Tax News

CCH (cch.taxgroup.com) reports:

The Treasury Department and the IRS have released proposed regulations regarding funding balances and benefit restrictions for underfunded defined benefit pension plans. The proposed regulations reflect the changes made by the Pension Protection Act of 2006, P.L.109-280, to Code Secs. 430
and 436 and will affect plan sponsors, administrators, participants and beneficiaries. Furthermore, the proposed regulations will apply to plan years beginning after December 31, 2007, and can be relied upon for qualification purposes pending release of the final regulations. Comments and requests for public hearings must be submitted by November 28, 2007.
The proposed regulations would provide guidance and transitional rules with regard to the establishment and maintenance of prefunding balances and funding standard carryover balances under Code Sec. 430(f) and are applicable to single-employer, plans of a controlled group of employers and multiple-employer plans. Additionally, they would allow an employer to elect to use prefunding balances and funding standard carryover balances to offset minimum required contributions under certain circumstances and would require such election to be in writing, irrevocable and sent to the plan's administrator and enrolled actuary in accordance with certain timing rules. Furthermore, the proposed regulations, pursuant to Code Sec. 430(f)(4)(A), would allow the subtraction of the prefunding balance from the plan's assets for the purpose of determining whether the plan will be required to establish a new shortfall amortization base under Code Sec. 430(c)(5).
The proposed regulations would also address, under Code Sec. 436, limitations on benefits and benefit accruals under single-employer plans and would impose a qualification requirement, under which plans would only satisfy the requirements of Code Sec. 436 if they satisfied the requirements of the regulations. Employer participants in multiple-employer plans would be treated as having a separate plan. The limitation requirements would not apply to new plans for the first five years of their existence. Additionally, if Code Sec. 436(d) limitations apply to a plan and then cease to apply on a certain date, the benefit limitations do not apply to annuities that start after the ending date and, if such limitations applied to accelerated benefits, the employer would be deemed to have made a Code Sec. 430(f) election.
The proposed regulations would require a plan that provides for unpredictable contingent event benefits to provide that such benefits will not be paid in a plan year in which the adjusted funding target attainment percentage (AFTAP) is less than 60 percent, or would be if the benefit were paid. Further, a plan must provide that, if its AFTAP is below 60 percent, it will not pay out any prohibited payments. Similarly, if the plan is in bankruptcy, it cannot make any prohibited payments until the enrolled actuary certifies the AFTAP is not below 100 percent. Separate rules would apply to limits on prohibited payments where the plan's AFTAP is between 60 percent and 80 percent. Under Code Sec. 436(e), the proposed regulations would require a plan to cease benefit accruals when the AFTAP falls below 60 percent.
Furthermore, the proposed regulations provide special rules for contributions made by employers to avoid the limitation requirement of Code Sec. 436. The benefit limitations can be avoided by reducing the prefunding balance and funding standard carryover balances, making additional contributions that are not added to the prefunding balance, making specific contributions as described in Code Sec. 436, and providing security.
Also addressed are: presumptions under Code Sec. 436(h) relating to benefit limitations and when the presumptions apply, special rules for unpredictable contingent event benefits during the precertification period, and additional limitations based on AFTAP.
Treasury Department News Release, TDNR HP-542, 2007FED ¶46,602
Proposed Regulations, NPRM REG-113891-07, 2007FED ¶49,762
Other References:
Code Sec. 430
CCH Reference - 2007FED ¶20,153
Code Sec. 436
CCH Reference - 2007FED ¶20,213
Tax Research Consultant
CCH Reference - TRC RETIRE: 30,156
CCH Reference - TRC RETIRE: 30,564