§ 430. Minimum funding standards for single-employer defined benefit pension plans
(a)
Minimum required contribution
For purposes of this section and section
412
(a)(2)(A), except as provided in subsection (f), the term “minimum required contribution” means, with respect to any plan year of a defined benefit plan which is not a multiemployer plan—
(b)
Target normal cost
For purposes of this section:
(1)
In general
Except as provided in subsection (i)(2) with respect to plans in at-risk status, the term “target normal cost” means, for any plan year, the excess of—
(2)
Special rule for increase in compensation
For purposes of this subsection, if any benefit attributable to services performed in a preceding plan year is increased by reason of any increase in compensation during the current plan year, the increase in such benefit shall be treated as having accrued during the current plan year.
(c)
Shortfall amortization charge
(1)
In general
For purposes of this section, the shortfall amortization charge for a plan for any plan year is the aggregate total (not less than zero) of the shortfall amortization installments for such plan year with respect to any shortfall amortization base which has not been fully amortized under this subsection.
(2)
Shortfall amortization installment
For purposes of paragraph (1)—
(A)
Determination
The shortfall amortization installments are the amounts necessary to amortize the shortfall amortization base of the plan for any plan year in level annual installments over the 7-plan-year period beginning with such plan year.
(B)
Shortfall installment
The shortfall amortization installment for any plan year in the 7-plan-year period under subparagraph (A) with respect to any shortfall amortization base is the annual installment determined under subparagraph (A) for that year for that base.
(C)
Segment rates
In determining any shortfall amortization installment under this paragraph, the plan sponsor shall use the segment rates determined under subparagraph (C) of subsection (h)(2), applied under rules similar to the rules of subparagraph (B) of subsection (h)(2).
(D)
Special election for eligible plan years
(i)
In general
If a plan sponsor elects to apply this subparagraph with respect to the shortfall amortization base of a plan for any eligible plan year (in this subparagraph and paragraph (7) referred to as an “election year”), then, notwithstanding subparagraphs (A) and (B)—
(I)
the shortfall amortization installments with respect to such base shall be determined under clause (ii) or (iii), whichever is specified in the election, and
(II)
the shortfall amortization installment for any plan year in the 9-plan-year period described in clause (ii) or the 15-plan-year period described in clause (iii), respectively, with respect to such shortfall amortization base is the annual installment determined under the applicable clause for that year for that base.
(ii)
2 plus 7 amortization schedule
The shortfall amortization installments determined under this clause are—
(I)
in the case of the first 2 plan years in the 9-plan-year period beginning with the election year, interest on the shortfall amortization base of the plan for the election year (determined using the effective interest rate for the plan for the election year), and
(II)
in the case of the last 7 plan years in such 9-plan-year period, the amounts necessary to amortize the remaining balance of the shortfall amortization base of the plan for the election year in level annual installments over such last 7 plan years (using the segment rates under subparagraph (C) for the election year).
(iii)
15-year amortization
The shortfall amortization installments determined under this subparagraph are the amounts necessary to amortize the shortfall amortization base of the plan for the election year in level annual installments over the 15-plan-year period beginning with the election year (using the segment rates under subparagraph (C) for the election year).
(iv)
Election
(I)
In general
The plan sponsor of a plan may elect to have this subparagraph apply to not more than 2 eligible plan years with respect to the plan, except that in the case of a plan described in section 106 of the Pension Protection Act of 2006, the plan sponsor may only elect to have this subparagraph apply to a plan year beginning in 2011.
(II)
Amortization schedule
Such election shall specify whether the amortization schedule under clause (ii) or (iii) shall apply to an election year, except that if a plan sponsor elects to have this subparagraph apply to 2 eligible plan years, the plan sponsor must elect the same schedule for both years.
(III)
Other rules
Such election shall be made at such time, and in such form and manner, as shall be prescribed by the Secretary, and may be revoked only with the consent of the Secretary. The Secretary shall, before granting a revocation request, provide the Pension Benefit Guaranty Corporation an opportunity to comment on the conditions applicable to the treatment of any portion of the election year shortfall amortization base that remains unamortized as of the revocation date.
(v)
Eligible plan year
For purposes of this subparagraph, the term “eligible plan year” means any plan year beginning in 2008, 2009, 2010, or 2011, except that a plan year shall only be treated as an eligible plan year if the due date under subsection (j)(1) for the payment of the minimum required contribution for such plan year occurs on or after the date of the enactment of this subparagraph.
(3)
Shortfall amortization base
For purposes of this section, the shortfall amortization base of a plan for a plan year is—
(B)
the present value (determined using the segment rates determined under subparagraph (C) of subsection (h)(2), applied under rules similar to the rules of subparagraph (B) of subsection (h)(2)) of the aggregate total of the shortfall amortization installments and waiver amortization installments which have been determined for such plan year and any succeeding plan year with respect to the shortfall amortization bases and waiver amortization bases of the plan for any plan year preceding such plan year.
(4)
Funding shortfall
For purposes of this section, the funding shortfall of a plan for any plan year is the excess (if any) of—
(5)
Exemption from new shortfall amortization base
(A)
In general
In any case in which the value of plan assets of the plan (as reduced under subsection (f)(4)(A)) is equal to or greater than the funding target of the plan for the plan year, the shortfall amortization base of the plan for such plan year shall be zero.
(B)
Transition rule
(i)
In general
Except as provided in clause (iii), in the case of plan years beginning after 2007 and before 2011, only the applicable percentage of the funding target shall be taken into account under paragraph (3)(A) in determining the funding shortfall for purposes of paragraph (3)(A) and subparagraph (A).
(ii)
Applicable percentage
For purposes of subparagraph (A), the applicable percentage shall be determined in accordance with the following table:
In the case of a plan year
The applicable
beginning in calendar year:
percentage is
2008
92
2009
94
2010
96.
(6)
Early deemed amortization upon attainment of funding target
In any case in which the funding shortfall of a plan for a plan year is zero, for purposes of determining the shortfall amortization charge for such plan year and succeeding plan years, the shortfall amortization bases for all preceding plan years (and all shortfall amortization installments determined with respect to such bases) shall be reduced to zero.
(7)
Increases in alternate required installments in cases of excess compensation or extraordinary dividends or stock redemptions
(A)
In general
If there is an installment acceleration amount with respect to a plan for any plan year in the restriction period with respect to an election year under paragraph (2)(D), then the shortfall amortization installment otherwise determined and payable under such paragraph for such plan year shall, subject to the limitation under subparagraph (B), be increased by such amount.
(B)
Total installments limited to shortfall base
Subject to rules prescribed by the Secretary, if a shortfall amortization installment with respect to any shortfall amortization base for an election year is required to be increased for any plan year under subparagraph (A)—
(i)
such increase shall not result in the amount of such installment exceeding the present value of such installment and all succeeding installments with respect to such base (determined without regard to such increase but after application of clause (ii)), and
(ii)
subsequent shortfall amortization installments with respect to such base shall, in reverse order of the otherwise required installments, be reduced to the extent necessary to limit the present value of such subsequent shortfall amortization installments (after application of this paragraph) to the present value of the remaining unamortized shortfall amortization base.
(C)
Installment acceleration amount
For purposes of this paragraph—
(i)
In general
The term “installment acceleration amount” means, with respect to any plan year in a restriction period with respect to an election year, the sum of—
(ii)
Annual limitation
The installment acceleration amount for any plan year shall not exceed the excess (if any) of—
(I)
the sum of the shortfall amortization installments for the plan year and all preceding plan years in the amortization period elected under paragraph (2)(D) with respect to the shortfall amortization base with respect to an election year, determined without regard to paragraph (2)(D) and this paragraph, over
(iii)
Carryover of excess installment acceleration amounts
(I)
In general
If the installment acceleration amount for any plan year (determined without regard to clause (ii)) exceeds the limitation under clause (ii), then, subject to subclause (II), such excess shall be treated as an installment acceleration amount with respect to the succeeding plan year.
(II)
Cap to apply
If any amount treated as an installment acceleration amount under subclause (I) or this subclause with respect any succeeding plan year, when added to other installment acceleration amounts (determined without regard to clause (ii)) with respect to the plan year, exceeds the limitation under clause (ii), the portion of such amount representing such excess shall be treated as an installment acceleration amount with respect to the next succeeding plan year.
(III)
Limitation on years to which amounts carried for
No amount shall be carried under subclause (I) or (II) to a plan year which begins after the first plan year following the last plan year in the restriction period (or after the second plan year following such last plan year in the case of an election year with respect to which 15-year amortization was elected under paragraph (2)(D)).
(IV)
Ordering rules
For purposes of applying subclause (II), installment acceleration amounts for the plan year (determined without regard to any carryover under this clause) shall be applied first against the limitation under clause (ii) and then carryovers to such plan year shall be applied against such limitation on a first-in, first-out basis.
(D)
Excess employee compensation
For purposes of this paragraph—
(i)
In general
The term “excess employee compensation” means, with respect to any employee for any plan year, the excess (if any) of—
(ii)
Amounts set aside for nonqualified deferred compensation
If during any calendar year assets are set aside or reserved (directly or indirectly) in a trust (or other arrangement as determined by the Secretary), or transferred to such a trust or other arrangement, by a plan sponsor for purposes of paying deferred compensation of an employee under a nonqualified deferred compensation plan (as defined in section
409A) of the plan sponsor, then, for purposes of clause (i), the amount of such assets shall be treated as remuneration of the employee includible in income for the calendar year unless such amount is otherwise includible in income for such year. An amount to which the preceding sentence applies shall not be taken into account under this paragraph for any subsequent calendar year.
(iii)
Only remuneration for certain post-2009 services counted
Remuneration shall be taken into account under clause (i) only to the extent attributable to services performed by the employee for the plan sponsor after February 28, 2010.
(iv)
Exception for certain equity payments
(I)
In general
There shall not be taken into account under clause (i)(I) any amount includible in income with respect to the granting after February 28, 2010, of service recipient stock (within the meaning of section
409A) that, upon such grant, is subject to a substantial risk of forfeiture (as defined under section
83
(c)(1)) for at least 5 years from the date of such grant.
(v)
Other exceptions
The following amounts includible in income shall not be taken into account under clause (i)(I):
(I)
Commissions
Any remuneration payable on a commission basis solely on account of income directly generated by the individual performance of the individual to whom such remuneration is payable.
(II)
Certain payments under existing contracts
Any remuneration consisting of nonqualified deferred compensation, restricted stock, stock options, or stock appreciation rights payable or granted under a written binding contract that was in effect on March 1, 2010, and which was not modified in any material respect before such remuneration is paid.
(vi)
Self-employed individual treated as employee
The term “employee” includes, with respect to a calendar year, a self-employed individual who is treated as an employee under section
401
(c) for the taxable year ending during such calendar year, and the term “compensation” shall include earned income of such individual with respect to such self-employment.
(vii)
Indexing of amount
In the case of any calendar year beginning after 2010, the dollar amount under clause (i)(II) shall be increased by an amount equal to—
(II)
the cost-of-living adjustment determined under section
1
(f)(3) for the calendar year, determined by substituting “calendar year 2009” for “calendar year 1992” in subparagraph (B) thereof.
If the amount of any increase under clause (i) is not a multiple of $1,000, such increase shall be rounded to the next lowest multiple of $1,000.
(E)
Extraordinary dividends and redemptions
(i)
In general
The amount determined under this subparagraph for any plan year is the excess (if any) of the sum of the dividends declared during the plan year by the plan sponsor plus the aggregate amount paid for the redemption of stock of the plan sponsor redeemed during the plan year over the greater of—
(ii)
Only certain post-2009 dividends and redemptions counted
For purposes of clause (i), there shall only be taken into account dividends declared, and redemptions occurring, after February 28, 2010.
(iii)
Exception for intra-group dividends
Dividends paid by one member of a controlled group (as defined in section
412
(d)(3)) to another member of such group shall not be taken into account under clause (i).
(iv)
Exception for certain redemptions
Redemptions that are made pursuant to a plan maintained with respect to employees, or that are made on account of the death, disability, or termination of employment of an employee or shareholder, shall not be taken into account under clause (i).
(v)
Exception for certain preferred stock
(I)
In general
Dividends and redemptions with respect to applicable preferred stock shall not be taken into account under clause (i) to the extent that dividends accrue with respect to such stock at a specified rate in all events and without regard to the plan sponsor’s income, and interest accrues on any unpaid dividends with respect to such stock.
(II)
Applicable preferred stock
For purposes of subclause (I), the term “applicable preferred stock” means preferred stock which was issued before March 1, 2010 (or which was issued after such date and is held by an employee benefit plan subject to the provisions of title I of [1] Employee Retirement Income Security Act of 1974).
(F)
Other definitions and rules
For purposes of this paragraph—
(i)
Plan sponsor
The term “plan sponsor” includes any member of the plan sponsor’s controlled group (as defined in section
412
(d)(3)).
(ii)
Restriction period
The term “restriction period” means, with respect to any election year—
(iii)
Elections for multiple plans
If a plan sponsor makes elections under paragraph (2)(D) with respect to 2 or more plans, the Secretary shall provide rules for the application of this paragraph to such plans, including rules for the ratable allocation of any installment acceleration amount among such plans on the basis of each plan’s relative reduction in the plan’s shortfall amortization installment for the first plan year in the amortization period described in subparagraph (A) (determined without regard to this paragraph).
(d)
Rules relating to funding target
For purposes of this section—
(1)
Funding target
Except as provided in subsection (i)(1) with respect to plans in at-risk status, the funding target of a plan for a plan year is the present value of all benefits accrued or earned under the plan as of the beginning of the plan year.
(e)
Waiver amortization charge
(1)
Determination of waiver amortization charge
The waiver amortization charge (if any) for a plan for any plan year is the aggregate total of the waiver amortization installments for such plan year with respect to the waiver amortization bases for each of the 5 preceding plan years.
(2)
Waiver amortization installment
For purposes of paragraph (1)—
(3)
Interest rate
In determining any waiver amortization installment under this subsection, the plan sponsor shall use the segment rates determined under subparagraph (C) of subsection (h)(2), applied under rules similar to the rules of subparagraph (B) of subsection (h)(2).
(5)
Early deemed amortization upon attainment of funding target
In any case in which the funding shortfall of a plan for a plan year is zero, for purposes of determining the waiver amortization charge for such plan year and succeeding plan years, the waiver amortization bases for all preceding plan years (and all waiver amortization installments determined with respect to such bases) shall be reduced to zero.
(f)
Reduction of minimum required contribution by prefunding balance and funding standard carryover balance
(1)
Election to maintain balances
(A)
Prefunding balance
The plan sponsor of a defined benefit plan which is not a multiemployer plan may elect to maintain a prefunding balance.
(B)
Funding standard carryover balance
(i)
In general
In the case of a defined benefit plan (other than a multiemployer plan) described in clause (ii), the plan sponsor may elect to maintain a funding standard carryover balance, until such balance is reduced to zero.
(2)
Application of balances
A prefunding balance and a funding standard carryover balance maintained pursuant to this paragraph—
(A)
shall be available for crediting against the minimum required contribution, pursuant to an election under paragraph (3),
(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 contribution for the current plan year all or a portion of the prefunding balance or the funding standard carryover balance for the current plan year (not in excess of such minimum required contribution), the minimum required contribution for the plan year shall be reduced as of the first day of the plan year by the amount so credited by the plan sponsor. For purposes of the preceding sentence, the minimum required contribution shall be determined after taking into account any waiver under section
412
(c).
(B)
Coordination with funding standard carryover balance
To the extent that any plan has a funding standard carryover balance greater than zero, no amount of the prefunding 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 paragraph 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 without regard to subsection (i)(1)),
is less than 80 percent. In the case of plan years beginning in 2008, the ratio under this subparagraph may be determined using such methods of estimation as the Secretary may prescribe.
(D)
Special rule for certain years of plans maintained by charities
(i)
In general
For purposes of applying subparagraph (C) for plan years beginning after August 31, 2009, and before September 1, 2011, the ratio determined under such subparagraph for the preceding plan year of a plan shall be the greater of—
(4)
Effect of balances on amounts treated as value of plan assets
In the case of any plan maintaining a prefunding 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 amortization base
For purposes of subsection (c)(5), the value of plan assets is deemed to be such amount, reduced by the amount of the prefunding balance, but only if an election under paragraph (3) applying any portion of the prefunding balance in reducing the minimum 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 prefunding balance and the funding standard carryover balance.
(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 reduced 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 Pension Benefit Guaranty Corporation which provides that such balance is not available to reduce the minimum required contribution for the plan year. For purposes of the preceding sentence, the term “specified balance” means the prefunding balance or the funding standard carryover balance, as the case may be.
(5)
Election to reduce balance prior to determinations of value of plan assets and crediting against minimum required contribution
(A)
In general
The plan sponsor may elect to reduce by any amount the balance of the prefunding balance and the funding standard carryover balance for any plan year (but not below zero). Such reduction shall be effective prior to any determination of the value of plan assets for such plan year under this section 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).
(6)
Prefunding balance
(A)
In general
A prefunding balance maintained by a plan shall consist of a beginning balance of zero, increased and decreased to the extent provided in subparagraphs (B) and (C), and adjusted further as provided in paragraph (8).
(B)
Increases
(i)
In general
As of the first day of each plan year beginning after 2008, the prefunding balance of a plan shall be increased by the amount elected by the plan sponsor for the plan year. Such amount shall not exceed the excess (if any) of—
(ii)
Adjustments for interest
Any excess contributions under clause (i) shall be properly adjusted for interest accruing for the periods between the first day of the current plan year and the dates on which the excess contributions were made, determined by using the effective interest rate for the preceding plan year and by treating contributions as being first used to satisfy the minimum required contribution.
(iii)
Certain contributions necessary to avoid benefit limitations disregarded
The excess described in clause (i) with respect to any preceding plan year shall be reduced (but not below zero) by the amount of contributions an employer would be required to make under subsection (b), (c), or (e) of section
436 to avoid a benefit limitation which would otherwise be imposed under such paragraph for the preceding plan year. Any contribution which may be taken into account in satisfying the requirements of more than 1 of such paragraphs shall be taken into account only once for purposes of this clause.
(C)
Decreases
The prefunding balance of a plan shall be decreased (but not below zero) by—
(7)
Funding standard carryover balance
(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 extent provided in subparagraph (C), and adjusted further as provided in paragraph (8).
(B)
Beginning balance
The beginning balance of the funding standard carryover balance shall be the positive balance described in paragraph (1)(B)(ii)(II).
(C)
Decreases
The funding standard carryover balance of a plan shall be decreased (but not below zero) by—
(8)
Adjustments for investment experience
In determining the prefunding balance or the funding standard carryover balance of a plan as of the first day of the plan year, the plan sponsor shall, in accordance with regulations prescribed by the Secretary, adjust such balance to reflect the rate of return on plan assets for the preceding plan year. Notwithstanding subsection (g)(3), such rate of return shall be determined on the basis of fair market value and shall properly take into account, in accordance with such regulations, all contributions, distributions, and other plan payments made during such period.
(g)
Valuation of plan assets and liabilities
(1)
Timing of determinations
Except as otherwise provided under this subsection, all determinations 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 100 or fewer participants, the plan may designate any day during the plan year as its valuation date for such plan year and succeeding plan years. For purposes of this subparagraph, 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 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—
(3)
Determination of value of plan assets
For purposes of this section—
(A)
In general
Except as provided in subparagraph (B), the value of plan assets shall be the fair market value of the assets.
(B)
Averaging allowed
A plan may determine the value of plan assets on the basis of the averaging of fair market values, but only if such method—
(ii)
does not provide for averaging of such values over more than the period beginning on the last day of the 25th month preceding the month in which the valuation date occurs and ending on the valuation date (or a similar period in the case of a valuation date which is not the 1st day of a month), and
(iii)
does 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.
Any such averaging shall be adjusted for contributions, distributions, and expected earnings (as determined by the plan’s actuary on the basis of an assumed earnings rate specified by the actuary but not in excess of the third segment rate applicable under subsection (h)(2)(C)(iii)), as specified by the Secretary.
(4)
Accounting for contribution receipts
For purposes of determining the value of assets under paragraph (3)—