113
‘‘(f) REDUCTION OF MINIMUM REQUIRED CONTRIBU-
TION BY PRE-FUNDING BALANCE AND FUNDING STAND-
ARD CARRYOVER BALANCE.—
‘‘(1) ELECTION TO MAINTAIN BALANCES.—
‘‘(A) PRE-FUNDING BALANCE.—The plan 
sponsor of a defined benefit plan which is not 
a multiemployer plan may elect to maintain a 
pre-funding balance. 
‘‘(B) FUNDING
STANDARD
CARRYOVER 
BALANCE.—
‘‘(i) IN GENERAL.—In the case of a 
defined benefit plan (other than a multiem-
ployer plan) described in clause (ii), the 
plan sponsor may elect to maintain a fund-
ing standard carryover balance, until such 
balance is reduced to zero. 
‘‘(ii) PLANS
MAINTAINING
FUNDING 
STANDARD ACCOUNT IN 2006.—A plan is 
described in this clause if the plan—
‘‘(I) was in effect for a plan year 
beginning in 2006, and 
‘‘(II) had a positive balance in 
the funding standard account under 
section 412(b) as in effect for such
114
plan year and determined as of the 
end of such plan year. 
‘‘(2) APPLICATION OF BALANCES.—A pre-fund-
ing balance and a funding standard carryover bal-
ance maintained pursuant to this paragraph—
‘‘(A) shall be available for crediting against 
the minimum required contribution, pursuant to 
an election under paragraph (3), 
‘‘(B) shall be applied as a reduction in the 
amount treated as the value of plan assets for 
purposes of this section, to the extent provided 
in paragraph (4), and 
‘‘(C) may be reduced at any time, pursu-
ant to an election under paragraph (5). 
‘‘(3) ELECTION TO APPLY BALANCES AGAINST 
MINIMUM REQUIRED CONTRIBUTION.—
‘‘(A) IN GENERAL.—Except as provided in 
subparagraphs (B) and (C), in the case of any 
plan year in which the plan sponsor elects to 
credit against the minimum required contribu-
tion for the current plan year all or a portion 
of the pre-funding balance or the funding 
standard carryover balance for the current plan 
year (not in excess of such minimum required 
contribution), the minimum required contribu-
115
tion for the plan year shall be reduced by the 
amount so credited by the plan sponsor. For 
purposes of the preceding sentence, the min-
imum required contribution shall be determined 
after taking into account any waiver under sec-
tion 412(c). 
‘‘(B) 
COORDINATION
WITH
FUNDING 
STANDARD CARRYOVER BALANCE.—To the ex-
tent that any plan has a funding standard car-
ryover balance greater than zero, no amount of 
the pre-funding balance of such plan may be 
credited under this paragraph in reducing the 
minimum required contribution. 
‘‘(C) LIMITATION
FOR
UNDERFUNDED 
PLANS.—The preceding provisions of this para-
graph shall not apply for any plan year if the 
ratio (expressed as a percentage) which—
‘‘(i) the value of plan assets for the 
preceding plan year (as reduced under 
paragraph (4)(C)), bears to 
‘‘(ii) the funding target of the plan for 
the preceding plan year (determined with-
out regard to subsection (i)(1)), 
is less than 80 percent.
116
‘‘(4) EFFECT
OF
BALANCES
ON
AMOUNTS 
TREATED AS VALUE OF PLAN ASSETS.—In the case 
of any plan maintaining a pre-funding balance or a 
funding standard carryover balance pursuant to this 
subsection, the amount treated as the value of plan 
assets shall be deemed to be such amount, reduced 
as provided in the following subparagraphs: 
‘‘(A) APPLICABILITY OF SHORTFALL AM-
ORTIZATION BASE.—For purposes of subsection 
(c)(5), the value of plan assets is deemed to be 
such amount, reduced by the amount of the 
pre-funding balance, but only if an election 
under paragraph (2) applying any portion of 
the pre-funding balance in reducing the min-
imum required contribution is in effect for the 
plan year. 
‘‘(B) DETERMINATION OF EXCESS ASSETS, 
FUNDING SHORTFALL, AND FUNDING TARGET 
ATTAINMENT PERCENTAGE.—
‘‘(i) IN
GENERAL.—For purposes of 
subsections (a), (c)(4)(B), and (d)(2)(A), 
the value of plan assets is deemed to be 
such amount, reduced by the amount of 
the pre-funding balance and the funding 
standard carryover balance.
117
‘‘(ii) SPECIAL
RULE
FOR
CERTAIN 
BINDING AGREEMENTS WITH PBGC.—For 
purposes of subsection (c)(4)(B), the value 
of plan assets shall not be deemed to be re-
duced for a plan year by the amount of the 
specified balance if, with respect to such 
balance, there is in effect for a plan year 
a binding written agreement with the Pen-
sion Benefit Guaranty Corporation which 
provides that such balance is not available 
to reduce the minimum required contribu-
tion for the plan year. For purposes of the 
preceding sentence, the term ‘specified bal-
ance’ means the pre-funding balance or the 
funding standard carryover balance, as the 
case may be. 
‘‘(C) AVAILABILITY OF BALANCES IN PLAN 
YEAR FOR CREDITING AGAINST MINIMUM RE-
QUIRED
CONTRIBUTION.—For 
purposes 
of 
paragraph (3)(C)(i) of this subsection, the value 
of plan assets is deemed to be such amount, re-
duced by the amount of the pre-funding bal-
ance. 
‘‘(5) ELECTION TO REDUCE BALANCE PRIOR TO 
DETERMINATIONS OF VALUE OF PLAN ASSETS AND
118
CREDITING AGAINST MINIMUM REQUIRED CONTRIBU-
TION.—
‘‘(A) IN GENERAL.—The plan sponsor may 
elect to reduce by any amount the balance of 
the pre-funding balance and the funding stand-
ard carryover balance for any plan year (but 
not below zero). Such reduction shall be effec-
tive prior to any determination of the value of 
plan assets for such plan year under this sec-
tion and application of the balance in reducing 
the minimum required contribution for such 
plan for such plan year pursuant to an election 
under paragraph (2). 
‘‘(B) COORDINATION BETWEEN PRE-FUND-
ING BALANCE AND FUNDING STANDARD CARRY-
OVER BALANCE.—To the extent that any plan 
has a funding standard carryover balance great-
er than zero, no election may be made under 
subparagraph (A) with respect to the pre-fund-
ing balance. 
‘‘(6) PRE-FUNDING BALANCE.—
‘‘(A) IN GENERAL.—A pre-funding balance 
maintained by a plan shall consist of a begin-
ning balance of zero, increased and decreased to 
the extent provided in subparagraphs (B) and
119
(C), and adjusted further as provided in para-
graph (8). 
‘‘(B) INCREASES.—As of the valuation 
date for each plan year beginning after 2007, 
the pre-funding balance of a plan shall be in-
creased by the amount elected by the plan spon-
sor for the plan year. Such amount shall not ex-
ceed the excess (if any) of—
‘‘(i) the aggregate total of employer 
contributions to the plan for the preceding 
plan year, over 
‘‘(ii) the minimum required contribu-
tion for such preceding plan year (in-
creased by interest on any portion of such 
minimum required contribution remaining 
unpaid as of the valuation date for the cur-
rent plan year, at the effective interest rate 
for the plan for the preceding plan year, 
for the period beginning with the first day 
of such preceding plan year and ending on 
the date that payment of such portion is 
made). 
‘‘(C) DECREASES.—As of the valuation 
date for each plan year after 2007, the pre-
120
funding balance of a plan shall be decreased 
(but not below zero) by the sum of—
‘‘(i) the amount of such balance cred-
ited under paragraph (2) (if any) in reduc-
ing the minimum required contribution of 
the plan for the preceding plan year, and 
‘‘(ii) any reduction in such balance 
elected under paragraph (5). 
‘‘(7) FUNDING
STANDARD
CARRYOVER
BAL-
ANCE.—
‘‘(A) IN
GENERAL.—A funding standard 
carryover balance maintained by a plan shall 
consist of a beginning balance determined 
under subparagraph (B), decreased to the ex-
tent provided in subparagraph (C), and ad-
justed further as provided in paragraph (8). 
‘‘(B) BEGINNING
BALANCE.—The begin-
ning balance of the funding standard carryover 
balance shall be the positive balance described 
in paragraph (1)(B)(ii)(II). 
‘‘(C) DECREASES.—As of the valuation 
date for each plan year after 2007, the funding 
standard carryover balance of a plan shall be 
decreased (but not below zero) by the sum of—
121
‘‘(i) the amount of such balance cred-
ited under paragraph (2) (if any) in reduc-
ing the minimum required contribution of 
the plan for the preceding plan year, and 
‘‘(ii) any reduction in such balance 
elected under paragraph (5). 
‘‘(8) ADJUSTMENTS TO BALANCES.—In deter-
mining the pre-funding balance or the funding 
standard carryover balance of a plan as of the valu-
ation date (before applying any increase or decrease 
under paragraph (6) or (7)), the plan sponsor shall, 
in accordance with regulations which shall be pre-
scribed by the Secretary, adjust such balance so as 
to reflect the rate of net gain or loss (determined, 
notwithstanding subsection (g)(3), on the basis of 
fair market value) experienced by all plan assets for 
the period beginning with the valuation date for the 
preceding plan year and ending with the date pre-
ceding the valuation date for the current plan year, 
properly taking into account, in accordance with 
such regulations, all contributions, distributions, and 
other plan payments made during such period. 
‘‘(9) ELECTIONS.—Elections under this sub-
section shall be made at such times, and in such
122
form and manner, as shall be prescribed in regula-
tions of the Secretary. 
‘‘(g) VALUATION
OF PLAN ASSETS
AND LIABIL-
ITIES.—
‘‘(1) TIMING OF DETERMINATIONS.—Except as 
otherwise provided under this subsection, all deter-
minations under this section for a plan year shall be 
made as of the valuation date of the plan for such 
plan year. 
‘‘(2) VALUATION DATE.—For purposes of this 
section—
‘‘(A) IN GENERAL.—Except as provided in 
subparagraph (B), the valuation date of a plan 
for any plan year shall be the first day of the 
plan year. 
‘‘(B) EXCEPTION FOR SMALL PLANS.—If, 
on each day during the preceding plan year, a 
plan had 500 or fewer participants, the plan 
may designate any day during the plan year as 
its valuation date for such plan year and suc-
ceeding plan years. For purposes of this sub-
paragraph, all defined benefit plans (other than 
multiemployer plans) maintained by the same 
employer (or any member of such employer’s 
controlled group) shall be treated as 1 plan, but
123
only participants with respect to such employer 
or member shall be taken into account. 
‘‘(C) APPLICATION OF CERTAIN RULES IN 
DETERMINATION OF PLAN SIZE.—For purposes 
of this paragraph—
‘‘(i) PLANS
NOT
IN
EXISTENCE
IN 
PRECEDING YEAR.—In the case of the first 
plan year of any plan, subparagraph (B) 
shall apply to such plan by taking into ac-
count the number of participants that the 
plan is reasonably expected to have on 
days during such first plan year. 
‘‘(ii) PREDECESSORS.—Any reference 
in subparagraph (B) to an employer shall 
include a reference to any predecessor of 
such employer. 
‘‘(3) AUTHORIZATION OF USE OF ACTUARIAL 
VALUE.—For purposes of this section, the value of 
plan assets shall be determined on the basis of any 
reasonable actuarial method of valuation which takes 
into account fair market value and which is per-
mitted under regulations prescribed by the Sec-
retary, except that—
‘‘(A) any such method providing for aver-
aging of fair market values may not provide for
124
averaging of such values over more than the 36-
month period ending with the month which in-
cludes the valuation date, and 
‘‘(B) any such method may not result in a 
determination of the value of plan assets which, 
at any time, is lower than 90 percent or greater 
than 110 percent of the fair market value of 
such assets at such time. 
‘‘(4) ACCOUNTING
FOR
CONTRIBUTION
RE-
CEIPTS.—For purposes of this section—
‘‘(A) CONTRIBUTIONS
FOR
PRIOR
PLAN 
YEARS TAKEN INTO ACCOUNT.—For purposes 
of determining the value of plan assets for any 
current plan year, in any case in which a con-
tribution properly allocable to amounts owed for 
a preceding plan year is made on or after the 
valuation date of the plan for such current plan 
year, such contribution shall be taken into ac-
count, except that any such contribution made 
during any such current plan year beginning 
after 2007 shall be taken into account only in 
an amount equal to its present value (deter-
mined using the effective rate of interest for the 
plan for the preceding plan year) as of the valu-
125
ation date of the plan for such current plan 
year. 
‘‘(B) CONTRIBUTIONS FOR CURRENT PLAN 
YEAR DISREGARDED.—For purposes of deter-
mining the value of plan assets for any current 
plan year, contributions which are properly allo-
cable to amounts owed for such plan year shall 
not be taken into account, and, in the case of 
any such contribution made before the valuation 
date of the plan for such plan year, such value 
of plan assets shall be reduced for interest on 
such amount determined using the effective rate 
of interest of the plan for the current plan year 
for the period beginning when such payment 
was made and ending on the valuation date of 
the plan. 
‘‘(5) ACCOUNTING
FOR
PLAN
LIABILITIES.—
For purposes of this section—
‘‘(A) LIABILITIES TAKEN INTO ACCOUNT 
FOR CURRENT PLAN YEAR.—In determining the 
value of liabilities under a plan for a plan year, 
liabilities shall be taken into account to the ex-
tent attributable to benefits (including any early 
retirement or similar benefit) accrued or earned 
as of the beginning of the plan year.
126
‘‘(B) ACCRUALS DURING CURRENT PLAN 
YEAR
DISREGARDED.—For purposes of sub-
paragraph (A), benefits accrued or earned dur-
ing such plan year shall not be taken into ac-
count, irrespective of whether the valuation date 
of the plan for such plan year is later than the 
first day of such plan year. 
‘‘(h) ACTUARIAL ASSUMPTIONS AND METHODS.—
‘‘(1) IN GENERAL.—Subject to this subsection, 
the determination of any present value or other com-
putation under this section shall be made on the 
basis of actuarial assumptions and methods—
‘‘(A) each of which is reasonable (taking 
into account the experience of the plan and rea-
sonable expectations), and 
‘‘(B) which, in combination, offer the actu-
ary’s best estimate of anticipated experience 
under the plan. 
‘‘(2) INTEREST RATES.—
‘‘(A) EFFECTIVE
INTEREST
RATE.—For 
purposes of this section, the term ‘effective in-
terest rate’ means, with respect to any plan for 
any plan year, the single rate of interest which, 
if used to determine the present value of the 
plan’s liabilities referred to in subsection (d)(1),
127
would result in an amount equal to the funding 
target of the plan for such plan year. 
‘‘(B) INTEREST RATES FOR DETERMINING 
FUNDING
TARGET.—For purposes of deter-
mining the funding target of a plan for any 
plan year, the interest rate used in determining 
the present value of the liabilities of the plan 
shall be—
‘‘(i) in the case of liabilities reason-
ably determined to be payable during the 
5-year period beginning on the first day of 
the plan year, the first segment rate with 
respect to the applicable month, 
‘‘(ii) in the case of liabilities reason-
ably determined to be payable during the 
15-year period beginning at the end of the 
period described in clause (i), the second 
segment rate with respect to the applicable 
month, and 
‘‘(iii) in the case of liabilities reason-
ably determined to be payable after the pe-
riod described in clause (ii), the third seg-
ment rate with respect to the applicable 
month.