26 USC 412 - Minimum funding standards

United States Code

USC most recently checked for updates: Dec 02, 2024

§ 411. Minimum vesting standards

§ 413. Collectively bargained plans, etc.

U.S. Code
Notes

§ 412.

Minimum funding standards

(a)

Requirement to meet minimum funding standard

(1)

In general

A plan to which this section applies shall satisfy the minimum funding standard applicable to the plan for any plan year.

(2)

Minimum funding standard

For purposes of paragraph (1), a plan shall be treated as satisfying the minimum funding standard for a plan year if—

(A)

in the case of a defined benefit plan which is not a multiemployer plan or a CSEC plan, the employer makes contributions to or under the plan for the plan year which, in the aggregate, are not less than the minimum required contribution determined under section 430 for the plan for the plan year,

(B)

in the case of a money purchase plan which is not a multiemployer plan, the employer makes contributions to or under the plan for the plan year which are required under the terms of the plan,

(C)

in the case of a multiemployer plan, the employers make contributions to or under the plan for any plan year which, in the aggregate, are sufficient to ensure that the plan does not have an accumulated funding deficiency under section 431 as of the end of the plan year, and

(D)

in the case of a CSEC plan, the employers make contributions to or under the plan for any plan year which, in the aggregate, are sufficient to ensure that the plan does not have an accumulated funding deficiency under section 433 as of the end of the plan year.

(b)

Liability for contributions

(1)

In general

Except as provided in paragraph (2), the amount of any contribution required by this section (including any required installments under paragraphs (3) and (4) of section 430(j) or under section 433(f)) shall be paid by the employer responsible for making contributions to or under the plan.

(2)

Joint and several liability where employer member of controlled group

If the employer referred to in paragraph (1) is a member of a controlled group, each member of such group shall be jointly and severally liable for payment of such contributions.

(3)

Multiemployer plans in critical status

Paragraph (1) shall not apply in the case of a multiemployer plan for any plan year in which the plan is in critical status pursuant to section 432. This paragraph shall only apply if the plan sponsor adopts a rehabilitation plan in accordance with section 432(e) and complies with such rehabilitation plan (and any modifications of the plan).

(c)

Variance from minimum funding standards

(1)

Waiver in case of business hardship

(A)

In general

If—

(i)

an employer is (or in the case of a multiemployer plan or a CSEC plan, 10 percent or more of the number of employers contributing to or under the plan are) unable to satisfy the minimum funding standard for a plan year without temporary substantial business hardship (substantial business hardship in the case of a multiemployer plan), and

(ii)

application of the standard would be adverse to the interests of plan participants in the aggregate,

the Secretary may, subject to subparagraph (C), waive the requirements of subsection (a) for such year with respect to all or any portion of the minimum funding standard. The Secretary shall not waive the minimum funding standard with respect to a plan for more than 3 of any 15 (5 of any 15 in the case of a multiemployer plan) consecutive plan years.

(B)

Effects of waiver

If a waiver is granted under subparagraph (A) for any plan year—

(i)

in the case of a defined benefit plan which is not a multiemployer plan or a CSEC plan, the minimum required contribution under section 430 for the plan year shall be reduced by the amount of the waived funding deficiency and such amount shall be amortized as required under section 430(e),

(ii)

in the case of a multiemployer plan, the funding standard account shall be credited under section 431(b)(3)(C) with the amount of the waived funding deficiency and such amount shall be amortized as required under section 431(b)(2)(C), and

(iii)

in the case of a CSEC plan, the funding standard account shall be credited under section 433(b)(3)(C) with the amount of the waived funding deficiency and such amount shall be amortized as required under section 433(b)(2)(C).

(C)

Waiver of amortized portion not allowed

The Secretary may not waive under subparagraph (A) any portion of the minimum funding standard under subsection (a) for a plan year which is attributable to any waived funding deficiency for any preceding plan year.

(2)

Determination of business hardship

For purposes of this subsection, the factors taken into account in determining temporary substantial business hardship (substantial business hardship in the case of a multiemployer plan) shall include (but shall not be limited to) whether or not—

(A)

the employer is operating at an economic loss,

(B)

there is substantial unemployment or underemployment in the trade or business and in the industry concerned,

(C)

the sales and profits of the industry concerned are depressed or declining, and

(D)

it is reasonable to expect that the plan will be continued only if the waiver is granted.

(3)

Waived funding deficiency

For purposes of this section and part III of this subchapter, the term “waived funding deficiency” means the portion of the minimum funding standard under subsection (a) (determined without regard to the waiver) for a plan year waived by the Secretary and not satisfied by employer contributions.

(4)

Security for waivers for single-employer plans, consultations

(A)

Security may be required

(i)

In general

Except as provided in subparagraph (C), the Secretary may require an employer maintaining a defined benefit plan which is a single-employer plan (within the meaning of section 4001(a)(15) of the Employee Retirement Income Security Act of 1974) to provide security to such plan as a condition for granting or modifying a waiver under paragraph (1) or for granting an extension under section 433(d).

(ii)

Special rules

Any security provided under clause (i) may be perfected and enforced only by the Pension Benefit Guaranty Corporation, or at the direction of the Corporation, by a contributing sponsor (within the meaning of section 4001(a)(13) of the Employee Retirement Income Security Act of 1974), or a member of such sponsor’s controlled group (within the meaning of section 4001(a)(14) of such Act).

(B)

Consultation with the Pension Benefit Guaranty Corporation

Except as provided in subparagraph (C), the Secretary shall, before granting or modifying a waiver under this subsection or an extension under section 433(d) with respect to a plan described in subparagraph (A)(i)—

(i)

provide the Pension Benefit Guaranty Corporation with—

(I)

notice of the completed application for any waiver, modification, or extension, and

(II)

an opportunity to comment on such application within 30 days after receipt of such notice, and

(ii)

consider—

(I)

any comments of the Corporation under clause (i)(II), and

(II)

any views of any employee organization (within the meaning of section 3(4) of the Employee Retirement Income Security Act of 1974) representing participants in the plan which are submitted in writing to the Secretary in connection with such application.

Information provided to the Corporation under this subparagraph shall be considered tax return information and subject to the safeguarding and reporting requirements of section 6103(p).

(C)

Exception for certain waivers or extensions

(i)

In general

The preceding provisions of this paragraph shall not apply to any plan with respect to which the sum of—

(I)

the aggregate unpaid minimum required contributions (within the meaning of section 4971(c)(4)) for the plan year and all preceding plan years, or the accumulated funding deficiency under section 433, whichever is applicable,

(II)

the present value of all waiver amortization installments determined for the plan year and succeeding plan years under section 430(e)(2) or 433(b)(2)(C), whichever is applicable, and

(III)

the total amounts not paid by reason of an extension in effect under section 433(d),

is less than $1,000,000.

(ii)

Treatment of waivers or extensions for which applications are pending

The amount described in clause (i)(I) shall include any increase in such amount which would result if all applications for waivers or extensions with respect to the minimum funding standard under this subsection which are pending with respect to such plan were denied.

(5)

Special rules for single-employer plans

(A)

Application must be submitted before date 2½ months after close of year

In the case of a defined benefit plan which is not a multiemployer plan, no waiver may be granted under this subsection with respect to any plan for any plan year unless an application therefor is submitted to the Secretary not later than the 15th day of the 3rd month beginning after the close of such plan year.

(B)

Special rule if employer is member of controlled group

In the case of a defined benefit plan which is not a multiemployer plan, if an employer is a member of a controlled group, the temporary substantial business hardship requirements of paragraph (1) shall be treated as met only if such requirements are met—

(i)

with respect to such employer, and

(ii)

with respect to the controlled group of which such employer is a member (determined by treating all members of such group as a single employer).

The Secretary may provide that an analysis of a trade or business or industry of a member need not be conducted if the Secretary determines such analysis is not necessary because the taking into account of such member would not significantly affect the determination under this paragraph.

(6)

Advance notice

(A)

In general

The Secretary shall, before granting a waiver under this subsection, require each applicant to provide evidence satisfactory to the Secretary that the applicant has provided notice of the filing of the application for such waiver to each affected party (as defined in section 4001(a)(21) of the Employee Retirement Income Security Act of 1974). Such notice shall include a description of the extent to which the plan is funded for benefits which are guaranteed under title IV of the Employee Retirement Income Security Act of 1974 and for benefit liabilities.

(B)

Consideration of relevant information

The Secretary shall consider any relevant information provided by a person to whom notice was given under subparagraph (A).

(7)

Restriction on plan amendments

(A)

In general

No amendment of a plan which increases the liabilities of the plan by reason of any increase in benefits, any change in the accrual of benefits, or any change in the rate at which benefits become nonforfeitable under the plan shall be adopted if a waiver under this subsection or an extension of time under section 431(d) or section 433(d) is in effect with respect to the plan, or if a plan amendment described in subsection (d)(2) which reduces the accrued benefit of any participant has been made at any time in the preceding 12 months (24 months in the case of a multiemployer plan). If a plan is amended in violation of the preceding sentence, any such waiver, or extension of time, shall not apply to any plan year ending on or after the date on which such amendment is adopted.

(B)

Exception

Subparagraph (A) shall not apply to any plan amendment which—

(i)

the Secretary determines to be reasonable and which provides for only de minimis increases in the liabilities of the plan,

(ii)

only repeals an amendment described in subsection (d)(2), or

(iii)

is required as a condition of qualification under part I of subchapter D of chapter 1.

(d)

Miscellaneous rules

(1)

Change in method or year

If the funding method or a plan year for a plan is changed, the change shall take effect only if approved by the Secretary.

(2)

Certain retroactive plan amendments

For purposes of this section, any amendment applying to a plan year which—

(A)

is adopted after the close of such plan year but no later than 2½ months after the close of the plan year (or, in the case of a multiemployer plan, no later than 2 years after the close of such plan year),

(B)

does not reduce the accrued benefit of any participant determined as of the beginning of the first plan year to which the amendment applies, and

(C)

does not reduce the accrued benefit of any participant determined as of the time of adoption except to the extent required by the circumstances,

shall, at the election of the plan administrator, be deemed to have been made on the first day of such plan year. No amendment described in this paragraph which reduces the accrued benefits of any participant shall take effect unless the plan administrator files a notice with the Secretary notifying him of such amendment and the Secretary has approved such amendment, or within 90 days after the date on which such notice was filed, failed to disapprove such amendment. No amendment described in this subsection shall be approved by the Secretary unless the Secretary determines that such amendment is necessary because of a temporary substantial business hardship (as determined under subsection (c)(2)) or a substantial business hardship (as so determined) in the case of a multiemployer plan and that a waiver under subsection (c) (or, in the case of a multiemployer plan or a CSEC plan, any extension of the amortization period under section 431(d) or section 433(d)) is unavailable or inadequate.

(3)

Controlled group

For purposes of this section, the term “controlled group” means any group treated as a single employer under subsection (b), (c), (m), or (o) of section 414.

(e)

Plans to which section applies

(1)

In general

Except as provided in paragraphs (2) and (4), this section applies to a plan if, for any plan year beginning on or after the effective date of this section for such plan under the Employee Retirement Income Security Act of 1974—

(A)

such plan included a trust which qualified (or was determined by the Secretary to have qualified) under section 401(a), or

(B)

such plan satisfied (or was determined by the Secretary to have satisfied) the requirements of section 403(a).

(2)

Exceptions

This section shall not apply to—

(A)

any profit-sharing or stock bonus plan,

(B)

any insurance contract plan described in paragraph (3),

(C)

any governmental plan (within the meaning of section 414(d)),

(D)

any church plan (within the meaning of section 414(e)) with respect to which the election provided by section 410(d) has not been made,

(E)

any plan which has not, at any time after September 2, 1974, provided for employer contributions, or

(F)

any plan established and maintained by a society, order, or association described in section 501(c)(8) or (9), if no part of the contributions to or under such plan are made by employers of participants in such plan.

No plan described in subparagraph (C), (D), or (F) shall be treated as a qualified plan for purposes of section 401(a) unless such plan meets the requirements of section 401(a)(7) as in effect on September 1, 1974.

(3)

Certain insurance contract plans

A plan is described in this paragraph if—

(A)

the plan is funded exclusively by the purchase of individual insurance contracts,

(B)

such contracts provide for level annual premium payments to be paid extending not later than the retirement age for each individual participating in the plan, and commencing with the date the individual became a participant in the plan (or, in the case of an increase in benefits, commencing at the time such increase becomes effective),

(C)

benefits provided by the plan are equal to the benefits provided under each contract at normal retirement age under the plan and are guaranteed by an insurance carrier (licensed under the laws of a State to do business with the plan) to the extent premiums have been paid,

(D)

premiums payable for the plan year, and all prior plan years, under such contracts have been paid before lapse or there is reinstatement of the policy,

(E)

no rights under such contracts have been subject to a security interest at any time during the plan year, and

(F)

no policy loans are outstanding at any time during the plan year.

A plan funded exclusively by the purchase of group insurance contracts which is determined under regulations prescribed by the Secretary to have the same characteristics as contracts described in the preceding sentence shall be treated as a plan described in this paragraph.

(4)

Certain terminated multiemployer plans

This section applies with respect to a terminated multiemployer plan to which section 4021 of the Employee Retirement Income Security Act of 1974 applies until the last day of the plan year in which the plan terminates (within the meaning of section 4041A(a)(2) of such Act).

(Added Pub. L. 93–406, title II, § 1013(a), Sept. 2, 1974, 88 Stat. 914; amended Pub. L. 94–455, title XIX, §§ 1901(a)(63), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1775, 1834; Pub. L. 96–364, title II, §§ 203, 208(c), Sept. 26, 1980, 94 Stat. 1285, 1289; Pub. L. 98–369, div. A, title IV, § 491(d)(25), July 18, 1984, 98 Stat. 850; Pub. L. 99–272, title XI, §§ 11015(a)(2), (b)(2), 11016(c)(4), Apr. 7, 1986, 100 Stat. 265, 267, 273; Pub. L. 100–203, title IX, §§ 9301(a), 9303(a), (d)(1), 9304(a)(1), (b)(1), (e)(1), 9305(b)(1), 9306(a)(1), (b)(1), (c)(1), (d)(1), (e)(1), 9307(a)(1), (b)(1), (e)(1), Dec. 22, 1987, 101 Stat. 1330–331, 1330–333, 1330–342 to 1330–344, 1330–348, 1330–351, 1330–352, 1330–354 to 1330–357; Pub. L. 100–647, title II, § 2005(a)(2)(A), (d)(1), Nov. 10, 1988, 102 Stat. 3610, 3612; Pub. L. 101–239, title VII, § 7881(a)(1)(A), (2)(A), (3)(A), (4)(A), (5)(A), (6)(A), (b)(1)(A), (2)(A), (3)(A), (4)(A), (6)(A), (c)(1), (d)(1)(A), Dec. 19, 1989, 103 Stat. 2435–2439; Pub. L. 103–465, title VII, §§ 751(a)(1)–(9)(A), (10), 752(a), 753(a), 754(a), 768(a), Dec. 8, 1994, 108 Stat. 5012–5019, 5021–5023, 5040; Pub. L. 105–34, title XV, § 1521(a), (c)(1), (3)(A), title XVI, § 1604(b)(2)(A), Aug. 5, 1997, 111 Stat. 1069, 1070, 1097; Pub. L. 107–16, title VI, §§ 651(a), 661(a), June 7, 2001, 115 Stat. 129, 141; Pub. L. 107–147, title IV, §§ 405(a), 411(v)(1), Mar. 9, 2002, 116 Stat. 42, 52; Pub. L. 108–218, title I, §§ 101(b)(1)–(3), 102(b), 104(b), Apr. 10, 2004, 118 Stat. 597, 598, 601, 606; Pub. L. 109–135, title IV, § 412(x)(1), Dec. 21, 2005, 119 Stat. 2638; Pub. L. 109–280, title I, § 111(a), title II, § 212(c), title III, § 301(b), Aug. 17, 2006, 120 Stat. 820, 917, 919; Pub. L. 110–458, title I, §§ 101(a)(2), 102(b)(2)(H), Dec. 23, 2008, 122 Stat. 5093, 5103; Pub. L. 113–97, title II, § 202(c)(1), (2), Apr. 7, 2014, 128 Stat. 1135; Pub. L. 115–141, div. U, title IV, § 401(a)(83)–(85), Mar. 23, 2018, 132 Stat. 1188.)

cite as: 26 USC 412