2009-10-09
On October 7, 2009, the IRS issued much-anticipated final regulations on valuing assets and liabilities for the funding of single employer defined benefit pension plans and benefit restrictions for underfunded defined benefit plans. The final rules apply to plan years beginning on or after January 1, 2010.

The regulations provide guidance under Code sections 430 and 436. Multiemployer pension plans are not affected by this guidance, since neither Code section 430 nor 436 apply to multiemployer plans. The Pension Protection Act of 2006 added both Code sections 430 and 436 to the Internal Revenue Code. Code section 430 provides plan sponsors with the minimum funding requirements that apply to single employer defined benefit pension plans. Code section 436 limits the benefits under certain single employer defined benefit plans based on their funded status.

Important Changes in Final Regulations

The final regulations are similar to previously issued proposed regulations in many areas, but also reflect some important changes. For example, plan sponsors may now be able to create larger funding balances when they make contributions in excess of the minimum required amount than was allowed under the proposed regulations. Such funding balances can be used to reduce the minimum required contribution for future plan years. For calendar-year plans, the deadline for creating funding balances for the 2009 plan year is October 15, 2009. This means that plan sponsors and their actuaries have only a short window of time to evaluate the impact of the final regulations and decide whether to create additional funding balances.

Text of Final Regulations

The final regulations released October 7 are in the form of an advance release, found on the Office of the Federal Register Web site. They are scheduled to be published in the Federal Register on October 15, 2009.

More Information

Please contact your local Hewitt consultant for more information on how these regulations may affect funding and benefit limitations for pension plans.

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