusted funding target attainment 

percentage for the plan for the plan year 

does not affect the application of the 

limitation under paragraph (b) or (c) of 

this section to unpredictable contingent 

event benefits, or a plan amendment 

that increases the liability for benefits, 

where the unpredictable contingent 

event occurs or the amendment takes 

effect during the periods to which 

paragraphs (g)(2) and (g)(3) of this 

section apply. 

(B) Special rule for unpredictable 

contingent event benefits. If a plan does 

not pay benefits attributable to an 

unpredictable contingent event because 

of the application of paragraph 

(g)(2)(iii)(D) or (g)(3)(ii)(A) of this 

section, then the plan must pay the 

benefits attributable to that event that 

were not previously paid if such 

benefits would be permitted under the 

rules of section 436 based on a certified 

adjusted funding target attainment 

percentage for the plan year that takes 

into account the increase in the funding 

target that would be attributable to those 

unpredictable contingent event benefits. 

(C) Special rule for plan amendments 

that increase liability. If a plan 

amendment does not take effect because 

of the application of paragraph 

(g)(2)(iii)(D) or (g)(3)(ii)(A) of this 

section, the plan amendment must go 

into effect if it would be permitted 

under the rules of section 436 based on 

a certified actual adjusted funding target 

attainment percentage for the plan year 

that takes into account the increase in 

the funding target attributable to the 

plan amendment, unless the plan 

amendment provides otherwise. 

(D) Ordering rule for multiple 

unpredictable contingent events or plan 

amendments. [Reserved] 

(6) Examples. The following examples 

illustrate the rules of this paragraph (g). 

Unless otherwise indicated, these 

examples are based on the following 

facts: each plan has a plan year that is 

the calendar year and a valuation date 

of January 1; section 436 applies to the 

plan beginning in 2008; the plan has no 

funding standard carryover balance; the 

plan sponsor is not in bankruptcy; no 

annuity purchases have been made from 

the plan; and the plan offers a lump sum 

form of payment. No plan is in at-risk 

status for the years discussed in the 

examples. The examples read as 

follows: 

Example 1. (i) The plan’s certified AFTAP 

as of January 1, 2010, is 75%. As of January 

1, 2011, Plan A has assets of $3,300,000 and 

a prefunding balance of $300,000. Beginning 

on January 1, 2011, Plan A’s AFTAP for 2011 

is presumed to be 75%, under the rules of 

paragraph (h) of this section and based on the 

certified AFTAP for 2010. 

(ii) Based on Plan A’s presumed AFTAP of 

75%, Plan A would continue to be subject to 

the restriction on prohibited payments in 

paragraph (d)(3) of this section as of January 

1, 2011. However, under the provisions of 

paragraph (a)(5) of this section, if the 

prefunding balance is large enough, Plan A’s 

sponsor is deemed to elect to reduce the 

prefunding balance to the extent needed to 

avoid this restriction. 

(iii) The amount needed to avoid the 

restriction in paragraph (d)(3) of this section 

is determined by comparing the presumed 

adjusted funding target for Plan A with the 

interim value of adjusted plan assets as of the 

valuation date. The interim value of adjusted 

plan assets for Plan A is $3,000,000 (that is, 

the asset value of $3,300,000 reduced by the 

prefunding balance of $300,000). The 

presumed adjusted funding target for Plan A 

is the interim value of the adjusted plan 

assets divided by the presumed AFTAP, or 

$4,000,000 (that is, $3,000,000 divided by 

75%). 

(iv) In order to avoid the restriction on 

prohibited payments in paragraph (d)(3) of 

this section, Plan A’s presumed AFTAP must 

be increased to 80%. This requires an 

increase in Plan A’s adjusted plan assets of 

$200,000 (that is, 80% of the presumed 

adjusted funding target of $4,000,000, minus 

the interim value of the adjusted plan assets 

of $3,000,000). Plan A’s prefunding balance 

as of January 1, 2011, is reduced by $200,000 

under the deemed election provisions of 

paragraph (a)(5) of this section. Accordingly, 

Plan A’s prefunding balance is $100,000 (that 

is, $300,000 minus $200,000) and the interim 

value of adjusted plan assets is increased to 

$3,200,000 (that is, $3,300,000 minus the 

reduced prefunding balance of $100,000). 

Pursuant to paragraph (g)(4)(ii) of this 

section, the presumed adjusted funding target 

attainment percentage for Plan A is 

redetermined as 80% and Plan A must pay 

the full amount of the accelerated benefit 

distributions elected by participants with an 

annuity starting date of January 1, 2011, or 

later. 

Example 2. (i) The facts are the same as in 

Example 1. As of April 1, 2011, the enrolled 

actuary for Plan A has not certified the 2011 

AFTAP. Therefore, beginning April 1, 2011, 

Plan A’s AFTAP is presumed to be reduced 

by 10 percentage points to 70%, in 

accordance with paragraph (h)(2) of this 

section. Under the provisions of paragraph 

(g)(2)(ii)(B) of this section, the deemed 

election to reduce the prefunding and 

funding standard carryover balances 

described in paragraph (a)(5) of this section 

must be reapplied based on the new 

presumed AFTAP. 

(ii) In accordance with paragraph 

(g)(2)(ii)(C) of this section, a new presumed 

adjusted funding target must be determined 

based on the new presumed AFTAP and 

must be compared to an updated interim 

value of adjusted plan assets. The new 

presumed adjusted funding target is 

$3,200,000 divided by the new presumed 

AFTAP of 70%, or $4,571,429. 

(iii) In order to avoid the restriction on 

prohibited payments in paragraph (d)(3) of 

this section, Plan A’s presumed AFTAP must 

be increased to 80%. This requires an 

additional increase in Plan A’s adjusted plan 

assets of $457,143 (that is, 80% of the new 

presumed adjusted funding target of 

$4,571,429, minus the updated interim value 

of the adjusted plan assets of $3,200,000 

reflecting the deemed reduction in Plan A’s 

prefunding balance). 

(iv) Plan A’s remaining prefunding balance 

as of January 1, 2011, is only $100,000, 

which is not enough to avoid the restriction 

on prohibited payments under paragraph 

(d)(3) of this section. Accordingly, unless 

Plan A’s sponsor utilizes one of the methods 

described in paragraph (f) of this section to 

avoid the restriction, Plan A is subject to the 

restriction on prohibited payments in 

paragraph (d)(3) of this section and cannot 

pay accelerated benefit distributions elected 

by participants with an annuity starting date 

of April 1, 2011, or later. 

(v) Plan A’s prefunding balance remains at 

$100,000 because, under paragraph (a)(5)(iii) 

of this section, the deemed reduction rules 

do not apply if the prefunding balance is not 

large enough to increase the adjusted value 

of plan assets enough to avoid the restriction. 

However, the earlier deemed reduction of 

$200,000 continues to apply because all 

elections (including deemed elections) to 

reduce a plan’s funding standard carryover 

balance or prefunding balance are irrevocable 

and must be unconditional in accordance 

with paragraph (g)(2)(ii)(A) of this section. 

Example 3. (i) The facts are the same as in 

Example 1. On July 1, 2011, the enrolled 

actuary for Plan A calculates the actual 

adjusted funding target as $3,700,000 as of 


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Federal Register / Vol. 74, No. 198 / Thursday, October 15, 2009 / Rules and Regulations 53075 

January 1, 2011. Therefore, the 2011 AFTAP 

would have been 81.08% without reducing 

the prefunding balance (that is, plan assets of 

$3,300,000 minus the prefunding balance of 

$300,000, divided by the adjusted funding 

target of $3,700,000), and Plan A would not 

have been subject to the restrictions under 

paragraph (d)(3) of this section. 

(ii) However, paragraph (g)(5)(i)(C) of this 

section requires that any prior reductions in 

the prefunding or funding standard carryover 

balances continue to apply, and so Plan A’s 

prefunding balance remains at the reduced 

amount of $100,000 as of January 1, 2011. 

The enrolled actuary certifies that the 2011 

AFTAP is 86.49% (that is, plan assets of 

$3,300,000 reduced by the prefunding 

balance of $100,000, divided by the adjusted 

funding target of $3,700,000). 

Example 4. (i) Plan B is a collectively 

bargained plan with assets of $2,500,000 and 

a prefunding balance of $150,000 as of 

January 1, 2011. On August 14, 2010, the 

enrolled actuary for Plan B certified the 

AFTAP for 2010 to be 83%. No unpredictable 

contingent events giving rise to unpredictable 

contingent event benefits occurred during 

2010 and no plan amendments took effect in 

2010 that were not taken into account in the 

certified AFTAP. 

(ii) On January 10, 2011, Plan B’s sponsor 

amends the plan to increase benefits effective 

on February 1, 2011. The amendment would 

increase Plan B’s funding target by $350,000. 

Under the rules of paragraph (g)(3) of this 

section, the determination of whether the 

amendment is permitted to take effect is 

based on a comparison of the inclusive 

presumed adjusted funding target with the 

updated interim value of adjusted plan 

assets. 

(iii) Plan B’s interim value of adjusted plan 

assets as of the valuation date is $2,350,000 

(that is, $2,500,000 minus the prefunding 

balance of $150,000). Prior to reflecting the 

amendment, Plan B’s presumed adjusted 

funding target as of January 1, 2011, is 

$2,831,325, which is equal to the interim 

value of adjusted plan assets as of the 

valuation date of $2,350,000, divided by the 

presumed AFTAP of 83%. Increasing Plan 

B’s presumed adjusted funding target by 

$350,000 to reflect the amendment results in 

an inclusive presumed adjusted funding 

target of $3,181,325 and would result in a 

presumed AFTAP of 73.87% (that is, the 

interim value of adjusted plan assets as of the 

valuation date of $2,350,000 divided by the 

inclusive presumed adjusted funding target 

of $3,181,325). 

(iv) Because Plan B’s presumed AFTAP 

was over 80% prior to taking the amendment 

into account but would be less than 80% if 

the amendment were taken into account, 

section 436(c) and paragraph (c) of this 

section prohibit the plan amendment from 

taking effect unless the adjusted plan assets 

are increased so that the inclusive presumed 

AFTAP would be increased to 80%. This 

would require an additional amount of 

$195,060 (that is, 80% of the inclusive 

presumed adjusted funding target of 

$3,181,325 less the interim value of adjusted 

plan assets of $2,350,000). 

(v) Plan B’s prefunding balance of $150,000 

is not large enough for Plan B to avoid the 

restriction on plan amendments, and 

therefore the deemed election to reduce the 

prefunding balance under paragraph (a)(5) of 

this section does not apply, and the 

amendment cannot take effect unless the 

plan sponsor makes a contribution described 

in paragraph (f)(2) of this section. 

Example 5. (i) The facts are the same as in 

Example 4, except that Plan B’s sponsor 

decides to make a contribution on February 

1, 2011, to avoid the benefit limitation as 

provided in paragraph (f)(2) of this section. 

As of February 1, 2011, Plan B’s effective 

interest rate for the 2011 plan year has not 

yet been determined. Pursuant to paragraph 

(f)(2)(i)(A)(2) of this section, Plan B’s 

effective interest rate for 2011 is treated as 

6.25%, which is the largest of the three 

segment interest rates applicable to the 2011 

plan year, as provided in paragraph 

(f)(2)(i)(A)(2) of this section. 

(ii) The amount of the contribution as of 

January 1, 2011, needed to avoid the 

restriction on plan amendments under 

paragraph (c) of this section is $195,060. 

However, because the contribution is not 

paid until February 1, 2011, the necessary 

contribution amount must be adjusted to 

reflect interest that would otherwise have 

accrued between the valuation date and the 

date of the contribution, at Plan B’s effective 

interest rate for the 2011 plan year. The 

amount of the required contribution after 

adjustment is $196,048, determined as 

$195,060 increased for one month of 

compound interest at an effective annual 

interest rate of 6.25%. 

(iii) In accordance with paragraph (g)(4)(i) 

of this section, the inclusive presumed 

AFTAP as of February 1, 2011, is 80 percent. 

Example 6. (i) The facts are the same as in 

Example 5. As of April 1, 2011, the enrolled 

actuary for the plan has not certified the 2011 

AFTAP. Beginning April 1, 2011, Plan A’s 

presumed AFTAP is equal to be 70%, 10 

percentage points lower than the inclusive 

presumed AFTAP as of February 1, 2011, in 

accordance with paragraphs (g)(2)(iii)(A) and 

(h)(2) of this section. On July 1, 2011, the 

enrolled actuary for the plan calculates the 

actual adjusted funding target, prior to taking 

the plan amendment into account, as 

$2,700,000, and determines the actual 

effective interest rate for 2011 to be 5.25%. 

On this basis, the actual AFTAP for 2011 

(prior to taking the amendment into account) 

as 87.04% (that is, adjusted assets of 

$2,350,000 divided by the adjusted funding 

target of $2,700,000). Reflecting the $350,000 

increase in funding target due to the plan 

amendment would increase the adjusted 

funding target to $3,050,000 and would 

decrease Plan B’s AFTAP to 77.05%. 

(ii) Based on the calculated adjusted 

funding target, the amount that was 

necessary to avoid the benefit restriction 

under paragraph (c) of this section was 

$90,000 (that is, 80% of the adjusted funding 

target reflecting the plan amendment (or 

$3,050,000), minus the adjusted value of plan 

assets of $2,350,000). This amount must be 

adjusted for interest between the valuation 

date and the date the contribution was made 

using the effective interest rate for Plan B. 

Therefore, the amount required on the 

payment date of February 1, 2011, was 

$90,385 (that is, $90,000 adjusted for 

compound interest for one month at Plan B’s 

effective interest rate of 5.25% per year). 

(iii) Under paragraph (g)(3)(ii)(B) of this 

section, the contribution made on February 1, 

2011, is recharacterized as an employer 

contribution under section 430 to the extent 

that it exceeded the amount necessary to 

avoid application of the restriction on plan 

amendments under paragraph (c) of this 

section. Therefore, $105,663 (that is, the 

$196,048 actual contribution paid on 

February 1, 2011, minus the $90,385 required 

contribution based on the actual AFTAP) is 

recharacterized as an employer contribution 

under section 430 for the 2011 plan year. As 

such, it may be applied toward the minimum 

required contribution for 2011, or the plan 

sponsor can elect to credit the contribution 

to Plan B’s prefunding balance to the extent 

that the contributions for the 2011 plan year 

exceed the minimum required contribution. 

(iv) This recharacterization applied only 

because the 436 contribution was made 

during a period prior to the certification of 

Plan B’s actual AFTAP for 2011 and during 

which no presumption applied (that is, when 

section 436 is applied based on the 2010 

AFTAP, which was high enough that no 

restrictions applied for 2010). If the 

contribution had been made during a time 

when the presumptions applied (for instance, 

after April 1, 2011, when the presumed 

AFTAP was under 80%) then the only 

portion of the 436 contribution that would be 

recharacterized as an employer contribution 

under section 430 would be the portion of 

the interest adjustment attributable to the 

difference between the highest segment rate 

(6.25%) and the plan’s actual effective 

interest rate (5.25%), in accordance with 

paragraph (f)(2)(i)(A)(2) of this section. 

(v) After reflecting the plan amendment 

and the present value of the portion of the 

section 436 contribution that is not 

recharacterized as an employer contribution 

under section 430, the adjusted assets as of 

January 1, 2011, for purposes of section 436 

are $2,440,000 ($2,350,000 plus $90,000) and 

the inclusive adjusted funding target is 

$3,050,000. Accordingly, the enrolled actuary 

certifies the inclusive AFTAP for 2011 as 

80% ($2,440,00 ÷ $3,050,000). Note that 

assets for section 430 purposes are not 

increased to reflect the section 436 

contribution as of January 1, 2011. 

Example 7. (i) The facts are the same as in 

Example 6, except that on July 1, 2011, the 

enrolled actuary for Plan B calculates the 

actual adjusted funding target (before 

reflecting the plan amendment) as $3,000,000 

and certifies the actual AFTAP as 78.33% 

prior to reflecting the plan amendment (that 

is, adjusted plan assets of $2,350,000 divided 

by the actual adjusted funding target of 

$3,000,000). Based on the provisions of 

paragraph (c) of this section, because the 

AFTAP prior to reflecting the amendment is 

less than 80%, the contribution required to 

avoid the restriction on plan amendments 

would have been the amount equal to the 

increase in funding target due to the plan 

amendment, or $350,000. 

(ii) However, according to paragraph 

(g)(5)(ii)(A) of this section, the enrolled 

actuary’s certification of the 2011 AFTAP 


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does not affect the application of the 

limitation under paragraph (c) of this section 

to the amendment, because the amendment 

to Plan B took effect prior to the date of the 

certification. Therefore, it is not necessary for 

Plan B’s sponsor to contribute an additional 

amount in order for the plan amendment to 

remain in effect regardless of the extent to 

which the certified AFTAP for the plan year 

is less than the presumed inclusive AFTAP. 

(h) Presumed underfunding for 

purposes of benefit limitations—(1) 

Presumption of continued 

underfunding—(i) In general. This 

paragraph (h)(1) applies to a plan for a 

plan year if a limitation under 

paragraph (b), (c), (d), or (e) of this 

section applied to the plan on the last 

day of the preceding plan year. If this 

paragraph (h)(1) applies to a plan, the 

first day of the plan year is a section 436 

measurement date and the presumed 

adjusted funding target attainment 

percentage for the plan is the percentage 

under paragraph (h)(1)(ii) or (iii) of this 

section, whichever applies to the plan, 

beginning on that first day of the plan 

year and ending on the date specified in 

paragraph (h)(1)(iv) of this section. 

(ii) Rule where preceding year 

certification issued during preceding 

year—(A) General rule. In any case in 

which the plan’s enrolled actuary has 

issued a certification under paragraph 

(h)(4) of this section of the adjusted 

funding target attainment percentage for 

the plan year preceding the current plan 

year before the first day of the current 

plan year, the presumed adjusted 

funding target attainment percentage of 

the plan for the current plan year is 

equal to the prior plan year adjusted 

funding target attainment percentage 

until it is changed under paragraph 

(h)(1)(iv) of this section. 

(B) Special rule for late certifications. 

If the certification of the adjusted 

funding target attainment percentage for 

the prior plan year occurred after the 

first day of the 10th month of that prior 

plan year, the plan is treated as if no 

such certification was made, unless the 

certification took into account the effect 

of any unpredictable contingent event 

benefits that are permitted to be paid 

based on unpredictable contingent 

events that occurred, and any plan 

amendments that became effective, 

during the prior plan year but before the 

certification (and any associated section 

436 contributions). 

(iii) No certification for preceding 

year issued during preceding year—(A) 

Deemed percentage continues. In any 

case in which the plan’s enrolled 

actuary has not issued a certification 

under paragraph (h)(4) of this section of 

the adjusted funding target attainment 

percentage of the plan for the plan year 

preceding the current plan year during 

that prior plan year, the presumed 

adjusted funding target attainment 

percentage of the plan for the current 

plan year is equal to the presumed 

adjusted funding target attainment 

percentage that applied on the last day 

of the preceding plan year until the 

presumed adjusted funding target 

attainment percentage is changed under 

paragraph (h)(1)(iii)(B) or (h)(1)(iv) of 

this section. Thus, if the prior plan year 

was a 12-month plan year (so that the 

last day of the plan year was after the 

first day of the 10th month of the plan 

year and the rules of section 436(h)(2) 

and paragraph (h)(3) of this section 

applied to the plan for that plan year), 

then the presumed adjusted funding 

target attainment percentage for the 

current plan year is presumed to be less 

than 60 percent. By contrast, if the prior 

plan year was less than 9 months, the 

presumed adjusted funding target 

attainment percentage for the current 

plan year is the presumed adjusted 

funding target attainment percentage at 

the last day of the preceding plan year. 

(B) Enrolled actuary’s certification in 

following year. In any case in which the 

plan’s enrolled actuary has issued the 

certification under paragraph (h)(4) of 

this section of the adjusted funding 

target attainment percentage of the plan 

for the plan year preceding the current 

plan year on or after the first day of the 

current plan year, the date of that prior 

plan year certification is a new section 

436 measurement date for the current 

plan year. In such a case, the presumed 

adjusted funding target attainment 

percentage for the current plan year is 

equal to the prior plan year adjusted 

funding target attainment percentage 

(reduced by 10 percentage points if 

paragraph (h)(2)(iv) of this section 

applies to the plan) until it is changed 

under paragraph (h)(1)(iv) of this 

section. The rules of paragraph 

(h)(1)(ii)(B) of this section apply for 

purposes of determining whether the 

enrolled actuary has issued a 

certification of the adjusted funding 

target attainment percentage for the 

prior plan year during the current plan 

year. 

(iv) Duration of use of presumed 

adjusted funding target attainment 

percentage. If this paragraph (h)(1) 

applies to a plan for a plan year, the 

presumed adjusted funding target 

attainment percentage determined 

under this paragraph (h)(1) applies until 

the earliest of— 

(A) The first day of the 4th month of 

the plan year if paragraph (h)(2) of this 

section applies; 

(B) The first day of the 10th month of 

the plan year if paragraph (h)(3) of this 

section applies; 

(C) The date of a change in the 

presumed adjusted funding target 

attainment percentage under paragraph 

(g)(4) of this section; or 

(D) The date the enrolled actuary 

issues a certification under paragraph 

(h)(4) of this section of the adjusted 

funding target attainment percentage for 

the plan year. 

(2) Presumption of underfunding 

beginning on first day of 4th month for 

certain underfunded plans—(i) In 

general. This paragraph (h)(2) applies to 

a plan for a plan year if— 

(A) The enrolled actuary for the plan 

has not issued a certification of the 

adjusted funding target attainment 

percentage for the plan year before the 

first day of the 4th month of the plan 

year; and 

(B) The plan’s adjusted funding target 

attainment percentage for the preceding 

plan year was either— 

(1) At least 60 percent but less than 

70 percent; or 

(2) At least 80 percent but less than 

90 percent. 

(ii) Special rule for first plan year a 

plan is subject to section 436. This 

paragraph (h)(2) also applies to a plan 

for the first effective plan year if— 

(A) The enrolled actuary for the plan 

has not issued a certification of the 

adjusted funding target attainment 

percentage for the plan year before the 

first day of the 4th month of the plan 

year; and 

(B) The prior plan year adjusted 

funding target attainment percentage is 

at least 70 percent but less than 80 

percent. 

(iii) Presumed adjusted funding target 

attainment percentage. If this paragraph 

(h)(2) applies to a plan for a plan year 

and the date of the enrolled actuary’s 

certification of the adjusted funding 

target attainment percentage under 

paragraph (h)(4) of this section for the 

prior plan year (taking into account the 

special rules for late certifications under 

paragraph (h)(1)(ii)(B) of this section) 

occurred before the first day of the 4th 

month of the current plan year, then, 

commencing on the first day of the 4th 

month of the current plan year— 

(A) The presumed adjusted funding 

target attainment percentage of the plan 

for the plan year is reduced by 10 

percentage points; and 

(B) The first day of the 4th month of 

the plan year is a section 436 

measurement date. 

(iv) Certification for prior plan year. If 

this paragraph (h)(2) applies to a plan 

and the date of the enrolled actuary’s 

certification of the adjusted funding 


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target attainment percentage under 

paragraph (h)(4) of this section for the 

prior plan year (taking into account the 

rules for late certifications under 

paragraph (h)(1)(ii)(B) of this section) 

occurs on or after the first day of the 4th 

month of the current plan year, then, 

commencing on the date of that prior 

plan year certification— 

(A) The presumed adjusted funding 

target attainment percentage of the plan 

for the current plan year is equal to 10 

percentage points less than the prior 

plan year adjusted funding target 

attainment percentage; and 

(B) The date of the prior plan year 

certification is a section 436 

measurement date. 

(v) Duration of use of presumed 

adjusted funding target attainment 

percentage. If this paragraph (h)(2) 

applies to a plan for a plan year, the 

presumed adjusted funding target 

attainment percentage determined 

under this paragraph (h)(2) applies until 

the earliest of— 

(A) The first day of the 10th month of 

the plan year if paragraph (h)(3) of this 

section applies; 

(B) The date of a change in the 

presumed adjusted funding target 

attainment percentage under paragraph 

(g)(4) of this section; or 

(C) The date the enrolled actuary 

issues a certification under paragraph 

(h)(4) of this section of the adjusted 

funding target attainment percentage for 

the plan year. 

(3) Presumption of underfunding 

beginning on first day of 10th month. In 

any case in which no certification of the 

specific adjusted funding target 

attainment percentage for the current 

plan year under paragraph (h)(4) of this 

section is made with respect to the plan 

before the first day of the 10th month of 

the plan year, then, commencing on the 

first day of the 10th month of the 

current plan year— 

(i) The presumed adjusted funding 

target attainment percentage of the plan 

for the plan year is presumed to be less 

than 60 percent; and 

(ii) The first day of the 10th month of 

the plan year is a section 436 

measurement date. 

(4) Certification of AFTAP—(i) Rules 

generally applicable to certifications— 

(A) In general. The enrolled actuary’s 

certification referred to in this section 

must be made in writing, must be signed 

and dated to show the date of the 

signature, must be provided to the plan 

administrator, and, except as otherwise 

provided in paragraph (h)(4)(ii) of this 

section, must certify the plan’s adjusted 

funding target attainment percentage for 

the plan year. Except in the case of a 

range certification described in 

paragraph (h)(4)(ii) of this section, the 

certification must set forth the value of 

plan assets, the prefunding balance, the 

funding standard carryover balance, the 

value of the funding target used in the 

determination, the aggregate amount of 

annuity purchases included in the 

adjusted value of plan assets and the 

adjusted funding target, the 

unpredictable contingent event benefits 

permitted to be paid for unpredictable 

contingent events that occurred during 

the current plan year that were taken 

into account for the current plan year 

(including any associated section 436 

contributions), the plan amendments 

that took effect in the current plan year 

that were taken into account for the 

current plan year (including any 

associated section 436 contributions), 

any benefit accruals that were restored 

for the plan year (including any section 

436 contributions), and any other 

relevant factors. The actuarial 

assumptions and funding methods used 

in the calculation for the certification 

must be the actuarial assumptions and 

funding methods used for the plan for 

purposes of determining the minimum 

required contributions under section 

430 for the plan year. 

(B) Determination of plan assets. For 

purposes of making any determination 

of the adjusted funding target 

attainment percentage under this 

section, the determination is not 

permitted to include in plan assets 

contributions that have not been made 

to the plan by the certification date. 

Thus, the enrolled actuary’s certification 

of the adjusted funding target 

attainment percentage for a plan year 

cannot take into account contributions 

that are expected to be made after the 

certification date. Notwithstanding the 

foregoing, for plan years beginning 

before January 1, 2009, the enrolled 

actuary’s certification of the adjusted 

funding target attainment percentage is 

permitted to take into account employer 

contributions for the prior plan year that 

are reasonably expected to be made for 

that prior plan year but have not been 

contributed by the date of the enrolled 

actuary’s certification. See paragraphs 

(h)(4)(iii) and (v) of this section for rules 

relating to changes in the certified 

percentage. 

(ii) Special rules for certification 

within range—(A) In general. Under this 

paragraph (h)(4)(ii), the plan’s enrolled 

actuary is permitted to certify during a 

plan year that the plan’s adjusted 

funding target attainment percentage for 

that plan year either is less than 60 

percent, is 60 percent or higher (but is 

less than 80 percent), is 80 percent or 

higher, or is 100 percent or higher. If the 

enrolled actuary has issued such a range 

certification for a plan year and the 

enrolled actuary subsequently issues a 

certification of the specific adjusted 

funding target attainment percentage for 

the plan before the end of that plan year, 

then the certification of the specific 

adjusted funding target attainment 

percentage is treated as a change in the 

applicable percentage to which 

paragraph (h)(4)(iii) of this section 

applies. 

(B) Effect of range certification before 

certification of specific percentage. If a 

plan’s enrolled actuary issues a range 

certification pursuant to this paragraph 

(h)(4)(ii), then, for purposes of this 

section (including application of the 

limitations of sections 436(b) and (c), 

contributions described in sections 

436(b)(2), 436(c)(2), and 436(e)(2), and 

the mandatory reduction of the 

prefunding and funding standard 

carryover balances under paragraph 

(a)(5) of this section), the plan is treated 

as having a certified percentage at the 

smallest value within the applicable 

range until a certification of the plan’s 

specific adjusted funding target 

attainment percentage for the plan year 

has been issued under paragraph 

(h)(4)(i) of this section. However, if the 

plan’s enrolled actuary has issued a 

range certification for the plan year but 

does not issue a certification of the 

specific adjusted funding target 

attainment percentage for the plan by 

the last day of that plan year, the 

adjusted funding target attainment 

percentage for the plan is retroactively 

deemed to be less than 60 percent as of 

the first day of the 10th month of the 

plan year. 

(C) Effect of range certification on and 

after certification of specific percentage. 

Once the certification of the specific 

adjusted funding target attainment 

percentage is issued by the plan’s 

enrolled actuary, the certified 

percentage applies for all purposes of 

this section on and after the date of that 

certification. If the plan sponsor made 

section 436 contributions to avoid 

application of a benefit limitation 

during the period a range certification 

was in effect, those section 436 

contributions are recharacterized as 

employer contributions under section 

430 to the extent the contributions 

exceed the amount necessary to avoid 

application of a limitation based on the 

specific adjusted funding target 

attainment percentage as certified by the 

plan’s enrolled actuary on or before the 

last day of the plan year. 

(iii) Change of certified percentage— 

(A) Application of new percentage. If 

the enrolled actuary for the plan 

provides a certification of the adjusted 

funding target attainment percentage of 


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53078 Federal Register / Vol. 74, No. 198 / Thursday, October 15, 2009 / Rules and Regulations 

the plan for the plan year under this 

paragraph (h)(4) (including a range 

certification) and that certified 

percentage is superseded by a 

subsequent determination of the 

adjusted funding target attainment 

percentage for that plan year, then, 

except to the extent provided in 

paragraph (h)(4)(iv)(B) of this section, 

that later percentage must be applied for 

the portion of the plan year beginning 

on the date of the earlier certification. 

The subsequent determination could be 

the correction of a prior incorrect 

certification or it could be an update of 

a prior correct certification to take into 

account subsequent facts under the 

rules of paragraph (h)(4)(v) of this 

section. The implications of such a 

change depend on whether the change 

is a material change or an immaterial 

change. See paragraph (h)(4)(iv) of this 

section. 

(B) Material change. A change in a 

plan’s certified adjusted funding target 

attainment percentage constitutes a 

material change for a plan year if plan 

operations with respect to benefits that 

are addressed by section 436, taking into 

account any actual contributions and 

elections under section 430(f) made by 

the plan sponsor based on the prior 

certified percentage, would have been 

different based on the subsequent 

determination of the plan’s adjusted 

funding target attainment percentage for 

the plan year. A change in a plan’s 

adjusted funding target attainment 

percentage for a plan year can be a 

material change even if the only impact 

of the change occurs in the following 

plan year under the rules for 

determining the presumed adjusted 

funding target attainment percentage in 

that following year. 

(C) Immaterial change. In general, an 

immaterial change is any change in an 

adjusted funding target attainment 

percentage for a plan year that is not a 

material change. In addition, subject to 

the requirement to recertify the adjusted 

funding target attainment percentage in 

paragraph (h)(4)(v)(B) of this section, a 

change in adjusted funding target 

attainment percentage is deemed to be 

an immaterial change if it merely 

reflects a change in the funding target 

for the plan year or the value of the 

adjusted plan assets after the date of the 

enrolled actuary’s certification resulting 

from— 

(1) Additional contributions for the 

preceding year that are made by the 

plan sponsor; 

(2) The plan sponsor’s election to 

reduce the prefunding balance or 

funding standard carryover balance; 

(3) The plan sponsor’s election to 

apply the prefunding balance or funding 

standard carryover balance to offset the 

prior plan year’s minimum required 

contribution; 

(4) A change in funding method or 

actuarial assumptions, where such 

change required actual approval of the 

Commissioner (rather than deemed 

approval); 

(5) Unpredictable contingent event 

benefits which are permitted to be paid 

because the employer makes the section 

436 contribution described in paragraph 

(f)(2)(iii)(A) of this section; 

(6) Unpredictable contingent event 

benefits which are permitted to be paid 

because the plan’s enrolled actuary 

determines that the increase in the 

funding target attributable to the 

occurrence of the unpredictable 

contingent event would not cause the 

plan’s adjusted funding target 

attainment percentage to fall below 60 

percent; 

(7) A plan amendment which takes 

effect because the employer makes the 

section 436 contribution described in 

paragraph (f)(2)(iv)(A) of this section, 

the liability for which was not taken 

into account in the certification of the 

adjusted funding target attainment 

percentage; or 

(8) A plan amendment which takes 

effect because the plan’s enrolled 

actuary determines that the increase in 

the funding target attributable to the 

plan amendment would not cause the 

plan’s adjusted funding target 

attainment percentage to fall below 80 

percent, the liability for which was not 

taken into account in the certification of 

the adjusted funding target attainment 

percentage. 

(iv) Effect of change in percentage— 

(A) Material change. In the case of a 

material change, if the plan’s prior 

operations were in accordance with the 

prior certification of the adjusted 

funding target attainment percentage for 

the plan year (rather than the actual 

adjusted funding target attainment 

percentage for the plan year), then the 

plan will not have satisfied the 

requirements of section 401(a)(29) and 

section 436. Even if the plan’s prior 

operations were in accordance with the 

subsequent certification of the adjusted 

funding target attainment percentage, 

the plan will not have satisfied the 

qualification requirements of section 

401(a) because the plan will not have 

been operated in accordance with its 

terms during the period of time the prior 

certification applied. In addition, in the 

case of a material change, the rules 

requiring application of a presumed 

adjusted funding target attainment 

percentage under paragraphs (h)(1) 

through (h)(3) of this section continue to 

apply from and after the date of the 

prior certification until the date of the 

subsequent certification. 

(B) Immaterial change. An immaterial 

change in the adjusted funding target 

attainment percentage applies 

prospectively only and does not change 

the inapplicability of the presumptions 

under paragraphs (h)(1), (2), and (3) of 

this section prior to the date of the later 

certification. 

(v) Rules relating to updated 

certification—(A) In general. This 

paragraph (h)(4)(v) sets forth rules 

relating to updates of an actuary’s 

certification of the plan’s adjusted 

funding target attainment percentage for 

a plan year. Paragraphs (h)(4)(v)(B) and 

(D) of this section require that an 

updated adjusted funding target 

attainment percentage be certified in 

certain situations. Even if the updated 

adjusted funding target attainment 

percentage is not required to be 

certified, plan administrators may 

request that the actuary prepare an 

updated certification of the adjusted 

funding target attainment percentage, as 

described in paragraphs (h)(4)(v)(C) and 

(E) of this section. Any updated 

adjusted funding target attainment 

percentage determined under this 

paragraph (h)(4)(v) will apply beginning 

as of the date of the event that gave rise 

to the need for the update which is a 

section 436 measurement date. Thus, 

pursuant to this paragraph (h)(4)(v), the 

updated funding target attainment 

percentage applies thereafter for all 

purposes of section 436, including 

application with respect to 

unpredictable contingent events 

occurring on or after the measurement 

date (but not for unpredictable 

contingent events that occurred before 

such measurement date or for benefits 

with annuity starting dates before that 

measurement date). The updated 

adjusted funding target attainment 

percentage will continue to apply for 

the remainder of the plan year and will 

be used for the presumed adjusted 

funding target attainment percentage for 

the next plan year, unless there is a later 

updated certification of adjusted 

funding target attainment percentage for 

the plan year. 

(B) Requirement to recertify AFTAP if 

plan sponsor contributes to threshold. 

If, during the plan year, unpredictable 

contingent event benefits are permitted 

to be paid, a plan amendment takes 

effect, or benefits are permitted to 

accrue because the plan sponsor makes 

a contribution described in paragraph 

(f)(2)(iii)(B), (f)(2)(iv)(B), or (f)(2)(v) of 

this section, then, in accordance with 

paragraph (f)(2)(ii)(C) of this section, the 

plan’s enrolled actuary must issue an 

updated certification of the adjusted 


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funding target attainment percentage 

that takes into account such 

contribution as well as the liability for 

unpredictable contingent event benefits 

that are permitted to be paid, plan 

amendments that take effect during the 

plan year, and restored benefits. 

(C) Optional recertification of AFTAP 

after other unpredictable contingent 

event or plan amendment. Except as 

provided in paragraph (h)(4)(v)(D) of 

this section, if, during a plan year, 

unpredictable contingent event benefits 

are permitted to be paid, or a plan 

amendment takes effect, because either 

the plan sponsor makes a contribution 

described in paragraph (f)(2)(iii)(A) or 

(f)(2)(iv)(A) of this section, or the plan’s 

enrolled actuary determines that the 

increase in the funding target 

attributable to the occurrence of the 

unpredictable contingent event or the 

plan amendment would not cause the 

plan’s adjusted funding target 

attainment percentage to fall below the 

applicable 60 percent or 80 percent 

threshold (taking into account the 

occurrence of all previous unpredictable 

contingent event benefits and plan 

amendments to the extent not already 

reflected in the certified adjusted 

funding target attainment percentage for 

the plan year (or update)), then the plan 

administrator may request that the plan 

actuary issue an updated certification of 

the adjusted funding target attainment 

percentage that takes into account the 

unpredictable contingent event benefits 

or plan amendments and any associated 

section 436 contribution. 

(D) Requirement to recertify AFTAP 

after deemed immaterial change. If a 

change in the adjusted funding target 

attainment percentage as a result of one 

of the items listed in paragraph 

(h)(4)(iii)(C) of this section would be a 

material change, then the change is 

treated as an immaterial change only if 

the plan’s enrolled actuary recertifies 

the adjusted funding target attainment 

percentage for the plan year as soon as 

practicable after the event that gives rise 

to the change. 

(E) Optional recertification after other 

immaterial change. If a change in the 

adjusted funding target attainment 

percentage is immaterial, then the plan 

administrator may request that the plan 

actuary issue an updated certification of 

the adjusted funding target attainment 

percentage that takes into account the 

unpredictable contingent event benefits 

or plan amendments and any associated 

section 436 contribution. 

(5) Examples of rules of paragraphs 

(h)(1), (h)(2), and (h)(3) of this section. 

The following examples illustrate the 

rules of paragraphs (h)(1), (h)(2), and 

(h)(3) of this section. Unless otherwise 

indicated, the examples in this section 

are based on the information in this 

paragraph (h)(5). Each plan is a noncollectively bargained defined benefit 

plan with a plan year that is the 

calendar year and a valuation date of 

January 1. The plan year is subject to 

section 436 in 2008. The plan does not 

have a funding standard carryover 

balance or a prefunding balance as of 

any of the dates mentioned, and the 

plan sponsor does not elect to utilize 

any of the methods in paragraph (f) of 

this section to avoid applicable benefit 

restrictions. No range certification under 

paragraph (h)(4) of this section has been 

issued. The plan sponsor is not in 

bankruptcy. The examples read as 

follows: 

Example 1. (i) On July 15, 2010, the 

adjusted funding target attainment 

percentage (‘‘AFTAP’’) for Plan T for 2010 is 

certified to be 65%. Based on this AFTAP, 

Plan T is subject to the restriction on 

prohibited payments in paragraph (d)(3) of 

this section for the remainder of 2010. 

(ii) Beginning January 1, 2011, Plan T’s 

AFTAP for 2011 is presumed to be equal to 

the AFTAP for 2010, or 65%, under the 

provisions of paragraph (h)(1)(ii) of this 

section. Accordingly, the restriction on 

prohibited payments in paragraph (d)(3) of 

this section continues to apply. 

(iii) On March 1, 2011, the enrolled actuary 

for the plan certifies that the actual AFTAP 

for 2011 is 80%. Therefore, beginning March 

1, 2011, Plan T is no longer subject to the 

restriction under paragraph (d)(3) of this 

section, and so Plan T resumes paying the 

full amount of any prohibited payments 

elected by participants with an annuity 

starting date of March 1, 2011, or later. 

Example 2. (i) The facts are the same as in 

Example 1, except that the enrolled actuary 

for the plan does not certify the AFTAP for 

2011 until June 1, 2011, when it is certified 

to be 66%. 

(ii) Beginning January 1, 2011, Plan T’s 

AFTAP for 2011 is presumed to be equal to 

the AFTAP for 2010, or 65%, under the 

provisions of paragraph (h)(1)(ii) of this 

section. Accordingly, the restriction on 

prohibited payments in paragraph (d)(3) of 

this section continues to apply. 

(iii) Pursuant to paragraph (h)(2)(iv) of this 

section, beginning April 1, 2011, the AFTAP 

for 2011 is presumed to be 55% (10 

percentage points less than the AFTAP for 

2010). Plan T is subject to the restriction on 

prohibited payments under paragraph (d)(1) 

of this section for annuity starting dates on 

or after April 1, 2011. In addition, Plan T is 

subject to the restriction on unpredictable 

contingent event benefits under paragraph (b) 

of this section for unpredictable contingent 

events occurring on or after April 1, 2011 and 

benefits are required to be frozen on and after 

April 1, 2011 under paragraph (e) of this 

section. 

(iv) Once the enrolled actuary for the plan 

certifies that the AFTAP for 2011 for Plan T 

is 66%, Plan T is no longer subject to the 

restriction under paragraph (d)(1) of this 

section, but it is subject to the restriction 

under paragraph (d)(3) of this section. Plan 

T must resume paying prohibited payments, 

as restricted under paragraph (d)(3) of this 

section, for participants who elect benefits in 

accelerated forms of payment and who have 

an annuity starting date of June 1, 2011, or 

later. In addition, Plan T must provide 

benefits for any unpredictable contingent 

event occurring on or after January 1, 2011, 

to the extent permitted under paragraph (b) 

of this section. Similarly, Plan T is no longer 

subject to the restriction on benefit accruals 

under paragraph (e) of this section, and 

benefit accruals resume under Plan T 

beginning June 1, 2011, unless Plan T 

provides otherwise. 

Example 3. (i) The facts are the same as 

in Example 1, except that the enrolled 

actuary for the plan does not certify the 2011 

AFTAP until November 15, 2011. Beginning 

October 1, 2011, Plan T is conclusively 

presumed to have an AFTAP of less than 

60%, in accordance with the provisions of 

paragraph (h)(3) of this section. Accordingly, 

Plan T is subject to the restrictions in 

paragraphs (b), (d)(1), and (e) of this section 

commencing on October 1, 2011. 

(ii) On November 15, 2011, the enrolled 

actuary for the plan certifies that the AFTAP 

for 2011 is 72%. However, because the 

certification occurred after September 30, 

2011, the certification does not constitute a 

new section 436 measurement date, and Plan 

T continues to be subject to the restrictions 

on unpredictable contingent event benefits, 

prohibited payments, and benefit accruals 

under paragraphs (b), (d)(1), and (e) of this 

section. 

(iii) Beginning January 1, 2012, the 2012 

AFTAP for Plan T is presumed to be equal 

to the 2011 AFTAP of 72%. Because the 

presumed 2012 AFTAP is between 70% and 

80% and, therefore, paragraph (h)(2) of this 

section (which provides for a 10 percentage 

point reduction in a plan’s AFTAP in certain 

cases) will not apply, the presumed AFTAP 

will remain at 72% until the plan’s enrolled 

actuary certifies the AFTAP for 2012 or until 

paragraph (h)(3) of this section applies on the 

first day of the 10th month of the plan year. 

Because the presumed AFTAP is 72%, Plan 

T is no longer subject to the restrictions on 

prohibited payments under paragraph (d)(1) 

of this section, and Plan T must provide 

benefits for any unpredictable contingent 

event occurring on or after January 1, 2012, 

to the extent permitted under paragraph (b) 

of this section and must resume paying 

prohibited payments, as restricted under 

paragraph (d)(3) of this section, that are 

elected by participants with annuity starting 

dates on or after January 1, 2012. Similarly, 

Plan T is no longer subject to the restriction 

on benefit accruals under paragraph (e) of 

this section, and benefit accruals resume 

under Plan T beginning January 1, 2012, 

unless Plan T provides otherwise. 

Example 4. (i) The facts are the same as 

in Example 3, except that the enrolled 

actuary for the plan does not issue a 

certification of the AFTAP for 2011 for Plan 

T until February 1, 2012. 

(ii) Beginning on January 1, 2012, the 

presumptions in paragraph (h)(1)(iii) of this 

section apply for the 2012 plan year. Because 

the enrolled actuary for the plan has not 


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53080 Federal Register / Vol. 74, No. 198 / Thursday, October 15, 2009 / Rules and Regulations 

certified the AFTAP for 2011, the presumed 

AFTAP as of October 1, 2011, continues to 

apply for the period beginning January 1, 

2012. Therefore, the AFTAP as of January 1, 

2012, is presumed to be less than 60%, and 

Plan T continues to be subject to the 

restrictions on unpredictable contingent 

event benefits under paragraph (b) of this 

section, prohibited payments under 

paragraph (d)(1) of this section, and benefit 

accruals under paragraph (e) of this section. 

(iii) On February 1, 2012, the enrolled 

actuary for the plan certifies that the AFTAP 

for 2011 for Plan T is 65%. Because the 

enrolled actuary for the plan has not issued 

a certification of the AFTAP for 2012, the 

provisions of paragraph (h)(1)(iii)(B) of this 

section apply. Accordingly, the certification 

date for the 2011 AFTAP (February 1, 2012) 

is a section 436 measurement date and 65% 

is the presumed AFTAP for 2012 beginning 

on that date. 

(iv) Because the presumed AFTAP is over 

60% but less than 80%, the full restriction 

on prohibited payments under paragraph 

(d)(1) of this section no longer applies; 

however, the partial restriction on prohibited 

payments under paragraph (d)(3) of this 

section applies beginning on February 1, 

2012. Therefore, Plan T must pay a portion 

of the prohibited payments elected by 

participants with annuity starting dates on or 

after February 1, 2012. Furthermore, based on 

the presumed AFTAP of 65%, the restriction 

on unpredictable contingent event benefits 

under paragraph (b) of this section ceases to 

apply for events occurring on or after 

February 1, 2012, to the extent permitted 

under paragraph (b) of this section and the 

restriction on benefit accruals under 

paragraph (e) of this section no longer applies 

so that, unless Plan T provides otherwise, 

benefit accruals will resume as of 

February 1, 2012. 

Example 5. (i) The facts are the same as in 

Example 3, except that the enrolled actuary 

for the plan does not issue a certification of 

the actual AFTAP for Plan T as of January 1, 

2011, until May 1, 2012. 

(ii) Beginning on January 1, 2012, the 

presumptions in paragraph (h)(1)(iii) of this 

section apply for the 2012 plan year. Because 

the enrolled actuary for the plan has not 

certified the actual AFTAP as of January 1, 

2011, the presumed AFTAP as of October 1, 

2011, continues to apply for the period 

beginning January 1, 2012. Therefore, the 

AFTAP as of January 1, 2012, is presumed to 

be less than 60%, and Plan T continues to 

be subject to the restrictions on unpredictable 

contingent event benefits under paragraph (b) 

of this section, on prohibited payments under 

paragraph (d)(1) of this section, and on 

benefit accruals under paragraph (e) of this 

section. 

(iii) Since the enrolled actuary for the plan 

has not issued a certification of the actual 

AFTAP as of January 1, 2011, the rules of 

paragraph (h)(1)(iii) of this section apply 

beginning April 1, 2012, and the AFTAP is 

presumed to remain less than 60%. Plan T 

continues to be subject to the restrictions on 

unpredictable contingent event benefits 

under paragraph (b) of this section, on 

prohibited payments under paragraph (d)(1) 

of this section, and on benefit accruals under 

paragraph (e) of this section. 

(iv) On May 1, 2012, the enrolled actuary 

for the plan certifies that the actual AFTAP 

for 2011 for Plan T is 65%. Because the 

enrolled actuary for the plan has not issued 

a certification of the actual AFTAP as of 

January 1, 2012, the provisions of paragraph 

(h)(2)(iv) of this section apply. Accordingly, 

on May 1, 2012, the 2012 AFTAP is 

presumed to be 10 percentage points less 

than the 2011 AFTAP, or 55%, so that the 

restrictions under paragraphs (b), (d), and (e) 

of this section continue to apply. 

Example 6. (i) The enrolled actuary for 

Plan V certifies the plan’s AFTAP for 2010 

to be 69%. Based on this AFTAP, Plan V is 

subject to the restriction in paragraph (d)(3) 

of this section, and can only pay a portion 

(generally 50%) of the prohibited payments 

otherwise due to plan participants who 

commence benefits while the restriction is in 

effect. The enrolled actuary for the plan does 

not issue a certification of the AFTAP for 

2011 until June 1, 2011. 

(ii) Beginning January 1, 2011, Plan V’s 

2011 AFTAP is presumed to be equal to the 

2010 AFTAP, or 69%, under the provisions 

of paragraph (h)(1)(ii) of this section. 

Accordingly, the restriction on prohibited 

payments in paragraph (d)(3) of this section 

continues to apply from January 1, 2011, 

through March 31, 2011, and Plan T may 

only pay a portion of the prohibited 

payments otherwise due to participants who 

commence benefit payments during this 

period. 

(iii) Beginning April 1, 2011, the 

provisions of paragraph (h)(2)(ii) of this 

section apply. Under those provisions, the 

AFTAP beginning April 1, 2011, is presumed 

to be 10 percentage points lower than the 

presumed 2011 AFTAP, or 59%. Because 

Plan V’s presumed AFTAP for 2011 is less 

than 60%, the restrictions on unpredictable 

contingent event benefits under paragraph (b) 

of this section, on the payment of accelerated 

benefit distributions under paragraph (d)(1) 

of this section, and on benefit accruals under 

paragraph (e) of this section apply. 

Accordingly, Plan V cannot pay any 

unpredictable contingent event benefits for 

events occurring on or after April 1, 2011, or 

prohibited payments to participants with an 

annuity starting date on or after April 1, 

2011, and benefit accruals cease as of 

April 1, 2011. 

(iv) On June 1, 2011, Plan V’s enrolled 

actuary certifies that the plan’s AFTAP for 

2011 is 71%. Therefore, the restrictions on 

unpredictable contingent event benefits, 

prohibited payments, and benefit accruals in 

paragraphs (b), (d)(1), and (e) of this section 

no longer apply, but the partial restriction on 

benefit payments in paragraph (d)(3) of this 

section does apply. Accordingly, Plan V 

begins paying unpredictable contingent event 

benefits for events occurring on or after 

January 1, 2011, to the extent permitted 

under paragraph (b) of this section and a 

portion of the prohibited payments elected 

by participants with an annuity starting date 

on or after June 1, 2011. Benefit accruals 

previously restricted under paragraph (e) of 

this section resume effective June 1, 2011, 

unless Plan V provides otherwise. 

(v) Participants who were not able to elect 

an accelerated form of payment during the 

period from April 1, 2011, through May 31, 

2011, would be able to elect a new annuity 

starting date with a partial distribution of 

accelerated benefits effective June 1, 2011, if 

Plan V contained a preexisting provision 

permitting such an election after the 

restriction in paragraph (d)(1) of this section 

no longer applies. This is permitted because, 

under paragraph (a)(4)(ii)(B) of this section, 

a preexisting provision of this type is not 

considered a plan amendment and is 

therefore not subject to the plan amendment 

restriction in paragraph (c) of this section 

even though Plan V’s AFTAP for 2011 is less 

than 80%. 

(vi) Benefit accruals for the period 

beginning April 1, 2011, through May 31, 

2011, would be automatically restored if Plan 

V contained a preexisting provision to 

retroactively restore benefit accruals 

restricted under paragraph (e) of this section 

after the restriction no longer applies. This is 

permitted because under paragraph 

(a)(4)(ii)(B) of this section, a preexisting 

provision of this type is not considered to be 

a plan amendment and is therefore not 

subject to the plan amendment restriction in 

paragraph (c) of this section even though 

Plan V’s AFTAP for 2011 is less than 80%, 

because the period of the restriction did not 

exceed 12 months. 

(6) Examples of rules of paragraph 

(h)(4) of this section. The following 

examples illustrate the rules of 

paragraph (h)(4) of this section: 

Example 1. (i) Plan Y is a non-collectively 

bargained defined benefit plan with a plan 

year that is the calendar year and a valuation 

date of January 1. Plan Y does not have a 

funding standard carryover balance or a 

prefunding balance. Plan Y’s sponsor is not 

in bankruptcy. In June of 2010, the actual 

AFTAP for 2010 for Plan Y is certified as 

65%. On the last day of the 2010 plan year, 

Plan Y is subject to the restrictions in 

paragraph (d)(3) of this section. 

(ii) The enrolled actuary for the plan issues 

a range certification on March 21, 2011, 

certifying that the AFTAP for 2011 is at least 

60% and less than 80%. Because the 

certification was issued before the first day 

of the 4th month of the plan year, the 10 

percentage point reduction in the presumed 

AFTAP under paragraph (h)(2) of this section 

does not apply. In addition, because the 

enrolled actuary for the plan has certified 

that the AFTAP is within this range, Plan Y 

is not subject to the full restriction on 

accelerated benefit payments in paragraph 

(d)(1) of this section or the restriction on 

benefit accruals under paragraph (e) of this 

section. 

(iii) On August 1, 2011, the enrolled 

actuary for the plan certifies that the actual 

AFTAP as of January 1, 2011, is 75.86%. This 

AFTAP falls within the previously certified 

range. Thus, the change is immaterial under 

paragraph (h)(4)(iii) of this section and the 

new certification does not change the 

applicability or inapplicability of the 

restrictions in this section. 

Example 2. (i) The facts are the same as in 

Example 1, except that the plan sponsor 

makes an additional contribution for the 

2010 plan year on September 1, 2011, that is 


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not added to the prefunding balance. 

Reflecting this contribution, the enrolled 

actuary for the plan issues a revised 

certification stating that the AFTAP for 2011 

is 81%, and Plan Y is no longer subject to 

the restriction on accelerated benefit 

payments under paragraph (d)(3) of this 

section on that date. 

(ii) Although the revised certification 

changes the applicability of the restriction 

under paragraph (d)(3) of this section, the 

change is not a material change under 

paragraph (h)(4)(iii)(C)(1) of this section 

because the AFTAP changed only because of 

additional contributions for the preceding 

year made by the plan sponsor after the date 

of the enrolled actuary’s initial certification. 

(i) [Reserved] 

(j) Definitions. For purposes of this 

section— 

(1) Adjusted funding target 

attainment percentage—(i) In general. 

Except as otherwise provided in this 

paragraph (j)(1), the adjusted funding 

target attainment percentage for a plan 

year is the fraction (expressed as a 

percentage)— 

(A) The numerator of which is the 

adjusted plan assets for the plan year 

described in paragraph (j)(1)(ii) of this 

section; and 

(B) The denominator of which is the 

adjusted funding target for the plan year 

described in paragraph (j)(1)(iii) of this 

section. 

(ii) Adjusted plan assets—(A) General 

rule. The adjusted plan assets for a plan 

year is generally determined by— 

(1) Subtracting the plan’s funding 

standard carryover balance and 

prefunding balance as of the valuation 

date from the value of plan assets for the 

plan year under section 430(g) (but 

treating the resulting value as zero if it 

is below zero); and 

(2) Increasing the resulting value by 

the aggregate amount of purchases of 

annuities for participants and 

beneficiaries (other than participants 

who, at the time of the purchase, were 

highly compensated employees as 

defined in section 414(q), which 

definition includes highly compensated 

former employees under § 1.414(q)–1T, 

Q&A–4) which were made by the plan 

during the preceding 2 plan years, to the 

extent not included in plan assets for 

purposes of section 430. 

(B) Special rule for plans that are fully 

funded without regard to subtraction of 

funding balances from plan assets. If for 

a plan year the value of plan assets 

determined without subtracting the 

funding standard carryover balance and 

the prefunding balance is not less than 

100 percent of the plan’s funding target 

determined under section 430 without 

regard to section 430(i), then the 

adjusted value of plan assets used in the 

calculation of the adjusted funding 

target attainment percentage for the plan 

year is determined without subtracting 

the plan’s funding standard carryover 

balance and prefunding balance from 

the value of plan assets for the plan 

year. 

(C) Special rule for plans with section 

436 contributions. If an employer makes 

a contribution described in paragraph 

(f)(2) of this section after the valuation 

date in order to avoid or terminate 

limitations under section 436, then the 

present value of that contribution 

(determined using the effective interest 

rate under section 430(h)(2)(A) for the 

plan year) is permitted to be added to 

the plan assets as of the valuation date 

for purposes of determining or 

redetermining the adjusted funding 

target attainment percentage for a plan 

year, but only if the liability for the 

benefits, amendment, or accruals that 

would have been limited (but for the 

contribution) is included in determining 

the adjusted funding target for the plan 

year. 

(D) Transition rule. Paragraph 

(j)(1)(ii)(B) of this section is applied to 

plan years beginning after 2007 and 

before 2011 by substituting for ‘‘100 

percent’’ the applicable percentage 

determined in accordance with the 

following table: 

In the case of a plan year 

beginning in calendar 

year: 

The applicable 

percentage is: 

2008 ................................ 92 

2009 ................................ 94 

2010 ................................ 96 

(E) Limitation on transition rule. 

Paragraph (j)(1)(ii)(D) of this section 

does not apply with respect to the 

current plan year unless, for each plan 

year beginning after December 31, 2007, 

and before the current plan year, the 

value of plan assets determined without 

subtracting the funding standard 

carryover balance and the prefunding 

balance is not less than the product of— 

(1) The applicable percentage 

determined under paragraph (j)(1)(ii)(D) 

of this section for that plan year; and 

(2) The funding target (determined 

without regard to the at-risk rules of 

section 430(i)) for that plan year. 

(iii) Adjusted funding target—(A) In 

general. Except as otherwise provided 

in this paragraph (j)(1)(iii), the adjusted 

funding target equals the funding target 

for the plan year, determined in 

accordance with the rules set forth in 

§ 1.430(d)–1, but without regard to the 

at-risk rules under section 430(i), 

increased by the aggregate amount of 

purchases of annuities that were added 

to assets for purposes of determining the 

plan’s adjusted plan assets under 

paragraph (j)(1)(ii)(A)(2) of this section. 

The definition of adjusted funding target 

for a plan maintained by a commercial 

airline for which the plan sponsor has 

made the election described in section 

402(a)(1) of Pension Protection Act of 

2006 (PPA ’06), Public Law 109–280 

(120 Stat. 780), is the same as if it did 

not make such an election. 

(B) Adjusted funding target after 

updated certification. After the plan’s 

enrolled actuary prepares an updated 

certification of the adjusted funding 

target attainment percentage under 

paragraph (h)(4)(v) of this section, the 

adjusted funding target will also be 

updated to reflect unpredictable 

contingent event benefits and plan 

amendments not already taken into 

account. 

(iv) Plans with zero adjusted funding 

target. If the adjusted funding target for 

the plan year is zero, then the adjusted 

funding target attainment percentage for 

the plan year is 100 percent. 

(v) Plans with end of year valuation 

dates. [Reserved] 

(vi) Special rule for plans that are the 

result of a merger. [Reserved] 

(vii) Special rule for plans that are 

involved in a spinoff. [Reserved] 

(2) Annuity starting date—(i) General 

rule. The term annuity starting date 

means, as applicable— 

(A) The first day of the first period for 

which an amount is payable as an 

annuity as described in section 

417(f)(2)(A)(i); 

(B) In the case of a benefit not payable 

in the form of an annuity, the annuity 

starting date is the annuity starting date 

for the qualified joint and survivor 

annuity that is payable under the plan 

at the same time as the benefit that is 

not payable as an annuity; 

(C) In the case of an amount payable 

under a retroactive annuity starting 

date, the benefit commencement date 

(instead of the date determined under 

paragraphs (j)(2)(i)(A) and (B) of this 

section); 

(D) The date of the purchase of an 

irrevocable commitment from an insurer 

to pay benefits under the plan; and 

(E) The date of any transfer to another 

plan described in paragraph (j)(6)(i)(C) 

of this section. 

(ii) Special rule for beneficiaries. If a 

participant commences benefits at an 

annuity starting date (as defined in 

paragraph (j)(2)(i) of this section) and, 

after the death of the participant, 

payments continue to a beneficiary, the 

annuity starting date for the payments to 

the participant constitutes the annuity 

starting date for payments to the 

beneficiary, except that a new annuity 

starting date occurs (determined by 

applying paragraph (j)(2)(i)(A), (B), and 


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53082 Federal Register / Vol. 74, No. 198 / Thursday, October 15, 2009 / Rules and Regulations 

(C) of this section to the payments to the 

beneficiary) if the amounts payable to 

all beneficiaries of the participant in the 

aggregate at any future date can exceed 

the monthly amount that would have 

been paid to the participant had he or 

she not died. 

(3) First effective plan year. The first 

effective plan year for a plan is the first 

plan year to which section 436 applies 

to the plan under paragraph (k)(1) or 

(k)(2) of this section. 

(4) Funding target. In general, the 

funding target means the funding target 

under § 1.430(d)–1, without regard to 

the at-risk rules under section 430(i) and 

§ 1.430(i)–1. However, solely for 

purposes of sections 436(b)(2)(A) and 

(c)(2)(A), the funding target means the 

funding target under § 1.430(i)–1 if the 

plan is in at-risk status for the plan year. 

(5) Prior plan year adjusted funding 

target attainment percentage—(i) In 

general. Except as otherwise provided 

in this paragraph (j)(5), the prior plan 

year adjusted funding target attainment 

percentage is the adjusted funding target 

attainment percentage determined 

under paragraph (j)(1) of this section for 

the immediately preceding plan year. 

(ii) Special rules—(A) Special rule for 

new plans. In the case of a plan 

established during the plan year that 

was not the result of a merger or spinoff, 

the adjusted funding target attainment 

percentage is equal to 100 percent for 

plan years before the plan was 

established. Except as otherwise 

provided in paragraph (j)(5)(ii)(B) of this 

section, a plan that has a predecessor 

plan in accordance with § 1.415(f)–1(c) 

is not a plan established during the plan 

year under this paragraph (j)(5)(ii)(A). 

Instead, if the plan has a predecessor 

plan, the adjusted funding target 

attainment percentage for the prior plan 

year is the adjusted funding target 

attainment percentage for the prior plan 

year for the predecessor plan (and that 

predecessor plan’s adjusted funding 

target attainment percentage is treated 

as equal to 100 percent on any date on 

which it is terminated, other than in a 

distress termination). 

(B) Special rules for plans that are the 

result of a merger. [Reserved] 

(C) Special rules for plans that are 

involved in a spinoff. [Reserved] 

(iii) Special rules for 2007 plan year— 

(A) General determination of 2007 

adjusted funding target attainment 

percentage. In the case of the first plan 

year beginning in 2008, except as 

otherwise provided in this paragraph 

(j)(5), the adjusted funding target 

attainment percentage for the 

immediately preceding plan year (the 

2007 plan year) is determined as the 

fraction (expressed as a percentage)— 

(1) The numerator of which is the 

value of plan assets determined under 

paragraph (j)(5)(iii)(B) of this section 

increased by the aggregate amount of 

purchases of annuities for participants 

and beneficiaries (other than 

participants who, at the time of the 

purchase, were highly compensated 

employees as defined in section 414(q), 

which definition includes highly 

compensated former employees under 

§ 1.414(q)–1T, Q&A–4 which were made 

by the plan during the preceding 2 plan 

years, to the extent not included in plan 

assets under section 412(c)(2) (as in 

effect prior to amendment by PPA ’06); 

and 

(2) The denominator of which is the 

plan’s current liability determined 

pursuant to section 412(l)(7) (as in effect 

prior to amendment by PPA ’06) on the 

valuation date for the 2007 plan year 

increased by the aggregate amount of 

purchases of annuities that were added 

to the plan assets under the rules of 

paragraph (j)(5)(iii)(A)(1) of this section. 

(B) General determination of value of 

plan assets—(1) In general. The value of 

plan assets for purposes of this 

paragraph (j)(5)(iii) is determined under 

section 412(c)(2) as in effect for the 2007 

plan year, except that the value of plan 

assets prior to subtracting the plan’s 

funding standard account credit balance 

described in paragraph (j)(5)(iii)(B)(2) of 

this section must be adjusted so that the 

value of plan assets is neither less than 

90 percent of the fair market value of 

plan assets nor greater than 110 percent 

of the fair market value of plan assets on 

the valuation date for that plan year. 

(2) Subtraction of credit balance. If a 

plan has a funding standard account 

credit balance as of the valuation date 

for the 2007 plan year, that balance is 

subtracted from the value of plan assets 

described in paragraph (j)(5)(iii)(B)(1) of 

this section as of that valuation date. 

However, the subtraction does not apply 

if the value of plan assets prior to 

adjustment under paragraph 

(j)(5)(iii)(B)(1) of this section is greater 

than or equal to 90 percent of the plan’s 

current liability as of the valuation date 

for the 2007 plan year. 

(3) Effect of funding standard 

carryover balance reduction for 2007 

plan year. Notwithstanding paragraph 

(j)(5)(iii)(B)(2) of this section, if, for the 

first plan year beginning in 2008, the 

employer has made an election to 

reduce some or all of the funding 

standard carryover balance as of the first 

day of that year in accordance with 

§ 1.430(f)–1(e), then the present value 

(determined as of the valuation date for 

the 2007 plan year using the valuation 

interest rate for that plan year) of the 

amount so reduced is not treated as part 

of the funding standard account credit 

balance when that balance is subtracted 

from the asset value under paragraph 

(j)(5)(iii)(B)(2) of this section. 

(C) Plan with end-of-year valuation 

date. With respect to the first plan year 

beginning in 2008, if the plan had a 

valuation date under section 412 that 

was the last day of the plan year for 

each of the plan years beginning in 2006 

and 2007, the adjusted funding target 

attainment percentage for the 2007 plan 

year may be determined as the fraction 

(expressed as a percentage)— 

(1) The numerator of which is the 

value of plan assets determined under 

paragraph (j)(5)(iii)(D) of this section 

increased by the aggregate amount of 

purchases of annuities for participants 

and beneficiaries (other than 

participants who, at the time of the 

purchase, were highly compensated 

employees as defined in section 414(q), 

which definition includes highly 

compensated former employees under 

§ 1.414(q)–1T, Q&A–4 which were made 

by the plan during the preceding 2 plan 

years, to the extent not included in plan 

assets under section 412(c)(2) (as in 

effect prior to amendment by PPA ’06); 

and 

(2) The denominator of which is the 

plan’s current liability determined 

pursuant to section 412(l)(7) (as in effect 

prior to amendment by PPA ’06) on the 

valuation date for the second plan year 

that begins before 2008 (the 2006 plan 

year), including the increase in current 

liability for the 2006 plan year, 

increased by the aggregate amount of 

purchases of annuities that were added 

to the plan assets under the rules of 

paragraph (j)(5)(iii)(C)(1) of this section. 

(D) Special asset determinations for 

2006 adjusted funding target attainment 

percentage—(1) General rule. If the 

adjusted funding target attainment 

percentage for the 2007 plan year is 

determined under the rules of paragraph 

(j)(5)(iii)(C) of this section, then the 

value of plan assets is determined as the 

value of plan assets under section 

412(c)(2) as in effect for the 2006 plan 

year, adjusted as provided in this 

paragraph (j)(5)(iii)(D). 

(2) Inclusion of contributions for 

2006. Contributions made for the 2006 

plan year are taken into account in 

determining the value of plan assets, 

regardless of whether those 

contributions are made during the plan 

year or after the end of the plan year and 

within the period specified under 

section 412(c)(10) (as in effect prior to 

amendment by PPA ’06). 

(3) Restriction to 90–110 percent 

corridor. The value of plan assets taking 

into account the amount of 

contributions made for the 2006 plan 


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Federal Register / Vol. 74, No. 198 / Thursday, October 15, 2009 / Rules and Regulations 53083 

year is increased or decreased, as 

necessary, so that it is neither less than 

90 percent of the fair market value of 

plan assets nor greater than 110 percent 

of the fair market value of plan assets on 

the valuation date for the 2006 plan year 

(taking into account assets attributable 

to contributions for the 2006 plan year). 

(4) Subtraction of credit balance. The 

plan’s funding standard account credit 

balance as of the end of the 2006 plan 

year is generally subtracted from the 

value of plan assets determined after 

application of paragraph (j)(5)(iii)(D)(3) 

of this section. However, this 

subtraction does not apply if the value 

of plan assets is greater than or equal to 

90 percent of the plan’s current liability 

determined under section 412(l)(7) (as 

in effect prior to amendment by PPA 

’06) on the valuation date for the 2006 

plan year. 

(E) Special rules for mergers and 

spinoffs. Rules similar to the rules of 

paragraph (j)(5)(ii) of this section apply 

for purposes of determining the adjusted 

funding target attainment percentage for 

the 2007 plan year in the case of a 

newly established plan, a plan that is 

the result of a merger of two plans, or 

a plan that is in involved in a spinoff. 

(6) Prohibited payment—(i) General 

rule. The term prohibited payment 

means— 

(A) Any payment for a month that is 

in excess of the monthly amount paid 

under a straight life annuity (plus any 

social security supplements described 

in the last sentence of section 411(a)(9)) 

to a participant or beneficiary whose 

annuity starting date occurs during any 

period that a limitation under paragraph 

(d) of this section is in effect; 

(B) Any payment for the purchase of 

an irrevocable commitment from an 

insurer to pay benefits; 

(C) Any transfer of assets and 

liabilities to another plan maintained by 

the same employer (or by any member 

of the employer’s controlled group) that 

is made in order to avoid or terminate 

the application of section 436 benefit 

limitations; and 

(D) Any other amount that is 

identified as a prohibited payment by 

the Commissioner in revenue rulings 

and procedures, notices, and other 

guidance published in the Internal 

Revenue Bulletin (see § 601.601(d)(2) 

relating to objectives and standards for 

publishing regulations, revenue rulings 

and revenue procedures in the Internal 

Revenue Bulletin). 

(ii) Special rule for beneficiaries. In 

the case of a beneficiary that is not an 

individual, the amount that is a 

prohibited payment is determined by 

substituting for the amount in paragraph 

(j)(1)(i)(A) of this section the monthly 

amount payable in installments over 

240 months that is actuarially 

equivalent to the benefit payable to the 

beneficiary. 

(7) Section 436 contributions. Section 

436 contributions are the contributions 

described in paragraph (f)(2) of this 

section that are made in order to avoid 

the application of section 436 

limitations under a plan for a plan year. 

(8) Section 436 measurement date. A 

section 436 measurement date is the 

date that is used to determine when the 

limitations of sections 436(d) and 436(e) 

apply or cease to apply, and is also used 

for calculations with respect to applying 

the limitations of paragraphs (b) and (c) 

of this section. See paragraphs (h)(1)(i), 

(h)(2)(iii)(B), (h)(2)(iv)(B), and (h)(3)(i) of 

this section regarding section 436 

measurement dates that result from 

application of the presumptions under 

paragraph (h) of this section. 

(9) Unpredictable contingent event. 

An unpredictable contingent event 

benefit means any benefit or increase in 

benefits to the extent the benefit or 

increase would not be payable but for 

the occurrence of an unpredictable 

contingent event. For this purpose, an 

unpredictable contingent event means a 

plant shutdown (whether full or partial) 

or similar event, or an event (including 

the absence of an event) other than the 

attainment of any age, performance of 

any service, receipt or derivation of any 

compensation, or the occurrence of 

death or disability. For example, if a 

plan provides for an unreduced early 

retirement benefit upon the occurrence 

of an event other than the attainment of 

any age, performance of any service, 

receipt or derivation of any 

compensation, or the occurrence of 

death or disability, then that unreduced 

early retirement benefit is an 

unpredictable contingent event benefit 

to the extent of any portion of the 

benefit that would not be payable but 

for the occurrence of the event, even if 

the remainder of the benefit is payable 

without regard to the occurrence of the 

event. Similarly, if a plan includes a 

benefit payable upon the presence 

(including the absence) of 

circumstances specified in the plan 

(other than the attainment of any age, 

performance of any service, receipt or 

derivation of any compensation, or the 

occurrence of death or disability), but 

not upon a severance from employment 

that does not include those 

circumstances, that benefit is an 

unpredictable contingent event benefit. 

(10) Examples. The following 

examples illustrate the rules of this 

paragraph (j): 

Example 1. (i) Plan S is a non-collectively 

bargained defined benefit plan with a plan 

year that is the calendar year and a valuation 

date of January 1. The first effective plan year 

is 2008. Plan S is not in at-risk status for 

2008. 

(ii) As of January 1, 2008, Plan S has a 

value of plan assets (equal to the market 

value of assets) of $2,100,000 and a funding 

standard carryover balance of $200,000. 

During 2006, assets from Plan S were used 

to purchase a total of $100,000 in annuities 

for employees other than highly compensated 

employees. No annuities were purchased 

during 2007. On May 1, 2008, the enrolled 

actuary for the plan determines that the 

funding target as of January 1, 2008, is 

$2,500,000. 

(iii) The adjusted value of assets for Plan 

S as of January 1, 2008, is $2,000,000 (that 

is, plan assets of $2,100,000, plus annuity 

purchases of $100,000, and minus the 

funding standard carryover balance of 

$200,000). The adjusted funding target is 

$2,600,000 (that is, the funding target of 

$2,500,000, increased by the annuity 

purchases of $100,000). 

(iv) Based on the above adjusted plan 

assets and adjusted funding target, the 

adjusted funding target attainment 

percentage (AFTAP) as of January 1, 2008, 

would be 76.92%. Since the AFTAP is less 

than 80% but is at least 60%, Plan S is 

subject to the restrictions in paragraph (d)(3) 

of this section. 

Example 2. (i) The facts are the same as 

in Example 1, except that it is reasonable to 

expect that the plan sponsor will make a 

contribution of $80,000 to Plan S for the 2007 

plan year by September 15, 2008. This 

amount is in excess of the minimum required 

contribution for 2007. The plan sponsor 

elects to reduce the funding standard 

carryover balance by $80,000. 

(ii) Because it is reasonable to expect that 

the $80,000 will be contributed by the plan 

sponsor, that amount is taken into account 

when the enrolled actuary certifies the 2008 

AFTAP under the special rule in paragraph 

(h)(4)(i)(B) of this section for plan years 

beginning before 2009. Accordingly, the 

enrolled actuary for the plan certifies the 

2008 AFTAP as 80% (that is, adjusted plan 

assets of $2,080,000, reflecting the $80,000 in 

contributions receivable, divided by the 

adjusted funding target of $2,600,000). 

(iii) The ability to take contributions into 

account before they are actually paid to the 

plan is available only for plan years 

beginning before 2009. Furthermore, if the 

employer does not actually make the 

contribution and the difference between the 

incorrect certification and the corrected 

AFTAP constitutes a material change, the 

plan will have violated section 401(a)(29) or 

will not have been operated in accordance 

with its terms. 

Example 3. (i) Plan R is a defined benefit 

plan with a plan year that is the calendar 

year and a valuation date of January 1. 

Section 436 applies to Plan R for 2008. The 

valuation interest rate for the 2007 plan year 

for Plan R is 7%. The fair market value of 

assets of Plan R as of January 1, 2007, is 

$1,000,000. The actuarial value of assets of 

Plan R as of January 1, 2007, is $1,200,000. 


srobinson on DSKHWCL6B1PROD with RULES2
53084 Federal Register / Vol. 74, No. 198 / Thursday, October 15, 2009 / Rules and Regulations 

The current liability of Plan R as of January 

1, 2007, is $1,500,000. The funding standard 

account credit balance as of January 1, 2007, 

is $80,000. The funding standard carryover 

balance of Plan R is $50,000 as of the 

beginning of the 2008 plan year. The sponsor 

of Plan R, Sponsor T, elects in 2008 to reduce 

the funding standard carryover balance in 

accordance with § 1.430(f)–1 by $45,000. No 

annuities were purchased using plan assets 

during 2005 or 2006. 

(ii) Pursuant to paragraph (j)(5)(iii)(B)(1) of 

this section, the asset value used to 

determine the AFTAP for the 2007 plan year 

is limited to 110% of the fair market value 

of assets on January 1, 2007, or $1,100,000 

(110% of $1,000,000). 

(iii) Pursuant to paragraph (j)(5)(iii)(B)(2) of 

this section, the funding standard account 

credit balance as of January 1, 2007, is 

subtracted from the asset value used to 

determine the AFTAP for the 2007 plan year. 

However, pursuant to paragraph 

(j)(5)(iii)(B)(3) of this section, the present 

value of the amount by which Sponsor T 

elected to reduce the funding standard 

carryover balance in 2008 is not subtracted. 

(iv) The present value, determined at an 

interest rate of 7%, of the $45,000 reduction 

in the funding standard carryover balance 

elected by Sponsor T in 2008 is $42,056. 

Thus, $42,056 is not subtracted from the 

2007 plan year asset value. Accordingly, the 

funding standard account credit balance that 

is subtracted from the 2007 plan year asset 

value is $37,944 (that is, $80,000 less 

$42,056). 

(v) Thus, the asset value that is used to 

determine the FTAP for the 2007 plan year 

is $1,100,000 less $37,944, or $1,062,056. 

Accordingly, for purposes of this section, the 

FTAP for the 2007 plan year for Plan R is 

70.8% (that is, $1,062,056 divided by 

$1,500,000). 

Example 4. (i) Plan T is a non-collectively 

bargained defined benefit plan that was 

established prior to 2007. Plan T has a plan 

year that is the calendar year and a valuation 

date of January 1. The first effective plan year 

is 2008; the plan met the conditions of 

paragraph (j)(1)(ii)(E) of this section for 2008. 

As of January 1, 2009, Plan T has a value of 

plan assets (equal to the market value of 

assets) of $3,000,000, a funding standard 

carryover balance of $150,000, and a 

prefunding balance of $50,000. During 2007 

and 2008, assets from Plan T were used to 

purchase a total of $400,000 in annuities for 

employees other than highly compensated 

employees. The funding target for Plan T 

(without regard to the at-risk rules of section 

430(i)) is $3,200,000 as of January 1, 2009. 

(ii) The plan’s funding status is calculated 

in accordance with paragraph (j)(1)(ii)(B) of 

this section to determine whether the special 

rule for fully-funded plans applies to Plan T. 

Accordingly, the value of plan assets 

determined without subtracting the funding 

standard carryover balance and the 

prefunding balance is 93.75% of the plan’s 

funding target ($3,000,000 ÷ $3,200,000). The 

applicable transitional percentage in 

paragraph (j)(1)(ii)(D) of this section is 94% 

for 2009. Because the percentage calculated 

above is less than 94%, the transition rule 

does not apply to Plan T. 

(iii) Accordingly, the January 1, 2009, 

AFTAP for Plan T is calculated without 

reflecting the special rule in paragraph 

(j)(1)(ii)(B) of this section. The AFTAP as of 

January 1, 2009, is calculated by dividing the 

adjusted assets by the adjusted funding 

target. For this purpose, the value of assets 

is increased by the annuities purchased for 

nonhighly compensated employees during 

2007 and 2008, and decreased by the funding 

standard carryover balance and the 

prefunding balance as of January 1, 2009, 

resulting in an adjusted asset value of 

$3,200,000 (that is, $3,000,000 + 

$400,000¥$150,000¥$50,000). The funding 

target is increased by the annuities purchased 

for nonhighly compensated employees 

during 2007 and 2008, resulting in an 

adjusted funding target of $3,600,000 (that is, 

$3,200,000 + $400,000). The AFTAP for Plan 

T for 2009 is therefore $3,200,000 ÷ 

$3,600,000, or 88.89%. 

(k) Effective/applicability dates—(1) 

Statutory effective date. Section 436 

generally applies to plan years 

beginning on or after January 1, 2008. 

The applicability of section 436 for 

purposes of determining the minimum 

required contribution is delayed for 

certain plans in accordance with 

sections 104 through 106 of PPA ‘06. 

(2) Collectively bargained plan 

exception—(i) In general. In the case of 

a collectively bargained plan that is 

maintained pursuant to one or more 

collective bargaining agreements 

between employee representatives and 

one or more employers ratified before 

January 1, 2008, section 436 does not 

apply to plan years beginning before the 

earlier of— 

(A) January 1, 2010; or 

(B) The later of— 

(1) The date on which the last such 

collective bargaining agreement relating 

to the plan terminates (determined 

without regard to any extension thereof 

agreed to after August 17, 2006); or 

(2) The first day of the first plan year 

to which section 436 would (but for this 

paragraph (k)(2)) apply. 

(ii) Treatment of certain plan 

amendments. For purposes of this 

paragraph (k)(2), any plan amendment 

made pursuant to a collective bargaining 

agreement relating to the plan which 

amends the plan solely to conform to 

any requirement added by section 436 is 

not treated as a termination of the 

collective bargaining agreement. 

(iii) Treatment of plans with both 

collectively bargained and noncollectively bargained employees. In the 

case of a plan with respect to which a 

collective bargaining agreement applies 

to some, but not all, of the plan 

participants, the plan is considered a 

collectively bargained plan for purposes 

of this paragraph (k)(2) if it is 

considered a collectively bargained plan 

under the rules of paragraph (a)(5)(ii)(B) 

of this section. 

(3) Effective date/applicability date of 

regulations. This section applies to plan 

years beginning on or after January 1, 

2010. For plan years beginning before 

January 1, 2010, plans are permitted to 

rely on the provisions set forth in this 

section for purposes of satisfying the 

requirements of section 436. 

PART 602—OMB CONTROL NUMBERS 

UNDER THE PAPERWORK 

REDUCTION ACT 

■ Par. 9. The authority citation for part 

602 continues to read as follows: 

Authority: 26 U.S.C. 7805. 

■ Par. 10. In § 602.101, paragraph (b) is 

amended by adding entries for 

§§ 1.430(f)–1, 1.430(g)–1, 1.430(h)(2)–1, 

and 1.436–1 to the table to read as 

follows: 

§ 602.101 OMB Control numbers. 

* * * * * 

(b) * * * 

CFR part or section where 

identified and described 

Current OMB 

control No. 

*****

1.430(f)–1 ............................. 1545–2095 

1.430(g)–1 ............................ 1545–2095 

1.430(h)(2)–1 ........................ 1545–2095 

1.436–1 ................................. 1545–2095 

*****

Steven Miller, 

Acting Deputy Commissioner for Services and 

Enforcement. 

Approved: September 24, 2009. 

Michael Mundaca, 

Acting Assistant Secretary of the Treasury 

(Tax Policy). 

[FR Doc. E9–24284 Filed 10–14–09; 8:45 am] 

BILLING CODE 4830–01–P 


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