§ 1083. Minimum funding standards for single-employer defined benefit pension plans
(a)
Minimum required contribution
For purposes of this section and section
1082
(a)(2)(A) of this title, except as provided in subsection (f), the term “minimum required contribution” means, with respect to any plan year of a single-employer 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 the shortfall amortization bases for such plan year and each of the 6 preceding plan years.
(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.
(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.
(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 single-employer plan may elect to maintain a prefunding balance.
(B)
Funding standard carryover balance
(i)
In general
In the case of a single-employer 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
1082
(c) of this title.
(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 of the Treasury may prescribe.
(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 paragraph (1), (2), or (4) of section
1056
(g) of this title 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.
(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 of the Treasury, 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 which are single-employer plans and are 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 of the Treasury.
(4)
Accounting for contribution receipts
For purposes of determining the value of assets under paragraph (3)—
(A)
Prior year contributions
If—
(i)
an employer makes any contribution to the plan after the valuation date for the plan year in which the contribution is made, and
the contribution shall be taken into account as an asset of the plan as of the valuation date, except that in the case of any plan year beginning after 2008, only the present value (determined as of the valuation date) of such contribution may be taken into account. For purposes of the preceding sentence, present value shall be determined using the effective interest rate for the preceding plan year to which the contribution is properly allocable.
(h)
Actuarial assumptions and methods
(1)
In general
Subject to this subsection, the determination of any present value or other computation under this section shall be made on the basis of actuarial assumptions and methods—
(2)
Interest rates
(A)
Effective interest rate
For purposes of this section, the term “effective interest rate” means, with respect to any plan for any plan year, the single rate of interest which, if used to determine the present value of the plan’s accrued or earned benefits referred to in subsection (d)(1), would result in an amount equal to the funding target of the plan for such plan year.
(B)
Interest rates for determining funding target
For purposes of determining the funding target and normal cost of a plan for any plan year, the interest rate used in determining the present value of the benefits of the plan shall be—
(i)
in the case of benefits reasonably determined to be payable during the 5-year period beginning on the first day of the plan year, the first segment rate with respect to the applicable month,
(C)
Segment rates
For purposes of this paragraph—
(i)
First segment rate
The term “first segment rate” means, with respect to any month, the single rate of interest which shall be determined by the Secretary of the Treasury for such month on the basis of the corporate bond yield curve for such month, taking into account only that portion of such yield curve which is based on bonds maturing during the 5-year period commencing with such month.
(ii)
Second segment rate
The term “second segment rate” means, with respect to any month, the single rate of interest which shall be determined by the Secretary of the Treasury for such month on the basis of the corporate bond yield curve for such month, taking into account only that portion of such yield curve which is based on bonds maturing during the 15-year period beginning at the end of the period described in clause (i).
(iii)
Third segment rate
The term “third segment rate” means, with respect to any month, the single rate of interest which shall be determined by the Secretary of the Treasury for such month on the basis of the corporate bond yield curve for such month, taking into account only that portion of such yield curve which is based on bonds maturing during periods beginning after the period described in clause (ii).
(D)
Corporate bond yield curve
For purposes of this paragraph—
(i)
In general
The term “corporate bond yield curve” means, with respect to any month, a yield curve which is prescribed by the Secretary of the Treasury for such month and which reflects the average, for the 24-month period ending with the month preceding such month, of monthly yields on investment grade corporate bonds with varying maturities and that are in the top 3 quality levels available.
(ii)
Election to use yield curve
Solely for purposes of determining the minimum required contribution under this section, the plan sponsor may, in lieu of the segment rates determined under subparagraph (C), elect to use interest rates under the corporate bond yield curve. For purposes of the preceding sentence such curve shall be determined without regard to the 24-month averaging described in clause (i). Such election, once made, may be revoked only with the consent of the Secretary of the Treasury.
(E)
Applicable month
For purposes of this paragraph, the term “applicable month” means, with respect to any plan for any plan year, the month which includes the valuation date of such plan for such plan year or, at the election of the plan sponsor, any of the 4 months which precede such month. Any election made under this subparagraph shall apply to the plan year for which the election is made and all succeeding plan years, unless the election is revoked with the consent of the Secretary of the Treasury.
(F)
Publication requirements
The Secretary of the Treasury shall publish for each month the corporate bond yield curve (and the corporate bond yield curve reflecting the modification described in section
1055
(g)(3)(B)(iii)(I) of this title for such month) and each of the rates determined under subparagraph (C) for such month. The Secretary of the Treasury shall also publish a description of the methodology used to determine such yield curve and such rates which is sufficiently detailed to enable plans to make reasonable projections regarding the yield curve and such rates for future months based on the plan’s projection of future interest rates.
(G)
Transition rule
(i)
In general
Notwithstanding the preceding provisions of this paragraph, for plan years beginning in 2008 or 2009, the first, second, or third segment rate for a plan with respect to any month shall be equal to the sum of—
(I)
the product of such rate for such month determined without regard to this subparagraph, multiplied by the applicable percentage, and
(II)
the product of the rate determined under the rules of section
1082
(b)(5)(B)(ii)(II) of this title (as in effect for plan years beginning in 2007), multiplied by a percentage equal to 100 percent minus the applicable percentage.
(ii)
Applicable percentage
For purposes of clause (i), the applicable percentage is 331/3 percent for plan years beginning in 2008 and 662/3 percent for plan years beginning in 2009.
(3)
Mortality tables
(A)
In general
Except as provided in subparagraph (C) or (D), the Secretary of the Treasury shall by regulation prescribe mortality tables to be used in determining any present value or making any computation under this section. Such tables shall be based on the actual experience of pension plans and projected trends in such experience. In prescribing such tables, the Secretary of the Treasury shall take into account results of available independent studies of mortality of individuals covered by pension plans.
(B)
Periodic revision
The Secretary of the Treasury shall (at least every 10 years) make revisions in any table in effect under subparagraph (A) to reflect the actual experience of pension plans and projected trends in such experience.
(C)
Substitute mortality table
(i)
In general
Upon request by the plan sponsor and approval by the Secretary of the Treasury, a mortality table which meets the requirements of clause (iii) shall be used in determining any present value or making any computation under this section during the period of consecutive plan years (not to exceed 10) specified in the request.
(ii)
Early termination of period
Notwithstanding clause (i), a mortality table described in clause (i) shall cease to be in effect as of the earliest of—
(iii)
Requirements
A mortality table meets the requirements of this clause if—
(iv)
All plans in controlled group must use separate table
Except as provided by the Secretary of the Treasury, a plan sponsor may not use a mortality table under this subparagraph for any plan maintained by the plan sponsor unless—
(v)
Deadline for submission and disposition of application
(I)
Submission
The plan sponsor shall submit a mortality table to the Secretary of the Treasury for approval under this subparagraph at least 7 months before the 1st day of the period described in clause (i).
(II)
Disposition
Any mortality table submitted to the Secretary of the Treasury for approval under this subparagraph shall be treated as in effect as of the 1st day of the period described in clause (i) unless the Secretary of the Treasury, during the 180-day period beginning on the date of such submission, disapproves of such table and provides the reasons that such table fails to meet the requirements of clause (iii). The 180-day period shall be extended upon mutual agreement of the Secretary of the Treasury and the plan sponsor.
(D)
Separate mortality tables for the disabled
Notwithstanding subparagraph (A)—
(i)
In general
The Secretary of the Treasury shall establish mortality tables which may be used (in lieu of the tables under subparagraph (A)) under this subsection for individuals who are entitled to benefits under the plan on account of disability. The Secretary of the Treasury shall establish separate tables for individuals whose disabilities occur in plan years beginning before January 1, 1995, and for individuals whose disabilities occur in plan years beginning on or after such date.
(ii)
Special rule for disabilities occurring after 1994
In the case of disabilities occurring in plan years beginning after December 31, 1994, the tables under clause (i) shall apply only with respect to individuals described in such subclause who are disabled within the meaning of title II of the Social Security Act [42 U.S.C. 401 et seq.] and the regulations thereunder.
(4)
Probability of benefit payments in the form of lump sums or other optional forms
For purposes of determining any present value or making any computation under this section, there shall be taken into account—
(5)
Approval of large changes in actuarial assumptions
(A)
In general
No actuarial assumption used to determine the funding target for a plan to which this paragraph applies may be changed without the approval of the Secretary of the Treasury.
(B)
Plans to which paragraph applies
This paragraph shall apply to a plan only if—
(ii)
the aggregate unfunded vested benefits as of the close of the preceding plan year (as determined under section
1306
(a)(3)(E)(iii) of this title) of such plan and all other plans maintained by the contributing sponsors (as defined in section
1301
(a)(13) of this title) and members of such sponsors’ controlled groups (as defined in section
1301
(a)(14) of this title) which are covered by subchapter III (disregarding plans with no unfunded vested benefits) exceed $50,000,000, and
(iii)
the change in assumptions (determined after taking into account any changes in interest rate and mortality table) results in a decrease in the funding shortfall of the plan for the current plan year that exceeds $50,000,000, or that exceeds $5,000,000 and that is 5 percent or more of the funding target of the plan before such change.
(i)
Special rules for at-risk plans
(1)
Funding target for plans in at-risk status
(A)
In general
In the case of a plan which is in at-risk status for a plan year, the funding target of the plan for the plan year shall be equal to the sum of—
(B)
Additional actuarial assumptions
The actuarial assumptions described in this subparagraph are as follows:
(i)
All employees who are not otherwise assumed to retire as of the valuation date but who will be eligible to elect benefits during the plan year and the 10 succeeding plan years shall be assumed to retire at the earliest retirement date under the plan but not before the end of the plan year for which the at-risk funding target and at-risk target normal cost are being determined.
(2)
Target normal cost of at-risk plans
In the case of a plan which is in at-risk status for a plan year, the target normal cost of the plan for such plan year shall be equal to the sum of—