On November 29, 2011, the IRS issued Notice 2011-96, which extends the deadline for adopting an amendment to conform plan terms with the funding-based limits for defined benefit plans under Internal Revenue Code Section 436 as added by the Pension Protection Act of 2006 (the "PPA"). The IRS also provided a sample amendment that plan sponsors may adopt for this purpose.

The PPA funding-based limits include restrictions on benefit accrual and forms of payment available under defined benefit plans that fall below certain funding levels.

Extended Deadline

The deadline for adopting an amendment to comply with the above-referenced PPA provision has been extended for one year to the last day of the first plan year beginning on or after January 1, 2012 for most plans (i.e., December 31, 2012 for calendar year plans). For collectively bargained plans and certain other plans, this deadline may be later.

However, even though the rule itself does not have to be reflected in the plan's terms until the extended deadline, plans must operate in compliance with this PPA rule even earlier. Generally, this PPA rule was effective for plan years beginning on or after January 1, 2008, but the effective date may be later for collectively bargained plans and certain other plans.

Sample Amendment

Notice 2011-96 also contains a sample amendment that can be used to comply with the PPA funding-based limits.

The sample amendment is broken up into three parts:

  • The first part contains accrual and payment restriction provisions applicable to all plans. A plan sponsor adopting the sample amendment must adopt these provisions. These provisions relate to the actual restrictions imposed on a plan that falls below a specified funding level.
  • The second part contains two alternate provisions applicable only to multiple employer plans (i.e., a plan that covers multiple employers from different controlled groups and is not governed by a collective bargaining agreement). A plan sponsor of a multiple employer plan adopting the sample amendment must adopt one of these two provisions. These provisions focus on whether each employer is to be treated as a separate employer or whether all employers are to be treated as a single employer.
  • The third part consists of four optional provisions that may be used to modify the first part. A plan sponsor adopting the sample amendment may choose to incorporate any or all of these optional provisions into the first part of the sample amendment. These provisions relate to what happens when the restrictions do not apply to the entire benefit and what happens after the restrictions no longer apply.

Reliance

Adoption of the sample amendment by the extended deadline, and operation in accordance with its terms from and after the effective date, provide the plan sponsor with reliance that the plan satisfies the requirements of Code Section 436 and will not be found to have an impermissible cutback in benefits if the limits become applicable.

This article is presented for informational purposes only and is not intended to constitute legal advice.