Employee Plans News - December 20, 2011 - Sample Plan Amendment on Benefit Limits for Underfunded Plans
For defined benefit plan sponsors, Notice 2011-96:
- provides a sample plan amendment to satisfy the IRC section 436 limitations on accruing and paying benefits in an underfunded plan,
- extends the section 436 amendment deadline, and
- grants relief from anti-cutback requirements.
The sample amendment has three parts:
- Plan language that applies to all single employer plans that are subject to minimum funding requirements under IRC sections 412 and 430. For example, benefit and accrual limits that apply to plans whose adjusted funding target attainment percentage for a plan year is less than 80% are included.
- Two alternative provisions for multiple employer plans, one of which must be adopted with the first part of the sample amendment.
- Four optional plan provisions covering participant or beneficiary elections of optional benefit distributions and restoring benefit accruals. Sponsors may add these to the appropriate section of the first part of the sample amendment.
The amendment may be used by both individually designed and pre-approved plans.
Extension of Amendment Deadline
Notice 2011-96 extends the deadline to adopt an interim section 436 amendment to the latest of the:
- last day of the first plan year beginning on or after January 1, 2012;
- last day of the plan year for which IRC section 436 is first effective; or
- due date, including extensions, of the employer’s tax return for the tax year (as determined by Rev. Proc. 2007-44, section 5.06(2) for a tax-exempt employer) that contains the first day of the plan year for which IRC section 436 is first effective.
To qualify for the extension:
- the amendment’s effective date must be the effective date of IRC section 436, and
- the plan must operate according to the amendment as of its effective date.
Filing a determination letter application may accelerate an individually designed plan’s amendment deadline. For example, if the application is filed on or after February 1, 2012 (or, if later, the first day of the plan year for which IRC section 436 is first effective for the plan), the sponsor must incorporate an interim section 436 amendment in the restated plan submitted with the application.
Relief for Anti-Cutback Requirements
A section 436 plan amendment that eliminates or reduces IRC section 411(d)(6) protected benefits won’t violate the anti-cutback requirements if:
- it's adopted by the notice’s extended deadline, and
- the amendment eliminates or reduces protected benefits only to the extent needed for the plan to meet IRC section 436 requirements.