IRS Publishes Final Regs on Pension Funding Rules

The final regs, which are effective October 15, 2009, apply to plan years beginning after December 31, 2009. The regs adopt, with some changes, proposed regs (REG-139236-07) published in December 2007 and proposed regs (REG-113891-07) published in August 2007. The IRS published proposed regs (REG-108508-08) on other parts of the section 430 rules in April 2008, but those regs will be made final in a separate action, the IRS said in the preamble to T.D. 9467.

Section 430, which was added by the Pension Protection Act of 2006, specifies the minimum funding requirements that apply to single-employer defined benefit pension plans under section 412. The portion of the final regs that is based on REG-139236-07 provides guidance on the determination of assets and liabilities for purposes of applying the new funding rules of section 430. Specifically, the final regs provide rules for determining the funding target and the target normal cost of a plan that is not in at-risk status under section 430(i). The final regs also provide rules for a plan's valuation date and the value of plan assets, and they specify the interest rates that are to be used to determine present value and to make other calculations under section 430. The regs describe several elections a plan sponsor is allowed to make in order to use an alternative interest rate rather than the segment rates. The final regs provide rules and assumptions for determining the funding target and for making other computations for some defined benefit plans that are referred to as plans in at-risk status because of their significantly underfunded status.

The portion of the final regs that is based on REG-113891-07 provides guidance on sections 430(f) and 436 as enacted by the Pension Protection Act of 2006 regarding the use of some funding balances maintained for defined benefit pension plans and on benefit restrictions for some underfunded defined benefit pension plans. The final regs establish a rule that a defined benefit pension plan that is subject to section 412 and that is not a multiemployer plan is a qualified plan only if it satisfies the requirements of section 436. The requirement is a qualification requirement. A plan satisfies the section 436 requirements only if the plan meets the requirements established in the final regs. The final regs generally adopt the rules of the proposed regs, but with several changes that are discussed in the preamble to T.D. 9467.

Full Text Citations: T.D. 9467; Doc 2009- 22242 ; 2009 TNT 193-8