Subpart B—Special Rules
Amendments
1984—
1982—
1974—
1 So in original. Does not conform to section catchline.
§410. Minimum participation standards
(a) Participation
(1) Minimum age and service conditions
(A) General rule
A trust shall not constitute a qualified trust under section 401(a) if the plan of which it is a part requires, as a condition of participation in the plan, that an employee complete a period of service with the employer or employers maintaining the plan extending beyond the later of the following dates—
(i) the date on which the employee attains the age of 21; or
(ii) the date on which he completes 1 year of service.
(B) Special rules for certain plans
(i) In the case of any plan which provides that after not more than 2 years of service each participant has a right to 100 percent of his accrued benefit under the plan which is nonforfeitable (within the meaning of section 411) at the time such benefit accrues, clause (ii) of subparagraph (A) shall be applied by substituting "2 years of service" for "1 year of service".
(ii) In the case of any plan maintained exclusively for employees of an educational institution (as defined in section 170(b)(1)(A)(ii) by an employer which is exempt from tax under section 501(a) which provides that each participant having at least 1 year of service has a right to 100 percent of his accrued benefit under the plan which is nonforfeitable (within the meaning of section 411) at the time such benefit accrues, clause (i) of subparagraph (A) shall be applied by substituting "26" for "21". This clause shall not apply to any plan to which clause (i) applies.
(2) Maximum age conditions
A trust shall not constitute a qualified trust under section 401(a) if the plan of which it is a part excludes from participation (on the basis of age) employees who have attained a specified age.
(3) Definition of year of service
(A) General rule
For purposes of this subsection, the term "year of service" means a 12-month period during which the employee has not less than 1,000 hours of service. For purposes of this paragraph, computation of any 12-month period shall be made with reference to the date on which the employee's employment commenced, except that, under regulations prescribed by the Secretary of Labor, such computation may be made by reference to the first day of a plan year in the case of an employee who does not complete 1,000 hours of service during the 12-month period beginning on the date his employment commenced.
(B) Seasonal industries
In the case of any seasonal industry where the customary period of employment is less than 1,000 hours during a calendar year, the term "year of service" shall be such period as may be determined under regulations prescribed by the Secretary of Labor.
(C) Hours of service
For purposes of this subsection, the term "hour of service" means a time of service determined under regulations prescribed by the Secretary of Labor.
(D) Maritime industries
For purposes of this subsection, in the case of any maritime industry, 125 days of service shall be treated as 1,000 hours of service. The Secretary of Labor may prescribe regulations to carry out this subparagraph.
(4) Time of participation
A plan shall be treated as not meeting the requirements of paragraph (1) unless it provides that any employee who has satisfied the minimum age and service requirements specified in such paragraph, and who is otherwise entitled to participate in the plan, commences participation in the plan no later than the earlier of—
(A) the first day of the first plan year beginning after the date on which such employee satisfied such requirements, or
(B) the date 6 months after the date on which he satisfied such requirements,
unless such employee was separated from the service before the date referred to in subparagraph (A) or (B), whichever is applicable.
(5) Breaks in service
(A) General rule
Except as otherwise provided in subparagraphs (B), (C), and (D), all years of service with the employer or employers maintaining the plan shall be taken into account in computing the period of service for purposes of paragraph (1).
(B) Employees under 2-year 100 percent vesting
In the case of any employee who has any 1-year break in service (as defined in section 411(a)(6)(A)) under a plan to which the service requirements of clause (i) of paragraph (1)(B) apply, if such employee has not satisfied such requirements, service before such break shall not be required to be taken into account.
(C) 1-year break in service
In computing an employee's period of service for purposes of paragraph (1) in the case of any participant who has any 1-year break in service (as defined in section 411(a)(6)(A)), service before such break shall not be required to be taken into account under the plan until he has completed a year of service (as defined in paragraph (3)) after his return.
(D) Nonvested participants
(i) In general
For purposes of paragraph (1), in the case of a nonvested participant, years of service with the employer or employers maintaining the plan before any period of consecutive 1-year breaks in service shall not be required to be taken into account in computing the period of service if the number of consecutive 1-year breaks in service within such period equals or exceeds the greater of—
(I) 5, or
(II) the aggregate number of years of service before such period.
(ii) Years of service not taken into account
If any years of service are not required to be taken into account by reason of a period of breaks in service to which clause (i) applies, such years of service shall not be taken into account in applying clause (i) to a subsequent period of breaks in service.
(iii) Nonvested participant defined
For purposes of clause (i), the term "nonvested participant" means a participant who does not have any nonforfeitable right under the plan to an accrued benefit derived from employer contributions.
(E) Special rule for maternity or paternity absences
(i) General rule
In the case of each individual who is absent from work for any period—
(I) by reason of the pregnancy of the individual,
(II) by reason of the birth of a child of the individual,
(III) by reason of the placement of a child with the individual in connection with the adoption of such child by such individual, or
(IV) for purposes of caring for such child for a period beginning immediately following such birth or placement,
the plan shall treat as hours of service, solely for purposes of determining under this paragraph whether a 1-year break in service (as defined in section 411(a)(6)(A)) has occurred, the hours described in clause (ii).
(ii) Hours treated as hours of service
The hours described in this clause are—
(I) the hours of service which otherwise would normally have been credited to such individual but for such absence, or
(II) in any case in which the plan is unable to determine the hours described in subclause (I), 8 hours of service per day of such absence,
except that the total number of hours treated as hours of service under this clause by reason of any such pregnancy or placement shall not exceed 501 hours.
(iii) Year to which hours are credited
The hours described in clause (ii) shall be treated as hours of service as provided in this subparagraph—
(I) only in the year in which the absence from work begins, if a participant would be prevented from incurring a 1-year break in service in such year solely because the period of absence is treated as hours of service as provided in clause (i); or
(II) in any other case, in the immediately following year.
(iv) Year defined
For purposes of this subparagraph, the term "year" means the period used in computations pursuant to paragraph (3).
(v) Information required to be filed
A plan shall not fail to satisfy the requirements of this subparagraph solely because it provides that no credit will be given pursuant to this subparagraph unless the individual furnishes to the plan administrator such timely information as the plan may reasonably require to establish—
(I) that the absence from work is for reasons referred to in clause (i), and
(II) the number of days for which there was such an absence.
(b) Minimum coverage requirements
(1) In general
A trust shall not constitute a qualified trust under section 401(a) unless such trust is designated by the employer as part of a plan which meets 1 of the following requirements:
(A) The plan benefits at least 70 percent of employees who are not highly compensated employees.
(B) The plan benefits—
(i) a percentage of employees who are not highly compensated employees which is at least 70 percent of
(ii) the percentage of highly compensated employees benefiting under the plan.
(C) The plan meets the requirements of paragraph (2).
(2) Average benefit percentage test
(A) In general
A plan shall be treated as meeting the requirements of this paragraph if—
(i) the plan benefits such employees as qualify under a classification set up by the employer and found by the Secretary not to be discriminatory in favor of highly compensated employees, and
(ii) the average benefit percentage for employees who are not highly compensated employees is at least 70 percent of the average benefit percentage for highly compensated employees.
(B) Average benefit percentage
For purposes of this paragraph, the term "average benefit percentage" means, with respect to any group, the average of the benefit percentages calculated separately with respect to each employee in such group (whether or not a participant in any plan).
(C) Benefit percentage
For purposes of this paragraph—
(i) In general
The term "benefit percentage" means the employer-provided contribution or benefit of an employee under all qualified plans maintained by the employer, expressed as a percentage of such employee's compensation (within the meaning of section 414(s)).
(ii) Period for computing percentage
At the election of an employer, the benefit percentage for any plan year shall be computed on the basis of contributions or benefits for—
(I) such plan year, or
(II) any consecutive plan year period (not greater than 3 years) which ends with such plan year and which is specified in such election.
An election under this clause, once made, may be revoked or modified only with the consent of the Secretary.
(D) Employees taken into account
For purposes of determining who is an employee for purposes of determining the average benefit percentage under subparagraph (B)—
(i) except as provided in clause (ii), paragraph (4)(A) shall not apply, or
(ii) if the employer elects, paragraph (4)(A) shall be applied by using the lowest age and service requirements of all qualified plans maintained by the employer.
(E) Qualified plan
For purposes of this paragraph, the term "qualified plan" means any plan which (without regard to this subsection) meets the requirements of section 401(a).
(3) Exclusion of certain employees
For purposes of this subsection, there shall be excluded from consideration—
(A) employees who are included in a unit of employees covered by an agreement which the Secretary of Labor finds to be a collective bargaining agreement between employee representatives and one or more employers, if there is evidence that retirement benefits were the subject of good faith bargaining between such employee representatives and such employer or employers,
(B) in the case of a trust established or maintained pursuant to an agreement which the Secretary of Labor finds to be a collective bargaining agreement between air pilots represented in accordance with title II of the Railway Labor Act and one or more employers, all employees not covered by such agreement, and
(C) employees who are nonresident aliens and who receive no earned income (within the meaning of section 911(d)(2)) from the employer which constitutes income from sources within the United States (within the meaning of section 861(a)(3)).
Subparagraph (A) shall not apply with respect to coverage of employees under a plan pursuant to an agreement under such subparagraph. Subparagraph (B) shall not apply in the case of a plan which provides contributions or benefits for employees whose principal duties are not customarily performed aboard aircraft in flight.
(4) Exclusion of employees not meeting age and service requirements
(A) In general
If a plan—
(i) prescribes minimum age and service requirements as a condition of participation, and
(ii) excludes all employees not meeting such requirements from participation,
then such employees shall be excluded from consideration for purposes of this subsection.
(B) Requirements may be met separately with respect to excluded group
If employees not meeting the minimum age or service requirements of subsection (a)(1) (without regard to subparagraph (B) thereof) are covered under a plan of the employer which meets the requirements of paragraph (1) separately with respect to such employees, such employees may be excluded from consideration in determining whether any plan of the employer meets the requirements of paragraph (1).
(C) Requirements not treated as being met before entry date
An employee shall not be treated as meeting the age and service requirements described in this paragraph until the first date on which, under the plan, any employee with the same age and service would be eligible to commence participation in the plan.
(5) Line of business exception
(A) In general
If, under section 414(r), an employer is treated as operating separate lines of business for a year, the employer may apply the requirements of this subsection for such year separately with respect to employees in each separate line of business.
(B) Plan must be nondiscriminatory
Subparagraph (A) shall not apply with respect to any plan maintained by an employer unless such plan benefits such employees as qualify under a classification set up by the employer and found by the Secretary not to be discriminatory in favor of highly compensated employees.
(6) Definitions and special rules
For purposes of this subsection—
(A) Highly compensated employee
The term "highly compensated employee" has the meaning given such term by section 414(q).
(B) Aggregation rules
An employer may elect to designate—
(i) 2 or more trusts,
(ii) 1 or more trusts and 1 or more annuity plans, or
(iii) 2 or more annuity plans,
as part of 1 plan intended to qualify under section 401(a) to determine whether the requirements of this subsection are met with respect to such trusts or annuity plans. If an employer elects to treat any trusts or annuity plans as 1 plan under this subparagraph, such trusts or annuity plans shall be treated as 1 plan for purposes of section 401(a)(4).
(C) Special rules for certain dispositions or acquisitions
(i) In general
If a person becomes, or ceases to be, a member of a group described in subsection (b), (c), (m), or (o) of section 414, then the requirements of this subsection shall be treated as having been met during the transition period with respect to any plan covering employees of such person or any other member of such group if—
(I) such requirements were met immediately before each such change, and
(II) the coverage under such plan is not significantly changed during the transition period (other than by reason of the change in members of a group) or such plan meets such other requirements as the Secretary may prescribe by regulation.
(ii) Transition period
For purposes of clause (i), the term "transition period" means the period—
(I) beginning on the date of the change in members of a group, and
(II) ending on the last day of the 1st plan year beginning after the date of such change.
(D) Special rule for certain employee stock ownership plans
A trust which is part of a tax credit employee stock ownership plan which is the only plan of an employer intended to qualify under section 401(a) shall not be treated as not a qualified trust under section 401(a) solely because it fails to meet the requirements of this subsection if—
(i) such plan benefits 50 percent or more of all the employees who are eligible under a nondiscriminatory classification under the plan, and
(ii) the sum of the amounts allocated to each participant's account for the year does not exceed 2 percent of the compensation of that participant for the year.
(E) Eligibility to contribute
In the case of contributions which are subject to section 401(k) or 401(m), employees who are eligible to contribute (or elect to have contributions made on their behalf) shall be treated as benefiting under the plan (other than for purposes of paragraph (2)(A)(ii)).
(F) Employers with only highly compensated employees
A plan maintained by an employer which has no employees other than highly compensated employees for any year shall be treated as meeting the requirements of this subsection for such year.
(G) Regulations
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this subsection.
(c) Application of participation standards to certain plans
(1) The provisions of this section (other than paragraph (2) of this subsection) shall not apply to—
(A) a governmental plan (within the meaning of section 414(d)),
(B) a church plan (within the meaning of section 414(e)) with respect to which the election provided by subsection (d) of this section has not been made,
(C) a plan which has not at any time after September 2, 1974, provided for employer contributions, and
(D) a plan established and maintained by a society, order, or association described in section 501(c)(8) or (9) if no part of the contributions to or under such plan are made by employers of participants in such plan.
(2) A plan described in paragraph (1) shall be treated as meeting the requirements of this section, for purposes of section 401(a), if such plan meets the requirements of section 401(a)(3) as in effect on September 1, 1974.
(d) Election by church to have participation, vesting, funding, etc., provisions apply
(1) In general
If the church or convention or association of churches which maintains any church plan makes an election under this subsection (in such form and manner as the Secretary may by regulations prescribe), then the provisions of this title relating to participation, vesting, funding, etc. (as in effect from time to time) shall apply to such church plan as if such provisions did not contain an exclusion for church plans.
(2) Election irrevocable
An election under this subsection with respect to any church plan shall be binding with respect to such plan, and, once made, shall be irrevocable.
(Added
References in Text
The Railway Labor Act, referred to in subsec. (b)(3)(B), is act May 20, 1926, ch. 347,
Amendments
1989—Subsec. (a)(2).
1988—Subsec. (b)(4)(B).
Subsec. (b)(4)(C).
Subsec. (b)(6)(C)(i)(II).
Subsec. (b)(6)(F), (G).
1986—Subsec. (a)(1)(B)(i).
Subsec. (a)(2).
"(A) the plan is a—
"(i) defined benefit plan, or
"(ii) target benefit plan (as defined under regulations prescribed by the Secretary), and
"(B) such employees begin employment with the employer after they have attained a specified age which is not more than 5 years before the normal retirement age under the plan."
Subsec. (a)(5)(B).
Subsec. (b).
1984—Subsec. (a)(1)(A)(i).
Subsec. (a)(1)(B)(ii).
Subsec. (a)(5)(D).
Subsec. (a)(5)(E).
1981—Subsec. (b)(3)(C).
1980—Subsec. (b)(2), (3).
1976—Subsec. (a)(2)(A)(ii).
Subsec. (a)(5)(C), (D).
Subsec. (b)(1)(B).
Subsec. (c)(1)(C).
Subsec. (c)(2).
Subsec. (d)(1).
Effective Date of 1988 Amendment
Amendment by section 1011(h)(1), (2), (11) of
Amendment by section 3021(a)(13)(B) of
Effective Date of 1986 Amendments
Amendment by section 1112(a) of
Amendment by section 1113(c), (d)(A) of
Amendment by
Effective Date of 1984 Amendment
Amendment by
Effective Date of 1981 Amendment
Amendment by
Effective Date of 1980 Amendment
Amendment by
Effective Date of 1976 Amendment
Amendment by section 1901(a)(61) of
Effective Date; Transitional Rules
Section 1017 of
"(a)
"(b)
"(c)
"(1)
"(A)
"(B)
"(i) the date on which the last of the collective bargaining agreements relating to the plan terminates (determined without regard to any extension thereof agreed to after the date of the enactment of this Act [Sept. 2, 1974]), or
"(ii) January 1, 1981.
For purposes of clause (i), any plan amendment made pursuant to a collective bargaining agreement relating to the plan which amends the plan solely to conform to any requirement contained in this Act [see Short Title note set out under
"(C)
"(D)
"(i) provides supplementary benefits, not in excess of one-third of the basic benefit, in the form of an annuity for the life of the participant, or
"(ii) provides that, under a contractual agreement based on medical evidence as to the effects of working in an adverse environment for an extended period of time, a participant having 25 years of service is to be treated as having 30 years of service.
"(2)
"(A)
"(B)
"(C)
"(i) the date on which the second convention of such labor organization held after the date of the enactment of this Act [Sept. 2, 1974] ends, or
"(ii) December 31, 1980,
but in no event shall a date earlier than the later of December 31, 1975, or the date determined under subparagraph (A) or (B) be substituted.
"(d)
"(e)
"(f)
"(1)
"(A) the date on which his participation would commence under the break in service rules of section 410(a)(5) of such Code, or
"(B) the date on which his participation would commence under the plan as in effect on January 1, 1974,
such plan shall not constitute a plan described in section 403(a) or 405(a) of such Code and a trust forming a part of such plan shall not constitute a qualified trust under section 401(a) of such Code.
"(2)
"(A) the break in service rules of section 411(a)(6) of such Code, or
"(B) the plan as in effect on January 1, 1974,
such plan shall not constitute a plan described in section 403(a) or 405(a) of such Code and a trust forming a part of such plan shall not constitute a qualified trust under section 401(a) of such Code. Subparagraph (B) shall not apply if the break in service rules under the plan would have been in violation of any law or rule of law in effect on January 1, 1974.
"(g) 3-
"(h)(1) Except as provided in paragraph (2), section 413 of the Internal Revenue Code of 1986 shall apply to plan years beginning after December 31, 1953.
"(2)(A) For plan years beginning before the applicable effective date of section 410 of such Code, the provisions of paragraphs (1) and (8) of subsection (b) of such section 413 shall be applied by substituting '401(a)(3)' for '410'.
"(B) For plan years beginning before the applicable effective date of section 411 of such Code, the provisions of subsection (b)(2) of such section 413 shall be applied by substituting '401(a)(7)' for '411(d)(3)'.
"(C)(i) The provisions of subsection (b)(4) of such section 413 shall not apply to plan years beginning before the applicable effective date of section 411 of such Code.
"(ii) The provisions of subsection (b)(5) (other than the second sentence thereof) of such section 413 shall not apply to plan years beginning before the applicable effective date of section 412 of such Code.
"(i)
Regulations
Secretary of the Treasury or his delegate to issue before Feb. 1, 1988, final regulations to carry out amendments made by sections 1112 and 1113 of
Secretary of Labor, Secretary of the Treasury, and Equal Employment Opportunity Commission shall each issue before Feb. 1, 1988, final regulations to carry out amendments made by section 9203 of
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
For provisions directing that if any amendments made by section 9203(a)(2) of
Section Referred to in Other Sections
This section is referred to in
§411. Minimum vesting standards
(a) General rule
A trust shall not constitute a qualified trust under section 401(a) unless the plan of which such trust is a part provides that an employee's right to his normal retirement benefit is nonforfeitable upon the attainment of normal retirement age (as defined in paragraph (8)) and in addition satisfies the requirements of paragraphs (1), (2), and (11) of this subsection and the requirements of subsection (b)(3), and also satisfies, in the case of a defined benefit plan, the requirements of subsection (b)(1) and, in the case of a defined contribution plan, the requirements of subsection (b)(2).
(1) Employee contributions
A plan satisfies the requirements of this paragraph if an employee's rights in his accrued benefit derived from his own contributions are nonforfeitable.
(2) Employer contributions
A plan satisfies the requirements of this paragraph if it satisfies the requirements of subparagraph (A), (B), or (C).
(A) 5-year vesting
A plan satisfies the requirements of this subparagraph if an employee who has completed at least 5 years of service has a nonforfeitable right to 100 percent of the employee's accrued benefit derived from employer contributions.
(B) 3 to 7 year vesting
A plan satisfies the requirements of this subparagraph if an employee has a nonforfeitable right to a percentage of the employee's accrued benefit derived from employer contributions determined under the following table:
| The nonforfeitable | |
| Years of service: | percentage is: |
| 3 | 20 |
| 4 | 40 |
| 5 | 60 |
| 6 | 80 |
| 7 or more | 100. |
(C) Multiemployer plans
A plan satisfies the requirements of this subparagraph if—
(i) the plan is a multiemployer plan (within the meaning of section 414(f)), and
(ii) under the plan—
(I) an employee who is covered pursuant to a collective bargaining agreement described in section 414(f)(1)(B) and who has completed at least 10 years of service has a nonforfeitable right to 100 percent of the employee's accrued benefit derived from employer contributions, and
(II) the requirements of subparagraph (A) or (B) are met with respect to employees not described in subclause (I).
(3) Certain permitted forfeitures, suspensions, etc.
For purposes of this subsection—
(A) Forfeiture on account of death
A right to an accrued benefit derived from employer contributions shall not be treated as forfeitable solely because the plan provides that it is not payable if the participant dies (except in the case of a survivor annuity which is payable as provided in section 401(a)(11)).
(B) Suspension of benefits upon reemployment of retiree
A right to an accrued benefit derived from employer contributions shall not be treated as forfeitable solely because the plan provides that the payment of benefits is suspended for such period as the employee is employed, subsequent to the commencement of payment of such benefits—
(i) in the case of a plan other than a multi-employer plan, by the employer who maintains the plan under which such benefits were being paid; and
(ii) in the case of a multiemployer plan, in the same industry, the same trade or craft, and the same geographic area covered by the plan as when such benefits commenced.
The Secretary of Labor shall prescribe such regulations as may be necessary to carry out the purposes of this subparagraph, including regulations with respect to the meaning of the term "employed".
(C) Effect of retroactive plan amendments
A right to an accrued benefit derived from employer contributions shall not be treated as forfeitable solely because plan amendments may be given retroactive application as provided in section 412(c)(8).
(D) Withdrawal of mandatory contribution
(i) A right to an accrued benefit derived from employer contributions shall not be treated as forfeitable solely because the plan provides that, in the case of a participant who does not have a nonforfeitable right to at least 50 percent of his accrued benefit derived from employer contributions, such accrued benefit may be forfeited on account of the withdrawal by the participant of any amount attributable to the benefit derived from mandatory contributions (as defined in subsection (c)(2)(C)) made by such participant.
(ii) Clause (i) shall not apply to a plan unless the plan provides that any accrued benefit forfeited under a plan provision described in such clause shall be restored upon repayment by the participant of the full amount of the withdrawal described in such clause plus, in the case of a defined benefit plan, interest. Such interest shall be computed on such amount at the rate determined for purposes of subsection (c)(2)(C) on the date of such repayment (computed annually from the date of such withdrawal). The plan provision required under this clause may provide that such repayment must be made (I) in the case of a withdrawal on account of separation from service, before the earlier of 5 years after the first date on which the participant is subsequently re-employed by the employer, or the close of the first period of 5 consecutive 1-year breaks in service commencing after the withdrawal; or (II) in the case of any other withdrawal, 5 years after the date of the withdrawal.
(iii) In the case of accrued benefits derived from employer contributions which accrued before September 2, 1974, a right to such accrued benefit derived from employer contributions shall not be treated as forfeitable solely because the plan provides that an amount of such accrued benefit may be forfeited on account of the withdrawal by the participant of an amount attributable to the benefit derived from mandatory contributions (as defined in subsection (c)(2)(C)) made by such participant before September 2, 1974 if such amount forfeited is proportional to such amount withdrawn. This clause shall not apply to any plan to which any mandatory contribution is made after September 2, 1974. The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this clause.
(iv) For purposes of this subparagraph, in the case of any class-year plan, a withdrawal of employee contributions shall be treated as a withdrawal of such contributions on a plan year by plan year basis in succeeding order of time.
(v) For nonforfeitability where the employee has a nonforfeitable right to at least 50 percent of his accrued benefit, see section 401(a)(19).
(E) Cessation of contributions under a multiemployer plan
A right to an accrued benefit derived from employer contributions under a multiemployer plan shall not be treated as forfeitable solely because the plan provides that benefits accrued as a result of service with the participant's employer before the employer had an obligation to contribute under the plan may not be payable if the employer ceases contributions to the multiemployer plan.
(F) Reduction and suspension of benefits by a multiemployer plan
A participant's right to an accrued benefit derived from employer contributions under a multiemployer plan shall not be treated as forfeitable solely because—
(i) the plan is amended to reduce benefits under section 418D or under section 4281 of the Employee Retirement Income Security Act of 1974, or
(ii) benefit payments under the plan may be suspended under section 418E or under section 4281 of the Employee Retirement Income Security Act of 1974.
(G) Treatment of matching contributions forfeited by reason of excess deferral or contribution
A matching contribution (within the meaning of section 401(m)) shall not be treated as forfeitable merely because such contribution is forfeitable if the contribution to which the matching contribution relates is treated as an excess contribution under section 401(k)(8)(B), an excess deferral under section 402(g)(2)(A), or an excess aggregate contribution under section 401(m)(6)(B).
(4) Service included in determination of nonforfeitable percentage
In computing the period of service under the plan for purposes of determining the nonforfeitable percentage under paragraph (2), all of an employee's years of service with the employer or employers maintaining the plan shall be taken into account, except that the following may be disregarded:
(A) years of service before age 18,1
(B) years of service during a period for which the employee declined to contribute to a plan requiring employee contributions;
(C) years of service with an employer during any period for which the employer did not maintain the plan or a predecessor plan (as defined under regulations prescribed by the Secretary;
(D) service not required to be taken into account under paragraph (6);
(E) years of service before January 1, 1971, unless the employee has had at least 3 years of service after December 31, 1970;
(F) years of service before the first plan year to which this section applies, if such service would have been disregarded under the rules of the plan with regard to breaks in service as in effect on the applicable date; and
(G) in the case of a multiemployer plan, years of service—
(i) with an employer after—
(I) a complete withdrawal of that employer from the plan (within the meaning of section 4203 of the Employee Retirement Income Security Act of 1974), or
(II) to the extent permitted in regulations prescribed by the Secretary, a partial withdrawal described in section 4205(b)(2)(A)(i) of such Act in conjunction with the decertification of the collective bargaining representative, and
(ii) with any employer under the plan after the termination date of the plan under section 4048 of such Act.
(5) Year of service
(A) General rule
For purposes of this subsection, except as provided in subparagraph (C), the term "year of service" means a calendar year, plan year, or other 12-consecutive month period designated by the plan (and not prohibited under regulations prescribed by the Secretary of Labor) during which the participant has completed 1,000 hours of service.
(B) Hours of service
For purposes of this subsection, the term "hours of service" has the meaning provided by section 410(a)(3)(C).
(C) Seasonal industries
In the case of any seasonal industry where the customary period of employment is less than 1,000 hours during a calendar year, the term "year of service" shall be such period as may be determined under regulations prescribed by the Secretary of Labor.
(D) Maritime industries
For purposes of this subsection, in the case of any maritime industry, 125 days of service shall be treated as 1,000 hours of service. The Secretary of Labor may prescribe regulations to carry out the purposes of this subparagraph.
(6) Breaks in service
(A) Definition of 1-year break in service
For purposes of this paragraph, the term "1-year break in service" means a calendar year, plan year, or other 12-consecutive-month period designated by the plan (and not prohibited under regulations prescribed by the Secretary of Labor) during which the participant has not completed more than 500 hours of service.
(B) 1 year of service after 1-year break in service
For purposes of paragraph (4), in the case of any employee who has any 1-year break in service, years of service before such break shall not be required to be taken into account until he has completed a year of service after his return.
(C) 5 consecutive 1-year breaks in service under defined contribution plan
For purposes of paragraph (4), in the case of any participant in a defined contribution plan, or an insured defined benefit plan which satisfies the requirements of subsection (b)(1)(F), who has 5 consecutive 1-year breaks in service, years of service after such 5-year period shall not be required to be taken into account for purposes of determining the nonforfeitable percentage of his accrued benefit derived from employer contributions which accrued before such 5-year period.
(D) Nonvested participants
(i) In general
For purposes of paragraph (4), in the case of a nonvested participant, years of service with the employer or employers maintaining the plan before any period of consecutive 1-year breaks in service shall not be required to be taken into account if the number of consecutive 1-year breaks in service within such period equals or exceeds the greater of—
(I) 5, or
(II) the aggregate number of years of service before such period.
(ii) Years of service not taken into account
If any years of service are not required to be taken into account by reason of a period of breaks in service to which clause (i) applies, such years of service shall not be taken into account in applying clause (i) to a subsequent period of breaks in service.
(iii) Nonvested participant defined
For purposes of clause (i), the term "nonvested participant" means a participant who does not have any nonforfeitable right under the plan to an accrued benefit derived from employer contributions.
(E) Special rule for maternity or paternity absences
(i) General rule
In the case of each individual who is absent from work for any period—
(I) by reason of the pregnancy of the individual,
(II) by reason of the birth of a child of the individual,
(III) by reason of the placement of a child with the individual in connection with the adoption of such child by such individual, or
(IV) for purposes of caring for such child for a period beginning immediately following such birth or placement,
the plan shall treat as hours of service, solely for purposes of determining under this paragraph whether a 1-year break in service has occurred, the hours described in clause (ii).
(ii) Hours treated as hours of service
The hours described in this clause are—
(I) the hours of service which otherwise would normally have been credited to such individual but for such absence, or
(II) in any case in which the plan is unable to determine the hours described in subclause (I), 8 hours of service per day of absence,
except that the total number of hours treated as hours of service under this clause by reason of any such pregnancy or placement shall not exceed 501 hours.
(iii) Year to which hours are credited
The hours described in clause (ii) shall be treated as hours of service as provided in this subparagraph—
(I) only in the year in which the absence from work begins, if a participant would be prevented from incurring a 1-year break in service in such year solely because the period of absence is treated as hours of service as provided in clause (i); or
(II) in any other case, in the immediately following year.
(iv) Year defined
For purposes of this subparagraph, the term "year" means the period used in computations pursuant to paragraph (5).
(v) Information required to be filed
A plan shall not fail to satisfy the requirements of this subparagraph solely because it provides that no credit will be given pursuant to this subparagraph unless the individual furnishes to the plan administrator such timely information as the plan may reasonably require to establish—
(I) that the absence from work is for reasons referred to in clause (i), and
(II) the number of days for which there was such an absence.
(7) Accrued benefit
(A) In general
For purposes of this section, the term "accrued benefit" means—
(i) in the case of a defined benefit plan, the employee's accrued benefit determined under the plan and, except as provided in subsection (c)(3), expressed in the form of an annual benefit commencing at normal retirement age, or
(ii) in the case of a plan which is not a defined benefit plan, the balance of the employee's account.
(B) Effect of certain distributions
Notwithstanding paragraph (4), for purposes of determining the employee's accrued benefit under the plan, the plan may disregard service performed by the employee with respect to which he has received—
(i) a distribution of the present value of his entire nonforfeitable benefit if such distribution was in an amount (not more than $3,500) permitted under regulations prescribed by the Secretary, or
(ii) a distribution of the present value of his nonforfeitable benefit attributable to such service which he elected to receive.
Clause (i) of this subparagraph shall apply only if such distribution was made on termination of the employee's participation in the plan. Clause (ii) of this subparagraph shall apply only if such distribution was made on termination of the employee's participation in the plan or under such other circumstances as may be provided under regulations prescribed by the Secretary.
(C) Repayment of subparagraph (B) distributions
For purposes of determining the employee's accrued benefit under a plan, the plan may not disregard service as provided in subparagraph (B) unless the plan provides an opportunity for the participant to repay the full amount of the distribution described in such subparagraph (B) with, in the case of a defined benefit plan, interest at the rate determined for purposes of subsection (c)(2)(C) and provides that upon such repayment the employee's accrued benefit shall be recomputed by taking into account service so disregarded. This subparagraph shall apply only in the case of a participant who—
(i) received such a distribution in any plan year to which this section applies, which distribution was less than the present value of his accrued benefit,
(ii) resumes employment covered under the plan, and
(iii) repays the full amount of such distribution with, in the case of a defined benefit plan, interest at the rate determined for purposes of subsection (c)(2)(C).
The plan provision required under this subparagraph may provide that such repayment must be made (I) in the case of a withdrawal on account of separation from service, before the earlier of 5 years after the first date on which the participant is subsequently re-employed by the employer, or the close of the first period of 5 consecutive 1-year breaks in service commencing after the withdrawal; or (II) in the case of any other withdrawal, 5 years after the date of the withdrawal.
(D) Accrued benefit attributable to employee contributions
The accrued benefit of an employee shall not be less than the amount determined under subsection (c)(2)(B) with respect to the employee's accumulated contributions.
(8) Normal retirement age
For purposes of this section, the term "normal retirement age" means the earlier of—
(A) the time a plan participant attains normal retirement age under the plan, or
(B) the later of—
(i) the time a plan participant attains age 65, or
(ii) the 5th anniversary of the time a plan participant commenced participation in the plan.
(9) Normal retirement benefit
For purposes of this section, the term "normal retirement benefit" means the greater of the early retirement benefit under the plan, or the benefit under the plan commencing at normal retirement age. The normal retirement benefit shall be determined without regard to—
(A) medical benefits, and
(B) disability benefits not in excess of the qualified disability benefit.
For purposes of this paragraph, a qualified disability benefit is a disability benefit provided by a plan which does not exceed the benefit which would be provided for the participant if he separated from the service at normal retirement age. For purposes of this paragraph, the early retirement benefit under a plan shall be determined without regard to any benefits commencing before benefits payable under title II of the Social Security Act become payable which—
(i) do not exceed such social security benefits, and
(ii) terminate when such social security benefits commence.
(10) Changes in vesting schedule
(A) General rule
A plan amendment changing any vesting schedule under the plan shall be treated as not satisfying the requirements of paragraph (2) if the nonforfeitable percentage of the accrued benefit derived from employer contributions (determined as of the later of the date such amendment is adopted, or the date such amendment becomes effective) of any employee who is a participant in the plan is less than such nonforfeitable percentage computed under the plan without regard to such amendment.
(B) Election of former schedule
A plan amendment changing any vesting schedule under the plan shall be treated as not satisfying the requirements of paragraph (2) unless each participant having not less than 3 years of service is permitted to elect, within a reasonable period after the adoption of such amendment, to have his nonforfeitable percentage computed under the plan without regard to such amendment.
(11) Restrictions on certain mandatory distributions
(A) In general
If the present value of any nonforfeitable accrued benefit exceeds $3,500, a plan meets the requirements of this paragraph only if such plan provides that such benefit may not be immediately distributed without the consent of the participant.
(B) Determination of present value
For purposes of subparagraph (A), the present value shall be calculated in accordance with section 417(e)(3).
(C) Dividend distributions of ESOPS arrangement
This paragraph shall not apply to any distribution of dividends to which section 404(k) applies.
(b) Accrued benefit requirements
(1) Defined benefit plans
(A) 3-percent method
A defined benefit plan satisfies the requirements of this paragraph if the accrued benefit to which each participant is entitled upon his separation from the service is not less than—
(i) 3 percent of the normal retirement benefit to which he would be entitled if he commenced participation at the earliest possible entry age under the plan and served continuously until the earlier of age 65 or the normal retirement age specified under the plan, multiplied by
(ii) the number of years (not in excess of 331/3) of his participation in the plan.
In the case of a plan providing retirement benefits based on compensation during any period, the normal retirement benefit to which a participant would be entitled shall be determined as if he continued to earn annually the average rate of compensation which he earned during consecutive years of service, not in excess of 10, for which his compensation was the highest. For purposes of this subparagraph, social security benefits and all other relevant factors used to compute benefits shall be treated as remaining constant as of the current year for all years after such current year.
(B) 1331/3 percent rule
A defined benefit plan satisfies the requirements of this paragraph for a particular plan year if under the plan the accrued benefit payable at the normal retirement age is equal to the normal retirement benefit and the annual rate at which any individual who is or could be a participant can accrue the retirement benefits payable at normal retirement age under the plan for any later plan year is not more than 1331/3 percent of the annual rate at which he can accrue benefits for any plan year beginning on or after such particular plan year and before such later plan year. For purposes of this subparagraph—
(i) any amendment to the plan which is in effect for the current year shall be treated as in effect for all other plan years;
(ii) any change in an accrual rate which does not apply to any individual who is or could be a participant in the current year shall be disregarded;
(iii) the fact that benefits under the plan may be payable to certain employees before normal retirement age shall be disregarded; and
(iv) social security benefits and all other relevant factors used to compute benefits shall be treated as remaining constant as of the current year for all years after the current year.
(C) Fractional rule
A defined benefits plan satisfies the requirements of this paragraph if the accrued benefit to which any participant is entitled upon his separation from the service is not less than a fraction of the annual benefit commencing at normal retirement age to which he would be entitled under the plan as in effect on the date of his separation if he continued to earn annually until normal retirement age the same rate of compensation upon which his normal retirement benefit would be computed under the plan, determined as if he had attained normal retirement age on the date on which any such determination is made (but taking into account no more than the 10 years of service immediately preceding his separation from service). Such fraction shall be a fraction, not exceeding 1, the numerator of which is the total number of his years of participation in the plan (as of the date of his separation from the service) and the denominator of which is the total number of years he would have participated in the plan if he separated from the service at the normal retirement age. For purposes of this subparagraph, social security benefits and all other relevant factors used to compute benefits shall be treated as remaining constant as of the current year for all years after such current year.
(D) Accrual for service before effective date
Subparagraphs (A), (B), and (C) shall not apply with respect to years of participation before the first plan year to which this section applies, but a defined benefit plan satisfies the requirements of this subparagraph with respect to such years of participation only if the accrued benefit of any participant with respect to such years of participation is not less than the greater of—
(i) his accrued benefit determined under the plan, as in effect from time to time prior to September 2, 1974, or
(ii) an accrued benefit which is not less than one-half of the accrued benefit to which such participant would have been entitled if subparagraph (A), (B), or (C) applied with respect to such years of participation.
(E) First two years of service
Notwithstanding subparagraphs (A), (B), and (C) of this paragraph, a plan shall not be treated as not satisfying the requirements of this paragraph solely because the accrual of benefits under the plan does not become effective until the employee has two continuous years of service. For purposes of this subparagraph, the term "years of service" has the meaning provided by section 410(a)(3)(A).
(F) Certain insured defined benefit plans
Notwithstanding subparagraphs (A), (B), and (C), a defined benefit plan satisfies the requirements of this paragraph if such plan—
(i) is funded exclusively by the purchase of insurance contracts, and
(ii) satisfies the requirements of paragraphs (2) and (3) of section 412(i) (relating to certain insurance contract plans),
but only if an employee's accrued benefit as of any applicable date is not less than the cash surrender value his insurance contracts would have on such applicable date if the requirements of paragraphs (4), (5), and (6) of section 412(i) were satisfied.
(G) Accrued benefit may not decrease on account of increasing age or service
Notwithstanding the preceding subparagraphs, a defined benefit plan shall be treated as not satisfying the requirements of this paragraph if the participant's accrued benefit is reduced on account of any increase in his age or service. The preceding sentence shall not apply to benefits under the plan commencing before entitlement to benefits payable under title II of the Social Security Act which benefits under the plan—
(i) do not exceed such social security benefits, and
(ii) terminate when such social security benefits commence.
(H) Continued accrual beyond normal retirement age
(i) In general
Notwithstanding the preceding subparagraphs, a defined benefit plan shall be treated as not satisfying the requirements of this paragraph if, under the plan, an employee's benefit accrual is ceased, or the rate of an employee's benefit accrual is reduced, because of the attainment of any age.
(ii) Certain limitations permitted
A plan shall not be treated as failing to meet the requirements of this subparagraph solely because the plan imposes (without regard to age) a limitation on the amount of benefits that the plan provides or a limitation on the number of years of service or years of participation which are taken into account for purposes of determining benefit accrual under the plan.
(iii) Adjustments under plan for delayed retirement taken into account
In the case of any employee who, as of the end of any plan year under a defined benefit plan, has attained normal retirement age under such plan—
(I) if distribution of benefits under such plan with respect to such employee has commenced as of the end of such plan year, then any requirement of this subparagraph for continued accrual of benefits under such plan with respect to such employee during such plan year shall be treated as satisfied to the extent of the actuarial equivalent of inservice distribution of benefits, and
(II) if distribution of benefits under such plan with respect to such employee has not commenced as of the end of such year in accordance with section 401(a)(14)(C), and the payment of benefits under such plan with respect to such employee is not suspended during such plan year pursuant to subsection (a)(3)(B), then any requirement of this subparagraph for continued accrual of benefits under such plan with respect to such employee during such plan year shall be treated as satisfied to the extent of any adjustment in the benefit payable under the plan during such plan year attributable to the delay in the distribution of benefits after the attainment of normal retirement age.
The preceding provisions of this clause shall apply in accordance with regulations of the Secretary. Such regulations may provide for the application of the preceding provisions of this clause, in the case of any such employee, with respect to any period of time within a plan year.
(iv) Disregard of subsidized portion of early retirement benefit
A plan shall not be treated as failing to meet the requirements of clause (i) solely because the subsidized portion of any early retirement benefit is disregarded in determining benefit accruals.
(v) Coordination with other requirements
The Secretary shall provide by regulation for the coordination of the requirements of this subparagraph with the requirements of subsection (a), sections 404, 410, and 415, and the provisions of this subchapter precluding discrimination in favor of highly compensated employees.
(2) Defined contribution plans
(A) In general
A defined contribution plan satisfies the requirements of this paragraph if, under the plan, allocations to the employee's account are not ceased, and the rate at which amounts are allocated to the employee's account is not reduced, because of the attainment of any age.
(B) Application to target benefit plans
The Secretary shall provide by regulation for the application of the requirements of this paragraph to target benefit plans.
(C) Coordination with other requirements
The Secretary may provide by regulation for the coordination of the requirements of this paragraph with the requirements of subsection (a), sections 404, 410, and 415, and the provisions of this subchapter precluding discrimination in favor of highly compensated employees.
(3) Separate accounting required in certain cases
A plan satisfies the requirements of this paragraph if—
(A) in the case of the defined benefit plan, the plan requires separate accounting for the portion of each employee's accrued benefit derived from any voluntary employee contributions permitted under the plan; and
(B) in the case of any plan which is not a defined benefit plan, the plan requires separate accounting for each employee's accrued benefit.
(4) Year of participation
(A) Definition
For purposes of determining an employee's accrued benefit, the term "year of participation" means a period of service (beginning at the earliest date on which the employee is a participant in the plan and which is included in a period of service required to be taken into account under section 410(a)(5), determined without regard to section 410(a)(5)(E)) as determined under regulations prescribed by the Secretary of Labor which provide for the calculation of such period on any reasonable and consistent basis.
(B) Less than full time service
For purposes of this paragraph, except as provided in subparagraph (C), in the case of any employee whose customary employment is less than full time, the calculation of such employee's service on any basis which provides less than a ratable portion of the accrued benefit to which he would be entitled under the plan if his customary employment were full time shall not be treated as made on a reasonable and consistent basis.
(C) Less than 1,000 hours of service during year
For purposes of this paragraph, in the case of any employee whose service is less than 1,000 hours during any calendar year, plan year or other 12-consecutive month period designated by the plan (and not prohibited under regulations prescribed by the Secretary of Labor) the calculation of his period of service shall not be treated as not made on a reasonable and consistent basis solely because such service is not taken into account.
(D) Seasonal industries
In the case of any seasonal industry where the customary period of employment is less than 1,000 hours during a calendar year, the term "year of participation" shall be such period as determined under regulations prescribed by the Secretary of Labor.
(E) Maritime industries
For purposes of this subsection, in the case of any maritime industry, 125 days of service shall be treated as a year of participation. The Secretary of Labor may prescribe regulations to carry out the purposes of this subparagraph.
(c) Allocation of accrued benefits between employer and employee contributions
(1) Accrued benefit derived from employer contributions
For purposes of this section, an employee's accrued benefit derived from employer contributions as of any applicable date is the excess, if any, of the accrued benefit for such employee as of such applicable date over the accrued benefit derived from contributions made by such employee as of such date.
(2) Accrued benefit derived from employee contributions
(A) Plans other than defined benefit plans
In the case of a plan other than a defined benefit plan, the accrued benefit derived from contributions made by an employee as of any applicable date is—
(i) except as provided in clause (ii), the balance of the employee's separate account consisting only of his contributions and the income, expenses, gains, and losses attributable thereto, or
(ii) if a separate account is not maintained with respect to an employee's contributions under such a plan, the amount which bears the same ratio to his total accrued benefit as the total amount of the employee's contributions (less withdrawals) bears to the sum of such contributions and the contributions made on his behalf by the employer (less withdrawals).
(B) Defined benefit plans
In the case of a defined benefit plan, the accrued benefit derived from contributions made by an employee as of any applicable date is the amount equal to the employee's accumulated contributions expressed as an annual benefit commencing at normal retirement age, using an interest rate which would be used under the plan under section 417(e)(3) (as of the determination date).
(C) Definition of accumulated contributions
For purposes of this subsection, the term "accumulated contribution" means the total of—
(i) all mandatory contributions made by the employee,
(ii) interest (if any) under the plan to the end of the last plan year to which subsection (a)(2) does not apply (by reason of the applicable effective date), and
(iii) interest on the sum of the amounts determined under clauses (i) and (ii) compounded annually—
(I) at the rate of 120 percent of the Federal mid-term rate (as in effect under section 1274 for the 1st month of a plan year) for the period beginning with the 1st plan year to which subsection (a)(2) applies (by reason of the applicable effective date) and ending with the date on which the determination is being made, and
(II) at the interest rate which would be used under the plan under section 417(e)(3) (as of the determination date) for the period beginning with the determination date and ending on the date on which the employee attains normal retirement age.
For purposes of this subparagraph, the term "mandatory contributions" means amounts contributed to the plan by the employee which are required as a condition of employment, as a condition of participation in such plan, or as a condition of obtaining benefits under the plan attributable to employer contributions.
(D) Adjustments
The Secretary is authorized to adjust by regulation the conversion factor described in subparagraph (B) from time to time as he may deem necessary. No such adjustment shall be effective for a plan year beginning before the expiration of 1 year after such adjustment is determined and published.
(3) Actuarial adjustment
For purposes of this section, in the case of any defined benefit plan, if an employee's accrued benefit is to be determined as an amount other than an annual benefit commencing at normal retirement age, or if the accrued benefit derived from contributions made by an employee is to be determined with respect to a benefit other than an annual benefit in the form of a single life annuity (without ancillary benefits) commencing at normal retirement age, the employee's accrued benefit, or the accrued benefits derived from contributions made by an employee, as the case may be, shall be the actuarial equivalent of such benefit or amount determined under paragraph (1) or (2).
(d) Special rules
(1) Coordination with section 401(a)(4)
A plan which satisfies the requirements of this section shall be treated as satisfying any vesting requirements resulting from the application of section 401(a)(4) unless—
(A) there has been a pattern of abuse under the plan (such as a dismissal of employees before their accrued benefits become nonforfeitable) tending to discriminate in favor of employees who are highly compensated employees (within the meaning of section 414(q)), or
(B) there have been, or there is reason to believe there will be, an accrual of benefits or forfeitures tending to discriminate in favor of employees who are highly compensated employees (within the meaning of section 414(q)).
(2) Prohibited discrimination
Subsection (a) shall not apply to benefits which may not be provided for designated employees in the event of early termination of the plan under provisions of the plan adopted pursuant to regulations prescribed by the Secretary to preclude the discrimination prohibited by section 401(a)(4).
(3) Termination or partial termination; discontinuance of contributions
Notwithstanding the provisions of subsection (a), a trust shall not constitute a qualified trust under section 401(a) unless the plan of which such trust is a part provides that—
(A) upon its termination or partial termination, or
(B) in the case of a plan to which section 412 does not apply, upon complete discontinuance of contributions under the plan,
the rights of all affected employees to benefits accrued to the date of such termination, partial termination, or discontinuance, to the extent funded as of such date, or the amounts credited to the employees' accounts, are nonforfeitable. This paragraph shall not apply to benefits or contributions which, under provisions of the plan adopted pursuant to regulations prescribed by the Secretary to preclude the discrimination prohibited by section 401(a)(4), may not be used for designated employees in the event of early termination of the plan. For purposes of this paragraph, in the case of the complete discontinuance of contributions under a profit-sharing or stock bonus plan, such plan shall be treated as having terminated on the day on which the plan administrator notifies the Secretary (in accordance with regulations) of the discontinuance.
[(4) Repealed. Pub. L. 99–514, title XI, §1113(b), Oct. 22, 1986, 100 Stat. 2447 ]
(5) Treatment of voluntary employee contributions
In the case of a defined benefit plan which permits voluntary employee contributions, the portion of an employee's accrued benefit derived from such contributions shall be treated as an accrued benefit derived from employee contributions under a plan other than a defined benefit plan.
(6) Accrued benefit not to be decreased by amendment
(A) In general
A plan shall be treated as not satisfying the requirements of this section if the accrued benefit of a participant is decreased by an amendment of the plan, other than an amendment described in section 412(c)(8), or section 4281 of the Employee Retirement Income Security Act of 1974.
(B) Treatment of certain plan amendments
For purposes of subparagraph (A), a plan amendment which has the effect of—
(i) eliminating or reducing an early retirement benefit or a retirement-type subsidy (as defined in regulations), or
(ii) eliminating an optional form of benefit,
with respect to benefits attributable to service before the amendment shall be treated as reducing accrued benefits. In the case of a retirement-type subsidy, the preceding sentence shall apply only with respect to a participant who satisfies (either before or after the amendment) the preamendment conditions for the subsidy. The Secretary may by regulations provide that this subparagraph shall not apply to a plan amendment described in clause (ii) (other than a plan amendment having an effect described in clause (i)).
(C) Special rule for ESOPS
For purposes of this paragraph, any—
(i) tax credit employee stock ownership plan (as defined in section 409(a)), or
(ii) employee stock ownership plan (as defined in section 4975(e)(7)),
shall not be treated as failing to meet the requirements of this paragraph merely because it modifies distribution options in a nondiscriminatory manner.
(e) Application of vesting standards to certain plans
(1) The provisions of this section (other than paragraph (2)) shall not apply to—
(A) a governmental plan (within the meaning of section 414(d)),
(B) a church plan (within the meaning of section 414(e)) with respect to which the election provided by section 410(d) has not been made,
(C) a plan which has not, at any time after September 2, 1974, provided for employer contributions, and
(D) a plan established and maintained by a society, order, or association described in section 501(c)(8) or (9), if no part of the contributions to or under such plan are made by employers of participants in such plan.
(2) A plan described in paragraph (1) shall be treated as meeting the requirements of this section, for purposes of section 401(a), if such plan meets the vesting requirements resulting from the application of sections 401(a)(4) and 401(a)(7) as in effect on September 1, 1974.
(Added
References in Text
Section 4281 of the Employee Retirement Income Security Act of 1974, referred to in subsecs. (a)(3)(F)(i), (ii) and (d)(6)(A), is classified to
Section 4203 of the Employee Retirement Income Security Act of 1974, referred to in subsec. (a)(4)(G)(i)(I), is classified to
Section 4205(b)(2)(A)(i) of such Act, referred to in subsec. (a)(4)(G)(i)(II), is classified to
Section 4048 of such Act, referred to in subsec. (a)(4)(G)(ii), is classified to
The Social Security Act, referred to in subsecs. (a)(9) and (b)(1)(G), is act Aug. 14, 1935, ch. 531,
Amendments
1994—Subsec. (a)(11)(B).
"(i)
"(I) by using an interest rate no greater than the applicable interest rate if the vested accrued benefit (using such rate) is not in excess of $25,000, and
"(II) by using an interest rate no greater than 120 percent of the applicable interest rate if the vested accrued benefit exceeds $25,000 (as determined under subclause (I)).
In no event shall the present value determined under subclause (II) be less than $25,000.
"(ii)
1992—Subsec. (d)(3).
1989—Subsec. (a)(3)(G).
Subsec. (a)(4)(A).
Subsec. (a)(7)(D).
Subsec. (a)(8)(B).
"(i) the time a plan participant attains age 65,
"(ii) in the case of a plan participant who commences participation in the plan within 5 years before attaining normal retirement age under the plan, the 5th anniversary of the time the plan participant commences participation in the plan, or
"(iii) in the case of a plan participant not described in clause (ii), the 10th anniversary of the time the plan participant commences participation in the plan."
Subsec. (b)(2)(B).
Subsec. (b)(2)(C), (D).
Subsec. (c)(2)(B).
"(i)
"(ii)
Subsec. (c)(2)(C)(iii).
Subsec. (c)(2)(E).
"(i) the employee's accrued benefit under the plan, or
"(ii) the accrued benefit derived from employee contributions determined as though the amounts calculated under clauses (ii) and (iii) of subparagraph (C) were zero."
1988—Subsec. (a)(11)(A).
1987—Subsec. (c)(2)(C)(iii).
Subsec. (c)(2)(D).
1986—Subsec. (a).
Subsec. (a)(2).
Subsec. (a)(3)(D)(ii).
Subsec. (a)(7)(C).
Subsec. (a)(8)(B).
"(i) the time a plan participant attains age 65, or
"(ii) the 10th anniversary of the time a plan participant commenced participation in the plan."
Subsec. (a)(10)(B).
Subsec. (a)(11)(A).
Subsec. (a)(11)(B).
Subsec. (a)(11)(C).
Subsec. (b)(1).
Subsec. (b)(2) to (4).
Subsec. (d)(1)(A), (B).
Subsec. (d)(4).
Subsec. (d)(6)(C).
1984—Subsec. (a)(4)(A).
Subsec. (a)(6)(C).
Subsec. (a)(6)(D).
Subsec. (a)(6)(E).
Subsec. (a)(7)(B)(i).
Subsec. (a)(7)(C).
Subsec. (a)(11).
Subsec. (b)(3)(A).
Subsec. (d)(6).
1980—Subsec. (a).
Subsec. (d)(6).
1976—Subsec. (a).
Subsec. (b)(1)(D)(i).
Subsecs. (c)(2)(B)(ii), (D), (d)(2), (3).
Subsec. (e)(1)(C).
Subsec. (e)(2).
Effective Date of 1994 Amendment
Section 767(d) of
"(1)
"(2)
"(3)
"(A)
"(B)
Effective Date of 1992 Amendment
Amendment by
Effective Date of 1989 Amendment
Amendment by section 7861(a)(5)(A), (6)(A) of
Section 7871(a)(4) of
Section 7871(b)(3) of
Amendment by section 7881(m)(1) of
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1987 Amendment
Amendment by
Effective Date of 1986 Amendments
Section 1113(f), formerly §1113(e), of
"(1)
"(2)
"(A) the later of—
"(i) January 1, 1989, or
"(ii) the date on which the last of such collective bargaining agreements terminates (determined without regard to any extension thereof after February 28, 1986), or
"(B) January 1, 1991.
"(3)
"(4)
"(A) such plan amendment would reduce the nonforfeitable right of such employee for such year, and
"(B) such employee has at least 1 hour of service before the adoption of such plan amendment and after the beginning of such 1st plan year.
This paragraph shall not apply to an employee who has 5 consecutive 1-year breaks in service (as defined in section 411(a)(6)(A) of the Internal Revenue Code of 1986) which include the 1st day of the 1st plan year to which the amendments made by subsection (b) and (e)(2) apply. A plan shall not be treated as failing to meet the requirements of section 401(a)(26) of such Code by reason of complying with the provisions of this paragraph."
Amendment by section 1114(b)(10) of
Section 1139(d) of
"(1)
"(2)
"(A)
"(i) adopts a plan amendment before the close of the first plan year beginning on or after January 1, 1989, which provides for the calculation of the present value of the accrued benefits in the manner provided by the amendments made by this section, and
"(ii) the plan reduces the accrued benefits for any plan year to which such plan amendment applies in accordance with such plan amendment,
such reduction shall not be treated as a violation of section 411(d)(6) of the Internal Revenue Code of 1986 or section 204(g) of the Employee Retirement Income Security Act of 1974 (
"(B)
"(i) such plan may be amended to remove the option of an employee to receive a lump sum distribution (within the meaning of section 402(e)(5) of such Code) if such amendment—
"(I) is adopted within 1 year of the date of the enactment of this Act [Oct. 22, 1986], and
"(II) is not effective until 2 years after the employees are notified of such amendment, and
"(ii) the present value of any vested accrued benefit of such plan determined during the 3-year period beginning on the date of the enactment of this Act shall be determined under the applicable interest rate (within the meaning of section 411(a)(11)(B)(ii) of such Code), except that if such value (as so determined) exceeds $50,000, then the value of any excess over $50,000 shall be determined by using the interest rate specified in the plan as of August 16, 1986."
Section 1898(a)(1)(C) of
Amendment by section 1898(a)(4)(A), (d)(1)(A), (2)(A), (f)(1)(A) of
Amendment by section 9202(b) of
Effective Date of 1984 Amendment
Amendment by
Effective Date of 1980 Amendment
Amendment by
Effective Date of 1976 Amendment
Amendment by section 1901(a)(62) of
Effective Date
Section applicable, except as otherwise provided in section 1017(c) through (i) of
Regulations
Secretary of the Treasury or his delegate to issue before Feb. 1, 1988, final regulations to carry out amendments made by sections 1113 and 1114 of
Secretary of Labor, Secretary of the Treasury, and Equal Employment Opportunity Commission shall each issue before Feb. 1, 1988, final regulations to carry out amendments made by sections 9202 and 9203 of
Plan Amendments Reflecting Amendments by Section 7881(m) of Pub. L. 101–239 Not Treated as Reducing Accrued Benefits
For provisions directing that if during the period beginning Dec. 22, 1987, and ending June 21, 1988, a plan was amended to reflect the amendments by section 9346 of
Plan Amendments Not Required Until January 1, 1994
For provisions directing that if any amendments made by subtitle B [§§521–523] of title V of
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
For provisions directing that if any amendments made by sections 9202(b) and 9203(b)(2) of
Alternate Methods of Satisfying Requirements for Vesting and Accrued Benefits
Section 1012(c) of
"(1) the application of such requirements would increase the costs of the plan to such an extent that there would result a substantial risk to the voluntary continuation of the plan or a substantial curtailment of benefit levels or the levels of employees' compensation,
"(2) the application of such requirements or discontinuance of the plan would be adverse to the interests of plan participants in the aggregate, and
"(3) a waiver or extension of time granted under section 412(d) or (e) would be inadequate.
In the case of any plan with respect to which an alternate method has been prescribed under the preceding provisions of this subsection for a period of not more than 4 years, if, not later than 1 year before the expiration of such period, the plan administrator petitions the Secretary of Labor for an extension of such alternate method, and the Secretary makes the findings required by the preceding sentence, such alternate method may be extended for not more than 3 years."
Section Referred to in Other Sections
This section is referred to in sections 401, 410, 412, 413, 414, 416, 417, 418D, 418E, 4978; title 29 sections 623, 1054, 1082, 1202, 1322a, 1343, 1390.
1 So in original. The comma probably should be a semicolon.
§412. Minimum funding standards
(a) General rule
Except as provided in subsection (h), this section applies to a plan if, for any plan year beginning on or after the effective date of this section for such plan—
(1) such plan included a trust which qualified (or was determined by the Secretary to have qualified) under section 401(a), or
(2) such plan satisfied (or was determined by the Secretary to have satisfied) the requirements of section 403(a).
A plan to which this section applies shall have satisfied the minimum funding standard for such plan for a plan year if as of the end of such plan year, the plan does not have an accumulated funding deficiency. For purposes of this section and section 4971, the term "accumulated funding deficiency" means for any plan the excess of the total charges to the funding standard account for all plan years (beginning with the first plan year to which this section applies) over the total credits to such account for such years or, if less, the excess of the total charges to the alternative minimum funding standard account for such plan years over the total credits to such account for such years. In any plan year in which a multiemployer plan is in reorganization, the accumulated funding deficiency of the plan shall be determined under section 418B.
(b) Funding standard account
(1) Account required
Each plan to which this section applies shall establish and maintain a funding standard account. Such account shall be credited and charged solely as provided in this section.
(2) Charges to account
For a plan year, the funding standard account shall be charged with the sum of—
(A) the normal cost of the plan for the plan year,
(B) the amounts necessary to amortize in equal annual installments (until fully amortized)—
(i) in the case of a plan in existence on January 1, 1974, the unfunded past service liability under the plan on the first day of the first plan year to which this section applies, over a period of 40 plan years,
(ii) in the case of a plan which comes into existence after January 1, 1974, the unfunded past service liability under the plan on the first day of the first plan year to which this section applies, over a period of 30 plan years,
(iii) separately, with respect to each plan year, the net increase (if any) in unfunded past service liability under the plan arising from plan amendments adopted in such year, over a period of 30 plan years,
(iv) separately, with respect to each plan year, the net experience loss (if any) under the plan, over a period of 5 plan years (15 plan years in the case of a multiemployer plan), and
(v) separately, with respect to each plan year, the net loss (if any) resulting from changes in actuarial assumptions used under the plan, over a period of 10 plan years (30 plan years in the case of a multiemployer plan),
(C) the amount necessary to amortize each waived funding deficiency (within the meaning of subsection (d)(3)) for each prior plan year in equal annual installments (until fully amortized) over a period of 5 plan years (15 plan years in the case of a multiemployer plan), and
(D) the amount necessary to amortize in equal annual installments (until fully amortized) over a period of 5 plan years any amount credited to the funding standard account under paragraph (3)(D).
For additional requirements in the case of plans other than multiemployer plans, see subsection (l).
(3) Credits to account
For a plan year, the funding standard account shall be credited with the sum of—
(A) the amount considered contributed by the employer to or under the plan for the plan year,
(B) the amount necessary to amortize in equal annual installments (until fully amortized)—
(i) separately, with respect to each plan year, the net decrease (if any) in unfunded past service liability under the plan arising from plan amendments adopted in such year, over a period of 30 plan years,
(ii) separately, with respect to each plan year, the net experience gain (if any) under the plan, over a period of 5 plan years (15 plan years in the case of a multiemployer plan), and
(iii) separately, with respect to each plan year, the net gain (if any) resulting from changes in actuarial assumptions used under the plan, over a period of 10 plan years (30 plan years in the case of a multiemployer plan),
(C) the amount of the waived funding deficiency (within the meaning of subsection (d)(3) 1 for the plan year, and
(D) in the case of a plan year for which the accumulated funding deficiency is determined under the funding standard account if such plan year follows a plan year for which such deficiency was determined under the alternative minimum funding standards, the excess (if any) of any debit balance in the funding standard account (determined without regard to this subparagraph) over any debit balance in the alternative minimum funding standard account.
(4) Combining and offsetting amounts to be amortized
Under regulations prescribed by the Secretary, amounts required to be amortized under paragraph (2) or paragraph (3), as the case may be—
(A) may be combined into one amount under such paragraph to be amortized over a period determined on the basis of the remaining amortization period for all items entering into such combined amount, and
(B) may be offset against amounts required to be amortized under the other such paragraph, with the resulting amount to be amortized over a period determined on the basis of the remaining amortization periods for all items entering into whichever of the two amounts being offset is the greater.
(5) Interest
(A) In general
The funding standard account (and items therein) shall be charged or credited (as determined under regulations prescribed by the Secretary) with interest at the appropriate rate consistent with the rate or rates of interest used under the plan to determine costs.
(B) Required change of interest rate
For purposes of determining a plan's current liability and for purposes of determining a plan's required contribution under section 412(l) for any plan year—
(i) In general
If any rate of interest used under the plan to determine cost is not within the permissible range, the plan shall establish a new rate of interest within the permissible range.
(ii) Permissible range
For purposes of this subparagraph—
(I) In general
Except as provided in subclause (II), the term "permissible range" means a rate of interest which is not more than 10 percent above, and not more than 10 percent below, the weighted average of the rates of interest on 30-year Treasury securities during the 4-year period ending on the last day before the beginning of the plan year.
(II) Secretarial authority
If the Secretary finds that the lowest rate of interest permissible under subclause (I) is unreasonably high, the Secretary may prescribe a lower rate of interest, except that such rate may not be less than 80 percent of the average rate determined under subclause (I).
(iii) Assumptions
Notwithstanding subsection (c)(3)(A)(i), the interest rate used under the plan shall be—
(I) determined without taking into account the experience of the plan and reasonable expectations, but
(II) consistent with the assumptions which reflect the purchase rates which would be used by insurance companies to satisfy the liabilities under the plan.
(6) Certain amortization charges and credits
In the case of a plan which, immediately before the date of the enactment of the Multiemployer Pension Plan Amendments Act of 1980, was a multiemployer plan (within the meaning of section 414(f) as in effect immediately before such date)—
(A) any amount described in paragraph (2)(B)(ii), (2)(B)(iii), or (3)(B)(i) of this subsection which arose in a plan year beginning before such date shall be amortized in equal annual installments (until fully amortized) over 40 plan years, beginning with the plan year in which the amount arose;
(B) any amount described in paragraph (2)(B)(iv) or (3)(B)(ii) of this subsection which arose in a plan year beginning before such date shall be amortized in equal annual installments (until fully amortized) over 20 plan years, beginning with the plan year in which the amount arose;
(C) any change in past service liability which arises during the period of 3 plan years beginning on or after such date, and results from a plan amendment adopted before such date, shall be amortized in equal annual installments (until fully amortized) over 40 plan years, beginning with the plan year in which the change arises; and
(D) any change in past service liability which arises during the period of 2 plan years beginning on or after such date, and results from the changing of a group of participants from one benefit level to another benefit level under a schedule of plan benefits which—
(i) was adopted before such date, and
(ii) was effective for any plan participant before the beginning of the first plan year beginning on or after such date,
shall be amortized in equal annual installments (until fully amortized) over 40 plan years, beginning with the plan year in which the change arises.
(7) Special rules for multiemployer plans
For purposes of this section—
(A) Withdrawal liability
Any amount received by a multiemployer plan in payment of all or part of an employer's withdrawal liability under part 1 of subtitle E of title IV of the Employee Retirement Income Security Act of 1974 shall be considered an amount contributed by the employer to or under the plan. The Secretary may prescribe by regulation additional charges and credits to a multiemployer plan's funding standard account to the extent necessary to prevent withdrawal liability payments from being unduly reflected as advance funding for plan liabilities.
(B) Adjustments when a multiemployer plan leaves reorganization
If a multiemployer plan is not in reorganization in the plan year but was in reorganization in the immediately preceding plan year, any balance in the funding standard account at the close of such immediately preceding plan year—
(i) shall be eliminated by an offsetting credit or charge (as the case may be), but
(ii) shall be taken into account in subsequent plan years by being amortized in equal annual installments (until fully amortized) over 30 plan years.
The preceding sentence shall not apply to the extent of any accumulated funding deficiency under section 418B(a) as of the end of the last plan year that the plan was in reorganization.
(C) Plan payments to supplemental program or withdrawal liability payment fund
Any amount paid by a plan during a plan year to the Pension Benefit Guaranty Corporation pursuant to section 4222 of such Act or to a fund exempt under section 501(c)(22) pursuant to section 4223 of such Act shall reduce the amount of contributions considered received by the plan for the plan year.
(D) Interim withdrawal liability payments
Any amount paid by an employer pending a final determination of the employer's withdrawal liability under part 1 of subtitle E of title IV of such Act and subsequently refunded to the employer by the plan shall be charged to the funding standard account in accordance with regulations prescribed by the Secretary.
(E) For purposes of the full funding limitation under subsection (c)(7), unless otherwise provided by the plan, the accrued liability under a multiemployer plan shall not include benefits which are not nonforfeitable under the plan after the termination of the plan (taking into consideration section 411(d)(3)).
(c) Special rules
(1) Determinations to be made under funding method
For purposes of this section, normal costs, accrued liability, past service liabilities, and experience gains and losses shall be determined under the funding method used to determine costs under the plan.
(2) Valuation of assets
(A) In general
For purposes of this section, the value of the plan's assets shall be determined on the basis of any reasonable actuarial method of valuation which takes into account fair market value and which is permitted under regulations prescribed by the Secretary.
(B) Election with respect to bonds
The value of a bond or other evidence of indebtedness which is not in default as to principal or interest may, at the election of the plan administrator, be determined on an amortized basis running from initial cost at purchase to par value at maturity or earliest call date. Any election under this subparagraph shall be made at such time and in such manner as the Secretary shall by regulations provide, shall apply to all such evidences of indebtedness, and may be revoked only with the consent of the Secretary. In the case of a plan other than a multiemployer plan, this subparagraph shall not apply, but the Secretary may by regulations provide that the value of any dedicated bond portfolio of such plan shall be determined by using the interest rate under subsection (b)(5).
(3) Actuarial assumptions must be reasonable
For purposes of this section, all costs, liabilities, rates of interest, and other factors under the plan shall be determined on the basis of actuarial assumptions and methods—
(A) in the case of—
(i) a plan other than a multiemployer plan, each of which is reasonable (taking into account the experience of the plan and reasonable expectations) or which, in the aggregate, result in a total contribution equivalent to that which would be determined if each such assumption and method were reasonable, or
(ii) a multiemployer plan, which, in the aggregate, are reasonable (taking into account the experiences of the plan and reasonable expectations), and
(B) which, in combination, offer the actuary's best estimate of anticipated experience under the plan.
(4) Treatment of certain changes as experience gain or loss
For purposes of this section, if—
(A) a change in benefits under the Social Security Act or in other retirement benefits created under Federal or State law, or
(B) a change in the definition of the term "wages" under section 3121, or a change in the amount of such wages taken into account under regulations prescribed for purposes of section 401(a)(5),
results in an increase or decrease in accrued liability under a plan, such increase or decrease shall be treated as an experience loss or gain.
(5) Change in funding method or in plan year requires approval
(A) In general
If the funding method for a plan is changed, the new funding method shall become the funding method used to determine costs and liabilities under the plan only if the change is approved by the Secretary. If the plan year for a plan is changed, the new plan year shall become the plan year for the plan only if the change is approved by the Secretary.
(B) Approval required for certain changes in assumptions by certain single-employer plans subject to additional funding requirement
(i) In general
No actuarial assumption (other than the assumptions described in subsection (l)(7)(C)) used to determine the current liability for a plan to which this subparagraph applies may be changed without the approval of the Secretary.
(ii) Plans to which subparagraph applies
This subparagraph shall apply to a plan only if—
(I) the plan is a defined benefit plan (other than a multiemployer plan) to which title IV of the Employee Retirement Income Security Act of 1974 applies;
(II) the aggregate unfunded vested benefits as of the close of the preceding plan year (as determined under section 4006(a)(3)(E)(iii) of the Employee Retirement Income Security Act of 1974) of such plan and all other plans maintained by the contributing sponsors (as defined in section 4001(a)(13) of such Act) and members of such sponsors' controlled groups (as defined in section 4001(a)(14) of such Act) which are covered by title IV of such Act (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 unfunded current liability 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 current liability of the plan before such change.
(6) Full funding
If, as of the close of a plan year, a plan would (without regard to this paragraph) have an accumulated funding deficiency (determined without regard to the alternative minimum funding standard account permitted under subsection (g)) in excess of the full funding limitation—
(A) the funding standard account shall be credited with the amount of such excess, and
(B) all amounts described in paragraphs (2)(B), (C), and (D) and (3)(B) of subsection (b) which are required to be amortized shall be considered fully amortized for purposes of such paragraphs.
(7) Full-funding limitation
(A) In general
For purposes of paragraph (6), the term "full-funding limitation" means the excess (if any) of—
(i) the lesser of (I) 150 percent of current liability (including the expected increase in current liability due to benefits accruing during the plan year), or (II) the accrued liability (including normal cost) under the plan (determined under the entry age normal funding method if such accrued liability cannot be directly calculated under the funding method used for the plan), over
(ii) the lesser of—
(I) the fair market value of the plan's assets, or
(II) the value of such assets determined under paragraph (2).
(B) Current liability
For purposes of subparagraph (D) and subclause (I) of subparagraph (A)(i), the term "current liability" has the meaning given such term by subsection (l)(7) (without regard to subparagraphs (C) and (D) thereof) and using the rate of interest used under subsection (b)(5)(B).
(C) Special rule for paragraph (6)(B)
For purposes of paragraph (6)(B), subparagraph (A)(i) shall be applied without regard to subclause (I) thereof.
(D) Regulatory authority
The Secretary may by regulations provide—
(i) for adjustments to the percentage contained in subparagraph (A)(i) to take into account the respective ages or lengths of service of the participants,
(ii) alternative methods based on factors other than current liability for the determination of the amount taken into account under subparagraph (A)(i), and
(iii) for the treatment under this section of contributions which would be required to be made under the plan but for the provisions of subparagraph (A)(i)(I).
(E) Minimum amount
(i) In general
In no event shall the full-funding limitation determined under subparagraph (A) be less than the excess (if any) of—
(I) 90 percent of the current liability of the plan (including the expected increase in current liability due to benefits accruing during the plan year), over
(II) the value of the plan's assets determined under paragraph (2).
(ii) Current liability; assets
For purposes of clause (i)—
(I) the term "current liability" has the meaning given such term by subsection (l)(7) (without regard to subparagraph (D) thereof), and
(II) assets shall not be reduced by any credit balance in the funding standard account.
(8) Certain retroactive plan amendments
For purposes of this section, any amendment applying to a plan year which—
(A) is adopted after the close of such plan year but no later than 2 and one-half months after the close of the plan year (or, in the case of a multiemployer plan, no later than 2 years after the close of such plan year),
(B) does not reduce the accrued benefit of any participant determined as of the beginning of the first plan year to which the amendment applies, and
(C) does not reduce the accrued benefit of any participant determined as of the time of adoption except to the extent required by the circumstances,
shall, at the election of the plan administrator, be deemed to have been made on the first day of such plan year. No amendment described in this paragraph which reduces the accrued benefits of any participant shall take effect unless the plan administrator files a notice with the Secretary of Labor notifying him of such amendment and the Secretary of Labor has approved such amendment, or within 90 days after the date on which such notice was filed, failed to disapprove such amendment. No amendment described in this subsection shall be approved by the Secretary of Labor unless he determines that such amendment is necessary because of a substantial business hardship (as determined under subsection (d)(2)) and that a waiver under subsection (d)(1) is unavailable or inadequate.
(9) Annual valuation
For purposes of this section, a determination of experience gains and losses and a valuation of the plan's liability shall be made not less frequently than once every year, except that such determination shall be made more frequently to the extent required in particular cases under regulations prescribed by the Secretary.
(10) Time when certain contributions deemed made
For purposes of this section—
(A) Defined benefit plans other than multiemployer plans
In the case of a defined benefit plan other than a multiemployer plan, any contributions for a plan year made by an employer during the period—
(i) beginning on the day after the last day of such plan year, and
(ii) ending on the day which is 8½ months after the close of the plan year,
shall be deemed to have been made on such last day.
(B) Other plans
In the case of a plan not described in subparagraph (A), any contributions for a plan year made by an employer after the last day of such plan year, but not later than two and one-half months after such day, shall be deemed to have been made on such last day. For purposes of this subparagraph, such two and one-half month period may be extended for not more than six months under regulations prescribed by the Secretary.
(11) Liability for contributions
(A) In general
Except as provided in subparagraph (B), the amount of any contribution required by this section and any required installments under subsection (m) shall be paid by the employer responsible for contributing to or under the plan the amount described in subsection (b)(3)(A).
(B) Joint and several liability where employer member of controlled group
(i) In general
In the case of a plan other than a multiemployer plan, if the employer referred to in subparagraph (A) is a member of a controlled group, each member of such group shall be jointly and severally liable for payment of such contribution or required installment.
(ii) Controlled group
For purposes of clause (i), the term "controlled group" means any group treated as a single employer under subsection (b), (c), (m), or (o) of section 414.
(12) Anticipation of benefit increases effective in the future
In determining projected benefits, the funding method of a collectively bargained plan described in section 413(a) (other than a multiemployer plan) shall anticipate benefit increases scheduled to take effect during the term of the collective bargaining agreement applicable to the plan.
(d) Variance from minimum funding standard
(1) Waiver in case of business hardship
If an employer or in the case of a multiemployer plan, 10 percent or more of the number of employers contributing to or under the plan, are unable to satisfy the minimum funding standard for a plan year without temporary substantial business hardship (substantial business hardship in the case of a multiemployer plan) and if application of the standard would be adverse to the interests of plan participants in the aggregate, the Secretary may waive the requirements of subsection (a) for such year with respect to all or any portion of the minimum funding standard other than the portion thereof determined under subsection (b)(2)(C). The Secretary shall not waive the minimum funding standard with respect to a plan for more than 3 of any 15 (5 of any 15 in the case of a multiemployer plan) consecutive plan years. The interest rate used for purposes of computing the amortization charge described in subsection (b)(2)(C) for any plan year shall be—
(A) in the case of a plan other than a multiemployer plan, the greater of (i) 150 percent of the Federal mid-term rate (as in effect under section 1274 for the 1st month of such plan year), or (ii) the rate of interest used under the plan in determining costs (including adjustments under subsection (b)(5)(B)), and
(B) in the case of a multiemployer plan, the rate determined under section 6621(b).
(2) Determination of business hardship
For purposes of this section, the factors taken into account in determining temporary substantial business hardship (substantial business hardship in the case of a multiemployer plan) shall include (but shall not be limited to) whether or not—
(A) the employer is operating at an economic loss,
(B) there is substantial unemployment or underemployment in the trade or business and in the industry concerned,
(C) the sales and profits of the industry concerned are depressed or declining, and
(D) it is reasonable to expect that the plan will be continued only if the waiver is granted.
(3) Waived funding deficiency
For purposes of this section, the term "waived funding deficiency" means the portion of the minimum funding standard (determined without regard to subsection (b)(3)(C)) for a plan year waived by the Secretary and not satisfied by employer contributions.
(4) Application must be submitted before date 2½ months after close of year
In the case of a plan other than a multiemployer plan, no waiver may be granted under this subsection with respect to any plan for any plan year unless an application therefor is submitted to the Secretary not later than the 15th day of the 3rd month beginning after the close of such plan year.
(5) Special rule if employer is member of controlled group
(A) In general
In the case of a plan other than a multiemployer plan, if an employer is a member of a controlled group, the temporary substantial business hardship requirements of paragraph (1) shall be treated as met only if such requirements are met—
(i) with respect to such employer, and
(ii) with respect to the controlled group of which such employer is a member (determined by treating all members of such group as a single employer).
The Secretary may provide that an analysis of a trade or business or industry of a member need not be conducted if the Secretary determines such analysis is not necessary because the taking into account of such member would not significantly affect the determination under this subsection.
(B) Controlled group
For purposes of subparagraph (A), the term "controlled group" means any group treated as a single employer under subsection (b), (c), (m), or (o) of section 414.
(e) Extension of amortization periods
The period of years required to amortize any unfunded liability (described in any clause of subsection (b)(2)(B)) of any plan may be extended by the Secretary of Labor for a period of time (not in excess of 10 years) if he determines that such extension would carry out the purposes of the Employee Retirement Income Security Act of 1974 and would provide adequate protection for participants under the plan and their beneficiaries and if he determines that the failure to permit such extension would—
(1) result in—
(A) a substantial risk to the voluntary continuation of the plan, or
(B) a substantial curtailment of pension benefit levels or employee compensation, and
(2) be adverse to the interests of plan participants in the aggregate.
In the case of a plan other than a multiemployer plan, the interest rate applicable for any plan year under any arrangement entered into by the Secretary in connection with an extension granted under this subsection shall be the greater of (A) 150 percent of the Federal mid-term rate (as in effect under section 1274 for the 1st month of such plan year), or (B) the rate of interest used under the plan in determining costs. In the case of a multiemployer plan, such rate shall be the rate determined under section 6621(b).
(f) Requirements relating to waivers and extensions
(1) Benefits may not be increased during waiver or extension period
No amendment of the plan which increases the liabilities of the plan by reason of any increase in benefits, any change in the accrual of benefits, or any change in the rate at which benefits become nonforfeitable under the plan shall be adopted if a waiver under subsection (d)(1) or an extension of time under subsection (e) is in effect with respect to the plan, or if a plan amendment described in subsection (c)(8) has been made at any time in the preceding 12 months (24 months for multiemployer plans). If a plan is amended in violation of the preceding sentence, any such waiver or extension of time shall not apply to any plan year ending on or after the date on which such amendment is adopted.
(2) Exception
Paragraph (1) shall not apply to any plan amendment which—
(A) the Secretary of Labor determines to be reasonable and which provides for only de minimis increases in the liabilities of the plan.
(B) only repeals an amendment described in subsection (c)(8), or
(C) is required as a condition of qualification under this part.
(3) Security for waivers and extensions; consultations
(A) Security may be required
(i) In general
Except as provided in subparagraph (C), the Secretary may require an employer maintaining a defined benefit plan which is a single-employer plan (within the meaning of section 4001(a)(15) of the Employee Retirement Income Security Act of 1974) to provide security to such plan as a condition for granting or modifying a waiver under subsection (d) or an extension under subsection (e).
(ii) Special rules
Any security provided under clause (i) may be perfected and enforced only by the Pension Benefit Guaranty Corporation, or at the direction of the Corporation, by a contributing sponsor (within the meaning of section 4001(a)(13) of such Act), or a member of such sponsor's controlled group (within the meaning of section 4001(a)(14) of such Act).
(B) Consultation with the pension benefit guaranty corporation
Except as provided in subparagraph (C), the Secretary shall, before granting or modifying a waiver under subsection (d) or an extension under subsection (e) with respect to a plan described in subparagraph (A)(i)—
(i) provide the Pension Benefit Guaranty Corporation with—
(I) notice of the completed application for any waiver, extension, or modification, and
(II) an opportunity to comment on such application within 30 days after receipt of such notice, and
(ii) consider—
(I) any comments of the Corporation under clause (i)(II), and
(II) any views of any employee organization (within the meaning of section 3(4) of the Employee Retirement Income Security Act of 1974) representing participants in the plan which are submitted in writing to the Secretary in connection with such application.
Information provided to the corporation under this subparagraph shall be considered tax return information and subject to the safeguarding and reporting requirements of section 6103(p).
(C) Exception for certain waivers and extensions
(i) In general
The preceding provisions of this paragraph shall not apply to any plan with respect to which the sum of—
(I) the outstanding balance of the accumulated funding deficiencies (within the meaning of subsection (a) and section 302(a) of such Act) of the plan,
(II) the outstanding balance of the amount of waived funding deficiencies of the plan waived under subsection (d) or section 303 of such Act, and
(III) the outstanding balance of the amount of decreases in the minimum funding standard allowed under subsection (e) or section 304 of such Act,
is less than $1,000,000.
(ii) Accumulated funding deficiencies
For purposes of clause (i)(I), accumulated funding deficiencies shall include any increase in such amount which would result if all applications for waivers of the minimum funding standard under subsection (d) or section 303 of such Act and for extensions of the amortization period under subsection (e) or section 304 of such Act which are pending with respect to such plan were denied.
(4) Additional requirements
(A) Advance notice
The Secretary shall, before granting a waiver under subsection (d) or an extension under subsection (e), require each applicant to provide evidence satisfactory to the Secretary that the applicant has provided notice of the filing of the application for such waiver or extension to each employee organization representing employees covered by the affected plan, and each participant, beneficiary, and alternate payee (within the meaning of section 414(p)(8)). Such notice shall include a description of the extent to which the plan is funded for benefits which are guaranteed under title IV of such Act and for benefit liabilities.
(B) Consideration of relevant information
The Secretary shall consider any relevant information provided by a person to whom notice was given under subparagraph (A).
(g) Alternative minimum funding standard
(1) In general
A plan which uses a funding method that requires contributions in all years not less than those required under the entry age normal funding method may maintain an alternative minimum funding standard account for any plan year. Such account shall be credited and charged solely as provided in this subsection.
(2) Charges and credits to account
For a plan year the alternative minimum funding standard account shall be—
(A) charged with the sum of—
(i) the lesser of normal cost under the funding method used under the plan or normal cost determined under the unit credit method,
(ii) the excess, if any, of the present value of accrued benefits under the plan over the fair market value of the assets, and
(iii) an amount equal to the excess (if any) of credits to the alternative minimum standard account for all prior plan years over charges to such account for all such years, and
(B) credited with the amount considered contributed by the employer to or under the plan for the plan year.
(3) Special rules
The alternative minimum funding standard account (and items therein) shall be charged or credited with interest in the manner provided under subsection (b)(5) with respect to the funding standard account.
(h) Exceptions
This section shall not apply to—
(1) any profit-sharing or stock bonus plan,
(2) any insurance contract plan described in subsection (i),
(3) any governmental plan (within the meaning of section 414(d)),
(4) any church plan (within the meaning of section 414(e)) with respect to which the election provided by section 410(d) has not been made,
(5) any plan which has not, at any time after September 2, 1974, provided for employer contributions, or
(6) any plan established and maintained by a society, order, or association described in section 501(c)(8) or (9), if no part of the contributions to or under such plan are made by employers of participants in such plan.
No plan described in paragraph (3), (4), or (6) shall be treated as a qualified plan for purposes of section 401(a) unless such plan meets the requirements of section 401(a)(7) as in effect on September 1, 1974.
(i) Certain insurance contract plans
A plan is described in this subsection if—
(1) the plan is funded exclusively by the purchase of individual insurance contracts.
(2) such contracts provide for level annual premium payments to be paid extending not later than the retirement age for each individual participating in the plan, and commencing with the date the individual became a participant in the plan (or, in the case of an increase in benefits, commencing at the time such increase becomes effective),
(3) benefits provided by the plan are equal to the benefits provided under each contract at normal retirement age under the plan and are guaranteed by an insurance carrier (licensed under the laws of a State to do business with the plan) to the extent premiums have been paid,
(4) premiums payable for the plan year, and all prior plan years, under such contracts have been paid before lapse or there is reinstatement of the policy,
(5) no rights under such contracts have been subject to a security interest at any time during the plan year, and
(6) no policy loans are outstanding at any time during the plan year.
A plan funded exclusively by the purchase of group insurance contracts which is determined under regulations prescribed by the Secretary to have the same characteristics as contracts described in the preceding sentence shall be treated as a plan described in this subsection.
(j) Certain terminated multiemployer plans
This section applies with respect to a terminated multiemployer plan to which section 4021 of the Employee Retirement Income Security Act of 1974 applies, until the last day of the plan year in which the plan terminates, within the meaning of section 4041A(a)(2) of that Act.
(k) Financial assistance
Any amount of any financial assistance from the Pension Benefit Guaranty Corporation to any plan, and any repayment of such amount, shall be taken into account under this section in such manner as determined by the Secretary.
(l) Additional funding requirements for plans which are not multiemployer plans
(1) In general
In the case of a defined benefit plan (other than a multiemployer plan) to which this subsection applies under paragraph (9) for any plan year, the amount charged to the funding standard account for such plan year shall be increased by the sum of—
(A) the excess (if any) of—
(i) the deficit reduction contribution determined under paragraph (2) for such plan year, over
(ii) the sum of the charges for such plan year under subsection (b)(2), reduced by the sum of the credits for such plan year under subparagraph (B) of subsection (b)(3), plus
(B) the unpredictable contingent event amount (if any) for such plan year.
Such increase shall not exceed the amount which, after taking into account charges (other than the additional charge under this subsection) and credits under subsection (b), is necessary to increase the funded current liability percentage (taking into account the expected increase in current liability due to benefits accruing during the plan year) to 100 percent.
(2) Deficit reduction contribution
For purposes of paragraph (1), the deficit reduction contribution determined under this paragraph for any plan year is the sum of—
(A) the unfunded old liability amount,
(B) the unfunded new liability amount,
(C) the expected increase in current liability due to benefits accruing during the plan year, and
(D) the aggregate of the unfunded mortality increase amounts.
(3) Unfunded old liability amount
For purposes of this subsection—
(A) In general
The unfunded old liability amount with respect to any plan for any plan year is the amount necessary to amortize the unfunded old liability under the plan in equal annual installments over a period of 18 plan years (beginning with the 1st plan year beginning after December 31, 1988).
(B) Unfunded old liability
The term "unfunded old liability" means the unfunded current liability of the plan as of the beginning of the 1st plan year beginning after December 31, 1987 (determined without regard to any plan amendment increasing liabilities adopted after October 16, 1987).
(C) Special rules for benefit increases under existing collective bargaining agreements
(i) In general
In the case of a plan maintained pursuant to 1 or more collective bargaining agreements between employee representatives and the employer ratified before October 29, 1987, the unfunded old liability amount with respect to such plan for any plan year shall be increased by the amount necessary to amortize the unfunded existing benefit increase liability in equal annual installments over a period of 18 plan years beginning with—
(I) the plan year in which the benefit increase with respect to such liability occurs, or
(II) if the taxpayer elects, the 1st plan year beginning after December 31, 1988.
(ii) Unfunded existing benefit increase liabilities
For purposes of clause (i), the unfunded existing benefit increase liability means, with respect to any benefit increase under the agreements described in clause (i) which takes effect during or after the 1st plan year beginning after December 31, 1987, the unfunded current liability determined—
(I) by taking into account only liabilities attributable to such benefit increase, and
(II) by reducing (but not below zero) the amount determined under paragraph (8)(A)(ii) by the current liability determined without regard to such benefit increase.
(iii) Extensions, modifications, etc. not taken into account
For purposes of this subparagraph, any extension, amendment, or other modification of an agreement after October 28, 1987, shall not be taken into account.
(D) Special rule for required changes in actuarial assumptions
(i) In general
The unfunded old liability amount with respect to any plan for any plan year shall be increased by the amount necessary to amortize the amount of additional unfunded old liability under the plan in equal annual installments over a period of 12 plan years (beginning with the first plan year beginning after December 31, 1994).
(ii) Additional unfunded old liability
For purposes of clause (i), the term "additional unfunded old liability" means the amount (if any) by which—
(I) the current liability of the plan as of the beginning of the first plan year beginning after December 31, 1994, valued using the assumptions required by paragraph (7)(C) as in effect for plan years beginning after December 31, 1994, exceeds
(II) the current liability of the plan as of the beginning of such first plan year, valued using the same assumptions used under subclause (I) (other than the assumptions required by paragraph (7)(C)), using the prior interest rate, and using such mortality assumptions as were used to determine current liability for the first plan year beginning after December 31, 1992.
(iii) Prior interest rate
For purposes of clause (ii), the term "prior interest rate" means the rate of interest that is the same percentage of the weighted average under subsection (b)(5)(B)(ii)(I) for the first plan year beginning after December 31, 1994, as the rate of interest used by the plan to determine current liability for the first plan year beginning after December 31, 1992, is of the weighted average under subsection (b)(5)(B)(ii)(I) for such first plan year beginning after December 31, 1992.
(E) Optional rule for additional unfunded old liability
(i) In general
If an employer makes an election under clause (ii), the additional unfunded old liability for purposes of subparagraph (D) shall be the amount (if any) by which—
(I) the unfunded current liability of the plan as of the beginning of the first plan year beginning after December 31, 1994, valued using the assumptions required by paragraph (7)(C) as in effect for plan years beginning after December 31, 1994, exceeds
(II) the unamortized portion of the unfunded old liability under the plan as of the beginning of the first plan year beginning after December 31, 1994.
(ii) Election
(I) An employer may irrevocably elect to apply the provisions of this subparagraph as of the beginning of the first plan year beginning after December 31, 1994.
(II) If an election is made under this clause, the increase under paragraph (1) for any plan year beginning after December 31, 1994, and before January 1, 2002, to which this subsection applies (without regard to this subclause) shall not be less than the increase that would be required under paragraph (1) if the provisions of this title as in effect for the last plan year beginning before January 1, 1995, had remained in effect.
(4) Unfunded new liability amount
For purposes of this subsection—
(A) In general
The unfunded new liability amount with respect to any plan for any plan year is the applicable percentage of the unfunded new liability.
(B) Unfunded new liability
The term "unfunded new liability" means the unfunded current liability of the plan for the plan year determined without regard to—
(i) the unamortized portion of the unfunded old liability, the unamortized portion of the additional unfunded old liability, the unamortized portion of each unfunded mortality increase, and the unamortized portion of the unfunded existing benefit increase liability, and
(ii) the liability with respect to any unpredictable contingent event benefits (without regard to whether the event has occurred).
(C) Applicable percentage
The term "applicable percentage" means, with respect to any plan year, 30 percent, reduced by the product of—
(i) .40 multiplied by
(ii) the number of percentage points (if any) by which the funded current liability percentage exceeds 60 percent.
(5) Unpredictable contingent event amount
(A) In general
The unpredictable contingent event amount with respect to a plan for any plan year is an amount equal to the greatest of—
(i) the applicable percentage of the product of—
(I) 100 percent, reduced (but not below zero) by the funded current liability percentage for the plan year, multiplied by
(II) the amount of unpredictable contingent event benefits paid during the plan year, including (except as provided by the Secretary) any payment for the purchase of an annuity contract for a participant or beneficiary with respect to such benefits,
(ii) the amount which would be determined for the plan year if the unpredictable contingent event benefit liabilities were amortized in equal annual installments over 7 plan years (beginning with the plan year in which such event occurs), or
(iii) the additional amount that would be determined under paragraph (4)(A) if the unpredictable contingent event benefit liabilities were included in unfunded new liability notwithstanding paragraph (4)(B)(ii).
(B) Applicable percentage
(C) Paragraph not to apply to existing benefits
This paragraph shall not apply to unpredictable contingent event benefits (and liabilities attributable thereto) for which the event occurred before the first plan year beginning after December 31, 1988.
(D) Special rule for first year of amortization
Unless the employer elects otherwise, the amount determined under subparagraph (A) for the plan year in which the event occurs shall be equal to 150 percent of the amount determined under subparagraph (A)(i). The amount under subparagraph (A)(ii) for subsequent plan years in the amortization period shall be adjusted in the manner provided by the Secretary to reflect the application of this subparagraph.
(E) Limitation
The present value of the amounts described in subparagraph (A) with respect to any one event shall not exceed the unpredictable contingent event benefit liabilities attributable to that event.
(6) Special rules for small plans
(A) Plans with 100 or fewer participants
This subsection shall not apply to any plan for any plan year if on each day during the preceding plan year such plan had no more than 100 participants.
(B) Plans with more than 100 but not more than 150 participants
In the case of a plan to which subparagraph (A) does not apply and which on each day during the preceding plan year had no more than 150 participants, the amount of the increase under paragraph (1) for such plan year shall be equal to the product of—
(i) such increase determined without regard to this subparagraph, multiplied by
(ii) 2 percent for the highest number of participants in excess of 100 on any such day.
(C) Aggregation of plans
For purposes of this paragraph, all defined benefit plans maintained by the same employer (or any member of such employer's controlled group) shall be treated as 1 plan, but only employees of such employer or member shall be taken into account.
(7) Current liability
For purposes of this subsection—
(A) In general
The term "current liability" means all liabilities to employees and their beneficiaries under the plan.
(B) Treatment of unpredictable contingent event benefits
(i) In general
For purposes of subparagraph (A), any unpredictable contingent event benefit shall not be taken into account until the event on which the benefit is contingent occurs.
(ii) Unpredictable contingent event benefit
The term "unpredictable contingent event benefit" means any benefit contingent on an event other than—
(I) age, service, compensation, death, or disability, or
(II) an event which is reasonably and reliably predictable (as determined by the Secretary).
(C) Interest rate and mortality assumptions used
Effective for plan years beginning after December 31, 1994—
(i) Interest rate
(I) In general
The rate of interest used to determine current liability under this subsection shall be the rate of interest used under subsection (b)(5), except that the highest rate in the permissible range under subparagraph (B)(ii) thereof shall not exceed the specified percentage under subclause (II) of the weighted average referred to in such subparagraph.
(II) Specified percentage
For purposes of subclause (I), the specified percentage shall be determined as follows:
(ii) Mortality tables
(I) Commissioners' standard table
In the case of plan years beginning before the first plan year to which the first tables prescribed under subclause (II) apply, the mortality table used in determining current liability under this subsection shall be the table prescribed by the Secretary which is based on the prevailing commissioners' standard table (described in section 807(d)(5)(A)) used to determine reserves for group annuity contracts issued on January 1, 1993.
(II) Secretarial authority
The Secretary may by regulation prescribe for plan years beginning after December 31, 1999, mortality tables to be used in determining current liability under this subsection. Such tables shall be based upon the actual experience of pension plans and projected trends in such experience. In prescribing such tables, the Secretary shall take into account results of available independent studies of mortality of individuals covered by pension plans.
(III) Periodic review
The Secretary shall periodically (at least every 5 years) review any tables in effect under this subsection and shall, to the extent the Secretary determines necessary, by regulation update the tables to reflect the actual experience of pension plans and projected trends in such experience.
(iii) Separate mortality tables for the disabled
Notwithstanding clause (ii)—
(I) In general
In the case of plan years beginning after December 31, 1995, the Secretary shall establish mortality tables which may be used (in lieu of the tables under clause (ii)) to determine current liability under this subsection for individuals who are entitled to benefits under the plan on account of disability. The Secretary 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 subclause (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 and the regulations thereunder.
(III) Plan years beginning in 1995
In the case of any plan year beginning in 1995, a plan may use its own mortality assumptions for individuals who are entitled to benefits under the plan on account of disability.
(D) Certain service disregarded
(i) In general
In the case of a participant to whom this subparagraph applies, only the applicable percentage of the years of service before such individual became a participant shall be taken into account in computing the current liability of the plan.
(ii) Applicable percentage
For purposes of this subparagraph, the applicable percentage shall be determined as follows:
(iii) Participants to whom subparagraph applies
This subparagraph shall apply to any participant who, at the time of becoming a participant—
(I) has not accrued any other benefit under any defined benefit plan (whether or not terminated) maintained by the employer or a member of the same controlled group of which the employer is a member,
(II) who first becomes a participant under the plan in a plan year beginning after December 31, 1987, and
(III) has years of service greater than the minimum years of service necessary for eligibility to participate in the plan.
(iv) Election
An employer may elect not to have this subparagraph apply. Such an election, once made, may be revoked only with the consent of the Secretary.
(8) Other definitions
For purposes of this subsection—
(A) Unfunded current liability
The term "unfunded current liability" means, with respect to any plan year, the excess (if any) of—
(i) the current liability under the plan, over
(ii) value of the plan's assets determined under subsection (c)(2).
(B) Funded current liability percentage
The term "funded current liability percentage" means, with respect to any plan year, the percentage which—
(i) the amount determined under subparagraph (A)(ii), is of
(ii) the current liability under the plan.
(C) Controlled group
The term "controlled group" means any group treated as a single employer under subsections (b), (c), (m), and (o) of section 414.
(D) Adjustments to prevent omissions and duplications
The Secretary shall provide such adjustments in the unfunded old liability amount, the unfunded new liability amount, the unpredictable contingent event amount, the current payment amount, and any other charges or credits under this section as are necessary to avoid duplication or omission of any factors in the determination of such amounts, charges, or credits.
(E) Deduction for credit balances
For purposes of this subsection, the amount determined under subparagraph (A)(ii) shall be reduced by any credit balance in the funding standard account. The Secretary may provide for such reduction for purposes of any other provision which references this subsection.
(9) Applicability of subsection
(A) In general
Except as provided in paragraph (6)(A), this subsection shall apply to a plan for any plan year if its funded current liability percentage for such year is less than 90 percent.
(B) Exception for certain plans at least 80 percent funded
Subparagraph (A) shall not apply to a plan for a plan year if—
(i) the funded current liability percentage for the plan year is at least 80 percent, and
(ii) such percentage for each of the 2 immediately preceding plan years (or each of the 2d and 3d immediately preceding plan years) is at least 90 percent.
(C) Funded current liability percentage
For purposes of subparagraphs (A) and (B), the term "funded current liability percentage" has the meaning given such term by paragraph (8)(B), except that such percentage shall be determined for any plan year—
(i) without regard to paragraph (8)(E), and
(ii) by using the rate of interest which is the highest rate allowable for the plan year under paragraph (7)(C).
(D) Transition rules
For purposes of this paragraph:
(i) Funded percentage for years before 1995
The funded current liability percentage for any plan year beginning before January 1, 1995, shall be treated as not less than 90 percent only if for such plan year the plan met one of the following requirements (as in effect for such year):
(I) The full-funding limitation under subsection (c)(7) for the plan was zero.
(II) The plan had no additional funding requirement under this subsection (or would have had no such requirement if its funded current liability percentage had been determined under subparagraph (C)).
(III) The plan's additional funding requirement under this subsection did not exceed the lesser of 0.5 percent of current liability or $5,000,000.
(ii) Special rule for 1995 and 1996
For purposes of determining whether subparagraph (B) applies to any plan year beginning in 1995 or 1996, a plan shall be treated as meeting the requirements of subparagraph (B)(ii) if the plan met the requirements of clause (i) of this subparagraph for any two of the plan years beginning in 1992, 1993, and 1994 (whether or not consecutive).
(10) Unfunded mortality increase amount
(A) In general
The unfunded mortality increase amount with respect to each unfunded mortality increase is the amount necessary to amortize such increase in equal annual installments over a period of 10 plan years (beginning with the first plan year for which a plan uses any new mortality table issued under paragraph (7)(C)(ii)(II) or (III)).
(B) Unfunded mortality increase
For purposes of subparagraph (A), the term "unfunded mortality increase" means an amount equal to the excess of—
(i) the current liability of the plan for the first plan year for which a plan uses any new mortality table issued under paragraph (7)(C)(ii)(II) or (III), over
(ii) the current liability of the plan for such plan year which would have been determined if the mortality table in effect for the preceding plan year had been used.
(11) Phase-in of increases in funding required by Retirement Protection Act of 1994
(A) In general
For any applicable plan year, at the election of the employer, the increase under paragraph (1) shall not exceed the greater of—
(i) the increase that would be required under paragraph (1) if the provisions of this title as in effect for plan years beginning before January 1, 1995, had remained in effect, or
(ii) the amount which, after taking into account charges (other than the additional charge under this subsection) and credits under subsection (b), is necessary to increase the funded current liability percentage (taking into account the expected increase in current liability due to benefits accruing during the plan year) for the applicable plan year to a percentage equal to the sum of the initial funded current liability percentage of the plan plus the applicable number of percentage points for such applicable plan year.
(B) Applicable number of percentage points
(i) Initial funded current liability percentage of 75 percent or less
Except as provided in clause (ii), for plans with an initial funded current liability percentage of 75 percent or less, the applicable number of percentage points for the applicable plan year is:
(ii) Other cases
In the case of a plan to which this clause applies, the applicable number of percentage points for any such applicable plan year is the sum of—
(I) 2 percentage points;
(II) the applicable number of percentage points (if any) under this clause for the preceding applicable plan year;
(III) the product of .10 multiplied by the excess (if any) of (a) 85 percentage points over (b) the sum of the initial funded current liability percentage and the number determined under subclause (II);
(IV) for applicable plan years beginning in 2000, 1 percentage point; and
(V) for applicable plan years beginning in 2001, 2 percentage points.
(iii) Plans to which clause (ii) applies
(I) In general
Clause (ii) shall apply to a plan for an applicable plan year if the initial funded current liability percentage of such plan is more than 75 percent.
(II) Plans initially under clause (i)
In the case of a plan which (but for this subclause) has an initial funded current liability percentage of 75 percent or less, clause (ii) (and not clause (i)) shall apply to such plan with respect to applicable plan years beginning after the first applicable plan year for which the sum of the initial funded current liability percentage and the applicable number of percentage points (determined under clause (i)) exceeds 75 percent. For purposes of applying clause (ii) to such a plan, the initial funded current liability percentage of such plan shall be treated as being the sum referred to in the preceding sentence.
(C) Definitions
For purposes of this paragraph:
(i) The term "applicable plan year" means a plan year beginning after December 31, 1994, and before January 1, 2002.
(ii) The term "initial funded current liability percentage" means the funded current liability percentage as of the first day of the first plan year beginning after December 31, 1994.
(m) Quarterly contributions required
(1) In general
If a defined benefit plan (other than a multiemployer plan) which has a funded current liability percentage (as defined in subsection (l)(8)) for the preceding plan year of less than 100 percent fails to pay the full amount of a required installment for the plan year, then the rate of interest charged to the funding standard account under subsection (b)(5) with respect to the amount of the underpayment for the period of the underpayment shall be equal to the greater of—
(A) 175 percent of the Federal mid-term rate (as in effect under section 1274 for the 1st month of such plan year), or
(B) the rate of interest used under the plan in determining costs (including adjustments under subsection (b)(5)(B)).
(2) Amount of underpayment, period of underpayment
For purposes of paragraph (1)—
(A) Amount
The amount of the underpayment shall be the excess of—
(i) the required installment, over
(ii) the amount (if any) of the installment contributed to or under the plan on or before the due date for the installment.
(B) Period of underpayment
The period for which interest is charged under this subsection with regard to any portion of the underpayment shall run from the due date for the installment to the date on which such portion is contributed to or under the plan (determined without regard to subsection (c)(10)).
(C) Order of crediting contributions
For purposes of subparagraph (A)(ii), contributions shall be credited against unpaid required installments in the order in which such installments are required to be paid.
(3) Number of required installments; due dates
For purposes of this subsection—
(A) Payable in 4 installments
There shall be 4 required installments for each plan year.
(B) Time for payment of installments
| In the case of the following | |
| required installments: | The due date is: |
| 1st | April 15 |
| 2nd | July 15 |
| 3rd | October 15 |
| 4th | January 15 of the following year. |
(4) Amount of required installment
For purposes of this subsection—
(A) In general
The amount of any required installment shall be the applicable percentage of the required annual payment.
(B) Required annual payment
For purposes of subparagraph (A), the term "required annual payment" means the lesser of—
(i) 90 percent of the amount required to be contributed to or under the plan by the employer for the plan year under section 412 (without regard to any waiver under subsection (c) thereof), or
(ii) 100 percent of the amount so required for the preceding plan year.
Clause (ii) shall not apply if the preceding plan year was not a year of 12 months.
(C) Applicable percentage
For purposes of subparagraph (A), the applicable percentage shall be determined in accordance with the following table:
(D) Special rules for unpredictable contingent event benefits
In the case of a plan to which subsection (1) 2 applies for any calendar year and which has any unpredictable contingent event benefit liabilities—
(i) Liabilities not taken into account
Such liabilities shall not be taken into account in computing the required annual payment under subparagraph (B).
(ii) Increase in installments
Each required installment shall be increased by the greatest of—
(I) the unfunded percentage of the amount of benefits described in subsection (l)(5)(A)(i) paid during the 3-month period preceding the month in which the due date for such installment occurs,
(II) 25 percent of the amount determined under subsection (l)(5)(A)(ii) for the plan year, or
(III) 25 percent of the amount determined under subsection (l)(5)(A)(iii) for the plan year.
(iii) Unfunded percentage
For purposes of clause (ii)(I), the term "unfunded percentage" means the percentage determined under subsection (l)(5)(A)(i)(I) for the plan year.
(iv) Limitation on increase
In no event shall the increases under clause (ii) exceed the amount necessary to increase the funded current liability percentage (within the meaning of subsection (l)(8)(B)) for the plan year to 100 percent.
(5) Liquidity requirement
(A) In general
A plan to which this paragraph applies shall be treated as failing to pay the full amount of any required installment to the extent that the value of the liquid assets paid in such installment is less than the liquidity shortfall (whether or not such liquidity shortfall exceeds the amount of such installment required to be paid but for this paragraph).
(B) Plans to which paragraph applies
This paragraph shall apply to a defined benefit plan (other than a multiemployer plan or a plan described in subsection (l)(6)(A)) which—
(i) is required to pay installments under this subsection for a plan year, and
(ii) has a liquidity shortfall for any quarter during such plan year.
(C) Period of underpayment
For purposes of paragraph (1), any portion of an installment that is treated as not paid under subparagraph (A) shall continue to be treated as unpaid until the close of the quarter in which the due date for such installment occurs.
(D) Limitation on increase
If the amount of any required installment is increased by reason of subparagraph (A), in no event shall such increase exceed the amount which, when added to prior installments for the plan year, is necessary to increase the funded current liability percentage (taking into account the expected increase in current liability due to benefits accruing during the plan year) to 100 percent.
(E) Definitions
For purposes of this paragraph:
(i) Liquidity shortfall
The term "liquidity shortfall" means, with respect to any required installment, an amount equal to the excess (as of the last day of the quarter for which such installment is made) of the base amount with respect to such quarter over the value (as of such last day) of the plan's liquid assets.
(ii) Base amount
(I) In general
The term "base amount" means, with respect to any quarter, an amount equal to 3 times the sum of the adjusted disbursements from the plan for the 12 months ending on the last day of such quarter.
(II) Special rule
If the amount determined under clause (i) exceeds an amount equal to 2 times the sum of the adjusted disbursements from the plan for the 36 months ending on the last day of the quarter and an enrolled actuary certifies to the satisfaction of the Secretary that such excess is the result of nonrecurring circumstances, the base amount with respect to such quarter shall be determined without regard to amounts related to those nonrecurring circumstances.
(iii) Disbursements from the plan
The term "disbursements from the plan" means all disbursements from the trust, including purchases of annuities, payments of single sums and other benefits, and administrative expenses.
(iv) Adjusted disbursements
The term "adjusted disbursements" means disbursements from the plan reduced by the product of—
(I) the plan's funded current liability percentage (as defined in subsection (l)(8)) for the plan year, and
(II) the sum of the purchases of annuities, payments of single sums, and such other disbursements as the Secretary shall provide in regulations.
(v) Liquid assets
The term "liquid assets" means cash, marketable securities and such other assets as specified by the Secretary in regulations.
(vi) Quarter
The term "quarter" means, with respect to any required installment, the 3-month period preceding the month in which the due date for such installment occurs.
(F) Regulations
The Secretary may prescribe such regulations as are necessary to carry out this paragraph.
(6) Fiscal years and short years
(A) Fiscal years
In applying this subsection to a plan year beginning on any date other than January 1, there shall be substituted for the months specified in this subsection, the months which correspond thereto.
(B) Short plan year
This subsection shall be applied to plan years of less than 12 months in accordance with regulations prescribed by the Secretary.
(n) Imposition of lien where failure to make required contributions
(1) In general
In the case of a plan to which this section applies, if—
(A) any person fails to make a required installment under subsection (m) or any other payment required under this section before the due date for such installment or other payment, and
(B) the unpaid balance of such installment or other payment (including interest), when added to the aggregate unpaid balance of all preceding such installments or other payments for which payment was not made before the due date (including interest), exceeds $1,000,000,
then there shall be a lien in favor of the plan in the amount determined under paragraph (3) upon all property and rights to property, whether real or personal, belonging to such person and any other person who is a member of the same controlled group of which such person is a member.
(2) Plans to which subsection applies
This subsection shall apply to a defined benefit plan (other than a multiemployer plan) for any plan year for which the funded current liability percentage (within the meaning of subsection (l)(8)(B)) of such plan is less than 100 percent. This subsection shall not apply to any plan to which section 4021 of the Employee Retirement Income Security Act of 1974 does not apply (as such section is in effect on the date of the enactment of the Retirement Protection Act of 1994).
(3) Amount of lien
For purposes of paragraph (1), the amount of the lien shall be equal to the aggregate unpaid balance of required installments and other payments required under this section (including interest)—
(A) for plan years beginning after 1987, and
(B) for which payment has not been made before the due date.
(4) Notice of failure; lien
(A) Notice of failure
A person committing a failure described in paragraph (1) shall notify the Pension Benefit Guaranty Corporation of such failure within 10 days of the due date for the required installment or other payment.
(B) Period of lien
The lien imposed by paragraph (1) shall arise on the due date for the required installment or other payment and shall continue until the last day of the first plan year in which the plan ceases to be described in paragraph (1)(B). Such lien shall continue to run without regard to whether such plan continues to be described in paragraph (2) during the period referred to in the preceding sentence.
(C) Certain rules to apply
Any amount with respect to which a lien is imposed under paragraph (1) shall be treated as taxes due and owing the United States and rules similar to the rules of subsections (c), (d), and (e) of section 4068 of the Employee Retirement Income Security Act of 1974 shall apply with respect to a lien imposed by subsection (a) and the amount with respect to such lien.
(5) Enforcement
Any lien created under paragraph (1) may be perfected and enforced only by the Pension Benefit Guaranty Corporation, or at the direction of the Pension Benefit Guaranty Corporation, by the contributing sponsor (or any member of the controlled group of the contributing sponsor).
(6) Definitions
For purposes of this subsection—
(A) Due date; required installment
The terms "due date" and "required installment" have the meanings given such terms by subsection (m), except that in the case of a payment other than a required installment, the due date shall be the date such payment is required to be made under this section.
(B) Controlled group
The term "controlled group" means any group treated as a single employer under subsections (b), (c), (m), and (o) of section 414.
(Added
References in Text
The date of the enactment of the Multiemployer Pension Plan Amendments Act of 1980, referred to in subsec. (b)(6), means the date of the enactment of
The Employee Retirement Income Security Act of 1974, referred to in subsecs. (b)(7)(A), (C), (D), (c)(5)(B)(ii), (e), (f)(3), (4)(A), (j), and (n)(2), (4)(C), is
The Social Security Act, referred to in subsecs. (c)(4)(A) and (l)(7)(C)(iii)(II), is act Aug. 14, 1935, ch. 531,
The Retirement Protection Act of 1994, referred to in subsec. (l)(11), is subtitle F (§§750–781) of title VII of
The date of the enactment of the Retirement Protection Act of 1994, referred to in subsec. (n)(2), is the date of enactment of subtitle F (§§750–781) of title VII of
Amendments
1994—Subsec. (c)(5).
Subsec. (c)(7)(A)(i)(I).
Subsec. (c)(7)(B).
Subsec. (c)(7)(E).
Subsec. (c)(12).
Subsec. (l)(1).
Subsec. (l)(1)(A)(ii).
Subsec. (l)(2)(C).
Subsec. (l)(2)(D).
Subsec. (l)(3)(D), (E).
Subsec. (l)(4)(B)(i).
Subsec. (l)(4)(C).
Subsec. (l)(5)(A).
Subsec. (l)(5)(A)(iii).
Subsec. (l)(5)(E).
Subsec. (l)(7)(C).
Subsec. (l)(9).
Subsec. (l)(10).
Subsec. (l)(11).
Subsec. (m)(1).
Subsec. (m)(4)(D)(ii).
Subsec. (m)(4)(D)(ii)(III).
Subsec. (m)(5), (6).
Subsec. (n)(2).
Subsec. (n)(3).
"(A) the amount by which the unpaid balances described in paragraph (1)(B) (including interest) exceed $1,000,000, or
"(B) the aggregate unpaid balance of required installments and other payments required under this section (including interest)—
"(i) for plan years beginning after 1987, and
"(ii) for which payment has not been made before the due date."
Subsec. (n)(4)(B).
1989—Subsec. (b)(5)(B)(iii).
Subsec. (c)(9).
Subsec. (c)(10)(A).
Subsec. (c)(10)(B).
Subsec. (d)(1)(A)(ii).
Subsec. (f)(4)(A).
Subsec. (l)(3)(C)(ii)(II).
Subsec. (l)(4)(B)(i).
Subsec. (l)(5)(C).
Subsec. (l)(7)(D)(iii)(III).
Subsec. (l)(7)(D)(iv).
Subsec. (l)(8)(A)(ii).
Subsec. (l)(8)(E).
Subsec. (m)(1).
Subsec. (m)(1)(B).
Subsec. (m)(4)(D).
"(i) such liabilities shall not be taken into account in computing the required annual payment under subparagraph (B), and
"(ii) each required installment shall be increased by the greater of—
"(I) the amount of benefits described in subsection (l)(5)(A)(i) paid during the 3-month period preceding the month in which the due date for such installment occurs, or
"(II) 25 percent of the amount determined under subsection (l)(5)(A)(ii) for the plan year."
1988—Subsec. (l)(3)(C)(i), (iii).
1987—Subsec. (b)(2).
Subsec. (b)(2)(B)(iv).
Subsec. (b)(2)(B)(v).
Subsec. (b)(2)(C), (3)(B)(ii).
Subsec. (b)(3)(B)(iii).
Subsec. (b)(5).
Subsec. (c)(2)(B).
Subsec. (c)(3).
Subsec. (c)(7).
"(A) the accrued liability (including normal cost) under the plan (determined under the entry age normal funding method if such accrued liability cannot be directly calculated under the funding method used for the plan), over
"(B) the lesser of the fair market value of the plan's assets or the value of such assets determined under paragraph (2)."
Subsec. (c)(10).
Subsec. (c)(11).
Subsec. (d)(1).
Subsec. (d)(2).
Subsec. (d)(4).
Subsec. (d)(5).
Subsec. (e).
Subsec. (f)(3)(C)(i).
Subsec. (f)(4)(A).
Subsec. (l).
Subsec. (m).
Subsec. (n).
1986—Subsec. (d)(1).
Subsec. (e).
Subsec. (f).
1984—Subsec. (a)(2).
1980—Subsec. (a).
Subsec. (b).
Subsecs. (j), (k).
1976—Subsecs. (a) to (d).
Subsec. (h).
Subsec. (i).
Effective Date of 1994 Amendment
Amendment by section 751(a)(1)–(9)(A), (10) of
Section 752(b) of
"(1)
"(2)
"(A) such change would have required the approval of the Secretary of the Treasury had such amendment applied to such change, and
"(B) such change is not so approved."
Section 753(b) of
Section 754(b) of
Section 768(c) of
Effective Date of 1989 Amendment
Amendment by
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1987 Amendment
Section 9301(c)(1), (2) of
"(1)
"(2)
Section 9303(e) of
"(1)
"(2)
"(3)
"(A)
"(i) the required percentage of the current liability under such plan, plus
"(ii) the amount determined under subparagraph (C)(i) for such plan year.
"(B)
"(i) the sum of—
"(I) the funded current liability percentage as of the beginning of the 1st plan year beginning after December 31, 1988 (determined without regard to any plan amendment adopted after June 30, 1987), plus
"(II) 1 percentage point for the plan year for which the determination under this paragraph is being made and for each prior plan year beginning after December 31, 1988, over
"(ii) the funded current liability percentage as of the beginning of the plan year for which such determination is being made.
"(C)
"(i)
"(ii)
"(I) the unpredictable contingent event benefit liability, or
"(II) any amount contributed to the plan which is attributable to clause (i) (and any income allocable to such amount).
"(D)
"(i) such plan is maintained by a steel company, and
"(ii) substantially all of the employees covered by such plan are employees of such company.
"(E)
"(i)
"(ii)
"(F)
Section 9304(a)(3) of
Section 9304(b)(3) of
Section 9304(e)(3) of
Section 9305(d) of
Section 9306(f) of
"(1)
"(A) any application submitted after December 17, 1987, and
"(B) any waiver granted pursuant to such an application.
"(2)
"(A)
"(B)
"(3)
"(4)
Amendment by section 9307(a)(1), (b)(1), (e)(1) of
Effective Date of 1986 Amendment
Amendment by section 11015(a)(2) of
Amendment by sections 11015(b)(2) and 11016(c)(4) of
Effective Date of 1984 Amendment
Amendment by
Effective Date of 1980 Amendment
Amendment by
Effective Date of 1976 Amendment
Amendment by section 1901(a)(63) of
Effective Date
Section applicable, except as otherwise provided in section 1017(c) through (i) of
Regulations
Section 769 of
"(a)
"(1) a plan which is, on the date of enactment of this Act [Dec. 8, 1994], subject to a restoration payment schedule order issued by the Pension Benefit Guaranty Corporation that meets the requirements of section 1.412(c)(1)–3 of the Treasury Regulations, or
"(2) a plan established by an affected air carrier (as defined under section 4001(a)(14)(C)(ii)(I) of such Act [
"(b)
Section 9303(c) of
Alternative Amortization Method for Certain Multiemployer Plans
Section 1013(d) of
"(1)
"(A) on January 1, 1974, the contributions under the plan were based on a percentage of pay,
"(B) the actuarial assumptions with respect to pay are reasonably related to past and projected experience, and
"(C) the rates of interest under the plan are determined on the basis of reasonable actuarial assumptions,
the plan may elect (in such manner and at such time as may be provided under regulations prescribed by the Secretary of the Treasury or his delegate) to fund the unfunded past service liability under the plan existing as of the date 12 months following the first date on which such section 412 first applies to the plan by charging the funding standard account with an equal annual percentage of the aggregate pay of all participants in the plan in lieu of the level dollar charges to such account required under clauses (i), (ii), and (iii) of section 412(b)(2)(B) of such Code and section 302(b)(2)(B)(i), (ii), and (iii) of this Act [section 1082(b)(2)(B)(i), (ii), and (iii) of Title 29, Labor].
"(2)
Section Referred to in Other Sections
This section is referred to in
1 So in original. Probably should be followed by a closing parenthesis.
2 So in original. Probably should be subsection "(l)".
§413. Collectively bargained plans, etc.
(a) Application of subsection (b)
Subsection (b) applies to—
(1) a plan maintained pursuant to an agreement which the Secretary of Labor finds to be a collective-bargaining agreement between employee representatives and one or more employers, and
(2) each trust which is a part of such plan.
(b) General rule
If this subsection applies to a plan, notwithstanding any other provision of this title—
(1) Participation
Section 410 shall be applied as if all employees of each of the employers who are parties to the collective-bargaining agreement and who are subject to the same benefit computation formula under the plan were employed by a single employer.
(2) Discrimination, etc.
Sections 401(a)(4) and 411(d)(3) shall be applied as if all participants who are subject to the same benefit computation formula and who are employed by employers who are parties to the collective bargaining agreement were employed by a single employer.
(3) Exclusive benefit
For purposes of section 401(a), in determining whether the plan of an employer is for the exclusive benefit of his employees and their beneficiaries, all plan participants shall be considered to be his employees.
(4) Vesting
Section 411 (other than subsection (d)(3)) shall be applied as if all employers who have been parties to the collective-bargaining agreement constituted a single employer, except that the application of any rules with respect to breaks in service shall be made under regulations prescribed by the Secretary of Labor.
(5) Funding
The minimum funding standard provided by section 412 shall be determined as if all participants in the plan were employed by a single employer.
(6) Liability for funding tax
For a plan year the liability under section 4971 of each employer who is a party to the collective bargaining agreement shall be determined in a reasonable manner not inconsistent with regulations prescribed by the Secretary—
(A) first on the basis of their respective delinquencies in meeting required employer contributions under the plan, and
(B) then on the basis of their respective liabilities for contributions under the plan.
For purposes of this subsection and the last sentence of section 4971(a), an employer's withdrawal liability under part 1 of subtitle E of title IV of the Employee Retirement Income Security Act of 1974 shall not be treated as a liability for contributions under the plan.
(7) Deduction limitations
Each applicable limitation provided by section 404(a) shall be determined as if all participants in the plan were employed by a single employer. The amounts contributed to or under the plan by each employer who is a party to the agreement, for the portion of his taxable year which is included within such a plan year, shall be considered not to exceed such a limitation if the anticipated employer contributions for such plan year (determined in a manner consistent with the manner in which actual employer contributions for such plan year are determined) do not exceed such limitation. If such anticipated contributions exceed such a limitation, the portion of each such employer's contributions which is not deductible under section 404 shall be determined in accordance with regulations prescribed by the Secretary.
(8) Employees of labor unions
For purposes of this subsection, employees or employee representatives shall be treated as employees of an employer described in subsection (a)(1) if such representatives meet the requirements of sections 401(a)(4) and 410 with respect to such employees.
(9) Plans covering a professional employee
Notwithstanding subsection (a), in the case of a plan (and trust forming part thereof) which covers any professional employee, paragraph (1) shall be applied by substituting "section 410(a)" for "section 410", and paragraph (2) shall not apply.
(c) Plans maintained by more than one employer
In the case of a plan maintained by more than one employer—
(1) Participation
Section 410(a) shall be applied as if all employees of each of the employers who maintain the plan were employed by a single employer.
(2) Exclusive benefit
For purposes of section 401(a), in determining whether the plan of an employer is for the exclusive benefit of his employees and their beneficiaries all plan participants shall be considered to be his employees.
(3) Vesting
Section 411 shall be applied as if all employers who maintain the plan constituted a single employer, except that the application of any rules with respect to breaks in service shall be made under regulations prescribed by the Secretary of Labor.
(4) Funding
(A) In general
In the case of a plan established after December 31, 1988, each employer shall be treated as maintaining a separate plan for purposes of section 412 unless such plan uses a method for determining required contributions which provides that any employer contributes not less than the amount which would be required if such employer maintained a separate plan.
(B) Other plans
In the case of a plan not described in subparagraph (A), the requirements of section 412 shall be determined as if all participants in the plan were employed by a single employer unless the plan administrator elects not later than the close of the first plan year of the plan beginning after the date of enactment of the Technical and Miscellaneous Revenue Act of 1988 to have the provisions of subparagraph (A) apply. An election under the preceding sentence shall take effect for the plan year in which made and, once made, may be revoked only with the consent of the Secretary.
(5) Liability for funding tax
For a plan year the liability under section 4971 of each employer who maintains the plan shall be determined in a reasonable manner not inconsistent with regulations prescribed by the Secretary—
(A) first on the basis of their respective delinquencies in meeting required employer contributions under the plan, and
(B) then on the basis of their respective liabilities for contributions under the plan.
(6) Deduction limitations
(A) In general
In the case of a plan established after December 31, 1988, each applicable limitation provided by section 404(a) shall be determined as if each employer were maintaining a separate plan.
(B) Other plans
(i) In general
In the case of a plan not described in subparagraph (A), each applicable limitation provided by section 404(a) shall be determined as if all participants in the plan were employed by a single employer, except that if an election is made under paragraph (4)(B), subparagraph (A) shall apply to such plan.
(ii) Special rule
If this subparagraph applies, the amounts contributed to or under the plan by each employer who maintains the plan (for the portion of the taxable year included within a plan year) shall be considered not to exceed any such limitation if the anticipated employer contributions for such plan year (determined in a reasonable manner not inconsistent with regulations prescribed by the Secretary) do not exceed such limitation. If such anticipated contributions exceed such a limitation, the portion of each such employer's contributions which is not deductible under section 404 shall be determined in accordance with regulations prescribed by the Secretary.
(7) Allocations
(A) In general
Except as provided in subparagraph (B), allocations of amounts under paragraphs (4), (5), and (6) among the employers maintaining the plan shall not be inconsistent with regulations prescribed for this purpose by the Secretary.
(B) Assets and liabilities of plan
For purposes of applying paragraphs (4)(A) and (6)(A), the assets and liabilities of each plan shall be treated as the assets and liabilities which would be allocated to a plan maintained by the employer if the employer withdrew from the multiple employer plan.
(Added
References in Text
The Employee Retirement Income Security Act of 1974, referred to in subsec. (b)(6), is
The date of enactment of the Technical and Miscellaneous Revenue Act of 1988, referred to in subsec. (c)(4)(B), is the date of enactment of
Amendments
1990—Subsec. (c)(7)(B).
1988—Subsec. (b)(9).
Subsec. (c).
Subsec. (c)(4).
Subsec. (c)(6).
Subsec. (c)(7).
1980—Subsec. (b)(6).
1976—Subsecs. (b), (c).
Effective Date of 1988 Amendment
Amendment by section 1011(h)(10) of
Section 6058(d) of
Effective Date of 1980 Amendment
Amendment by
Effective Date
Section applicable, except as otherwise provided in section 1017(c) through (i) of
Section Referred to in Other Sections
This section is referred to in
§414. Definitions and special rules
(a) Service for predecessor employer
For purposes of this part—
(1) in any case in which the employer maintains a plan of a predecessor employer, service for such predecessor shall be treated as service for the employer, and
(2) in any case in which the employer maintains a plan which is not the plan maintained by a predecessor employer, service for such predecessor shall, to the extent provided in regulations prescribed by the Secretary, be treated as service for the employer.
(b) Employees of controlled group of corporations
For purposes of sections 401, 408(k), 410, 411, 415, and 416, all employees of all corporations which are members of a controlled group of corporations (within the meaning of section 1563(a), determined without regard to section 1563(a)(4) and (e)(3)(C)) shall be treated as employed by a single employer. With respect to a plan adopted by more than one such corporation, the applicable limitations provided by section 404(a) shall be determined as if all such employers were a single employer, and allocated to each employer in accordance with regulations prescribed by the Secretary.
(c) Employees of partnerships, proprietorships, etc., which are under common control
For purposes of sections 401, 408(k), 410, 411, 415, and 416, under regulations prescribed by the Secretary, all employees of trades or businesses (whether or not incorporated) which are under common control shall be treated as employed by a single employer. The regulations prescribed under this subsection shall be based on principles similar to the principles which apply in the case of subsection (b).
(d) Governmental plan
For purposes of this part, the term "governmental plan" means a plan established and maintained for its employees by the Government of the United States, by the government of any State or political subdivision thereof, or by any agency or instrumentality of any of the foregoing. The term "governmental plan" also includes any plan to which the Railroad Retirement Act of 1935 or 1937 applies and which is financed by contributions required under that Act and any plan of an international organization which is exempt from taxation by reason of the International Organizations Immunities Act (
(e) Church plan
(1) In general
For purposes of this part, the term "church plan" means a plan established and maintained (to the extent required in paragraph (2)(B)) for its employees (or their beneficiaries) by a church or by a convention or association of churches which is exempt from tax under section 501.
(2) Certain plans excluded
The term "church plan" does not include a plan—
(A) which is established and maintained primarily for the benefit of employees (or their beneficiaries) of such church or convention or association of churches who are employed in connection with one or more unrelated trades or businesses (within the meaning of section 513); or
(B) if less than substantially all of the individuals included in the plan are individuals described in paragraph (1) or (3)(B) (or their beneficiaries).
(3) Definitions and other provisions
For purposes of this subsection—
(A) Treatment as church plan
A plan established and maintained for its employees (or their beneficiaries) by a church or by a convention or association of churches includes a plan maintained by an organization, whether a civil law corporation or otherwise, the principal purpose or function of which is the administration or funding of a plan or program for the provision of retirement benefits or welfare benefits, or both, for the employees of a church or a convention or association of churches, if such organization is controlled by or associated with a church or a convention or association of churches.
(B) Employee defined
The term employee of a church or a convention or association of churches shall include—
(i) a duly ordained, commissioned, or licensed minister of a church in the exercise of his ministry, regardless of the source of his compensation;
(ii) an employee of an organization, whether a civil law corporation or otherwise, which is exempt from tax under section 501 and which is controlled by or associated with a church or a convention or association of churches; and
(iii) an individual described in subparagraph (E).
(C) Church treated as employer
A church or a convention or association of churches which is exempt from tax under section 501 shall be deemed the employer of any individual included as an employee under subparagraph (B).
(D) Association with church
An organization, whether a civil law corporation or otherwise, is associated with a church or a convention or association of churches if it shares common religious bonds and convictions with that church or convention or association of churches.
(E) Special rule in case of separation from plan
If an employee who is included in a church plan separates from the service of a church or a convention or association of churches or an organization described in clause (ii) of paragraph (3)(B), the church plan shall not fail to meet the requirements of this subsection merely because the plan—
(i) retains the employee's accrued benefit or account for the payment of benefits to the employee or his beneficiaries pursuant to the terms of the plan; or
(ii) receives contributions on the employee's behalf after the employee's separation from such service, but only for a period of 5 years after such separation, unless the employee is disabled (within the meaning of the disability provisions of the church plan or, if there are no such provisions in the church plan, within the meaning of section 72(m)(7)) at the time of such separation from service.
(4) Correction of failure to meet church plan requirements
(A) In general
If a plan established and maintained for its employees (or their beneficiaries) by a church or by a convention or association of churches which is exempt from tax under section 501 fails to meet one or more of the requirements of this subsection and corrects its failure to meet such requirements within the correction period, the plan shall be deemed to meet the requirements of this subsection for the year in which the correction was made and for all prior years.
(B) Failure to correct
If a correction is not made within the correction period, the plan shall be deemed not to meet the requirements of this subsection beginning with the date on which the earliest failure to meet one or more of such requirements occurred.
(C) Correction period defined
The term "correction period" means—
(i) the period, ending 270 days after the date of mailing by the Secretary of a notice of default with respect to the plan's failure to meet one or more of the requirements of this subsection;
(ii) any period set by a court of competent jurisdiction after a final determination that the plan fails to meet such requirements, or, if the court does not specify such period, any reasonable period determined by the Secretary on the basis of all the facts and circumstances, but in any event not less than 270 days after the determination has become final; or
(iii) any additional period which the Secretary determines is reasonable or necessary for the correction of the default,
whichever has the latest ending date.
(f) Multiemployer plan
(1) Definition
For purposes of this part, the term "multiemployer plan" means a plan—
(A) to which more than one employer is required to contribute,
(B) which is maintained pursuant to one or more collective bargaining agreements between one or more employee organizations and more than one employer, and
(C) which satisfies such other requirements as the Secretary of Labor may prescribe by regulation.
(2) Cases of common control
For purposes of this subsection, all trades or businesses (whether or not incorporated) which are under common control within the meaning of subsection (c) are considered a single employer.
(3) Continuation of status after termination
Notwithstanding paragraph (1), a plan is a multiemployer plan on and after its termination date under title IV of the Employee Retirement Income Security Act of 1974 if the plan was a multiemployer plan under this subsection for the plan year preceding its termination date.
(4) Transitional rule
For any plan year which began before the date of the enactment of the Multiemployer Pension Plan Amendments Act of 1980, the term "multiemployer plan" means a plan described in this subsection as in effect immediately before that date.
(5) Special election
Within one year after the date of the enactment of the Multiemployer Pension Plan Amendments Act of 1980, a multiemployer plan may irrevocably elect, pursuant to procedures established by the Pension Benefit Guaranty Corporation and subject to the provisions of section 4403(b) and (c) of the Employee Retirement Income Security Act of 1974, that the plan shall not be treated as a multiemployer plan for any purpose under such Act or this title, if for each of the last 3 plan years ending prior to the effective date of the Multiemployer Pension Plan Amendments Act of 1980—
(A) the plan was not a multiemployer plan because the plan was not a plan described in section 3(37)(A)(iii) of the Employee Retirement Income Security Act of 1974 and section 414(f)(1)(C) (as such provisions were in effect on the day before the date of the enactment of the Multiemployer Pension Plan Amendments Act of 1980); and
(B) the plan had been identified as a plan that was not a multiemployer plan in substantially all its filings with the Pension Benefit Guaranty Corporation, the Secretary of Labor and the Secretary.
(g) Plan administrator
For purposes of this part, the term "plan administrator" means—
(1) the person specifically so designated by the terms of the instrument under which the plan is operated;
(2) in the absence of a designation referred to in paragraph (1)—
(A) in the case of a plan maintained by a single employer, such employer,
(B) in the case of a plan maintained by two or more employers or jointly by one or more employers and one or more employee organizations, the association, committee, joint board of trustees, or other similar group of representatives of the parties who maintained the plan, or
(C) in any case to which subparagraph (A) or (B) does not apply, such other person as the Secretary may by regulation, prescribe.
(h) Tax treatment of certain contributions
(1) In general
Effective with respect to taxable years beginning after December 31, 1973, for purposes of this title, any amount contributed—
(A) to an employees' trust described in section 401(a), or
(B) under a plan described in section 403(a), shall not be treated as having been made by the employer if it is designated as an employee contribution.
(2) Designation by units of government
For purposes of paragraph (1), in the case of any plan established by the government of any State or political subdivision thereof, or by any agency or instrumentality of any of the foregoing, where the contributions of employing units are designated as employee contributions but where any employing unit picks up the contributions, the contributions so picked up shall be treated as employer contributions.
(i) Defined contribution plan
For purposes of this part, the term "defined contribution plan" means a plan which provides for an individual account for each participant and for benefits based solely on the amount contributed to the participant's account, and any income, expenses, gains and losses, and any forfeitures of accounts of other participants which may be allocated to such participant's account.
(j) Defined benefit plan
For purposes of this part, the term "defined benefit plan" means any plan which is not a defined contribution plan.
(k) Certain plans
A defined benefit plan which provides a benefit derived from employer contributions which is based partly on the balance of the separate account of a participant shall—
(1) for purposes of section 410 (relating to minimum participation standards), be treated as a defined contribution plan.
(2) for purposes of sections 72(d) (relating to treatment of employee contributions as separate contract), 411(a)(7)(A) (relating to minimum vesting standards), 415 (relating to limitations on benefits and contributions under qualified plans), and 401(m) (relating to nondiscrimination tests for matching requirements and employee contributions), be treated as consisting of a defined contribution plan to the extent benefits are based on the separate account of a participant and as a defined benefit plan with respect to the remaining portion of benefits under the plan, and
(3) for purposes of section 4975 (relating to tax on prohibited transactions), be treated as a defined benefit plan.
(l) Merger and consolidations of plans or transfers of plan assets
(1) In general
A trust which forms a part of a plan shall not constitute a qualified trust under section 401 and a plan shall be treated as not described in section 403(a) unless in the case of any merger or consolidation of the plan with, or in the case of any transfer of assets or liabilities of such plan to, any other trust plan after September 2, 1974, each participant in the plan would (if the plan then terminated) receive a benefit immediately after the merger, consolidation, or transfer which is equal to or greater than the benefit he would have been entitled to receive immediately before the merger, consolidation, or transfer (if the plan had then terminated). The preceding sentence does not apply to any multiemployer plan with respect to any transaction to the extent that participants either before or after the transaction are covered under a multiemployer plan to which Title IV of the Employee Retirement Income Security Act of 1974 applies.
(2) Allocation of assets in plan spin-offs, etc.
(A) In general
In the case of a plan spin-off of a defined benefit plan, a trust which forms part of—
(i) the original plan, or
(ii) any plan spun off from such plan,
shall not constitute a qualified trust under this section unless the applicable percentage of excess assets are allocated to each of such plans.
(B) Applicable percentage
For purposes of subparagraph (A), the term "applicable percentage" means, with respect to each of the plans described in clauses (i) and (ii) of subparagraph (A), the percentage determined by dividing—
(i) the excess (if any) of—
(I) the amount determined under section 412(c)(7)(A)(i) with respect to the plan, over
(II) the amount of the assets required to be allocated to the plan after the spin-off (without regard to this paragraph), by
(ii) the sum of the excess amounts determined separately under clause (i) for all such plans.
(C) Excess assets
For purposes of subparagraph (A), the term "excess assets" means an amount equal to the excess (if any) of—
(i) the fair market value of the assets of the original plan immediately before the spin-off, over
(ii) the amount of assets required to be allocated after the spin-off to all plans (determined without regard to this paragraph).
(D) Certain spun-off plans not taken into account
(i) In general
A plan involved in a spin-off which is described in clause (ii), (iii), or (iv) shall not be taken into account for purposes of this paragraph, except that the amount determined under subparagraph (C)(ii) shall be increased by the amount of assets allocated to such plan.
(ii) Plans transferred out of controlled groups
A plan is described in this clause if, after such spin-off, such plan is maintained by an employer who is not a member of the same controlled group as the employer maintaining the original plan.
(iii) Plans transferred out of multiple employer plans
A plan as described in this clause if, after the spin-off, any employer maintaining such plan (and any member of the same controlled group as such employer) does not maintain any other plan remaining after the spin-off which is also maintained by another employer (or member of the same controlled group as such other employer) which maintained the plan in existence before the spin-off.
(iv) Terminated plans
A plan is described in this clause if, pursuant to the transaction involving the spin-off, the plan is terminated.
(v) Controlled group
For purposes of this subparagraph, the term "controlled group" means any group treated as a single employer under subsection (b), (c), (m), or (o).
(E) Paragraph not to apply to multiemployer plans
This paragraph does not apply to any multiemployer plan with respect to any spin-off to the extent that participants either before or after the spin-off are covered under a multiemployer plan to which title IV of the Employee Retirement Income Security Act of 1974 applies.
(F) Application to similar transaction
Except as provided by the Secretary, rules similar to the rules of this paragraph shall apply to transactions similar to spin-offs.
(G) Special rules for bridge banks
For purposes of this paragraph, in the case of a bridge bank established under section 11(i) of the Federal Deposit Insurance Act (
(i) such bank shall be treated as a member of any controlled group which includes any insured bank (as defined in section 3(h) of such Act (
(I) which maintains a defined benefit plan,
(II) which is closed by the appropriate bank regulatory authorities, and
(III) any asset and liabilities of which are received by the bridge bank, and
(ii) the requirements of this paragraph shall not be treated as met with respect to such plan unless during the 180-day period beginning on the date such insured bank is closed—
(I) the bridge bank has the right to require the plan to transfer (subject to the provisions of this paragraph) not more than 50 percent of the excess assets (as defined in subparagraph (C)) to a defined benefit plan maintained by the bridge bank with respect to participants or former participants (including retirees and beneficiaries) in the original plan employed by the bridge bank or formerly employed by the closed bank, and
(II) no other merger, spin-off, termination, or similar transaction involving the portion of the excess assets described in subclause (I) may occur without the prior written consent of the bridge bank.
(m) Employees of an affiliated service group
(1) In general
For purposes of the employee benefit requirements listed in paragraph (4), except to the extent otherwise provided in regulations, all employees of the members of an affiliated service group shall be treated as employed by a single employer.
(2) Affiliated service group
For purposes of this subsection, the term "affiliated service group" means a group consisting of a service organization (hereinafter in this paragraph referred to as the "first organization") and one or more of the following:
(A) any service organization which—
(i) is a shareholder or partner in the first organization, and
(ii) regularly performs services for the first organization or is regularly associated with the first organization in performing services for third persons, and
(B) any other organization if—
(i) a significant portion of the business of such organization is the performance of services (for the first organization, for organizations described in subparagraph (A), or for both) of a type historically performed in such service field by employees, and
(ii) 10 percent or more of the interests in such organization is held by persons who are highly compensated employees (within the meaning of section 414(q)) of the first organization or an organization described in subparagraph (A).
(3) Service organizations
For purposes of this subsection, the term "service organization" means an organization the principal business of which is the performance of services.
(4) Employee benefit requirements
For purposes of this subsection, the employee benefit requirements listed in this paragraph are—
(A) paragraphs (3), (4), (7), (16), (17), and (26) of section 401(a), and
(B) sections 408(k), 410, 411, 415, and 416.
(5) Certain organizations performing management functions
For purposes of this subsection, the term "affiliated service group" also includes a group consisting of—
(A) an organization the principal business of which is performing, on a regular and continuing basis, management functions for 1 organization (or for 1 organization and other organizations related to such 1 organization), and
(B) the organization (and related organizations) for which such functions are so performed by the organization described in subparagraph (A).
For purposes of this paragraph, the term "related organizations" has the same meaning as the term "related persons" when used in section 144(a)(3).
(6) Other definitions
For purposes of this subsection—
(A) Organization defined
The term "organization" means a corporation, partnership, or other organization.
(B) Ownership
In determining ownership, the principles of section 318(a) shall apply.
(n) Employee leasing
(1) In general
For purposes of the requirements listed in paragraph (3), with respect to any person (hereinafter in this subsection referred to as the "recipient") for whom a leased employee performs services—
(A) the leased employee shall be treated as an employee of the recipient, but
(B) contributions or benefits provided by the leasing organization which are attributable to services performed for the recipient shall be treated as provided by the recipient.
(2) Leased employee
For purposes of paragraph (1), the term "leased employee" means any person who is not an employee of the recipient and who provides services to the recipient if—
(A) such services are provided pursuant to an agreement between the recipient and any other person (in this subsection referred to as the "leasing organization"),
(B) such person has performed such services for the recipient (or for the recipient and related persons) on a substantially full-time basis for a period of at least 1 year, and
(C) such services are of a type historically performed, in the business field of the recipient, by employees.
(3) Requirements
For purposes of this subsection, the requirements listed in this paragraph are—
(A) paragraphs (3), (4), (7), (16), (17), and (26) of section 401(a),
(B) sections 408(k), 410, 411, 415, and 416, and
(C) sections 79, 106, 117(d), 120, 125, 127, 129, 132, 274(j), 505, and 4980B.
(4) Time when first considered as employee
(A) In general
In the case of any leased employee, paragraph (1) shall apply only for purposes of determining whether the requirements listed in paragraph (3) are met for periods after the close of the period referred to in paragraph (2)(B).
(B) Years of service
In the case of a person who is an employee of the recipient (whether by reason of this subsection or otherwise), for purposes of the requirements listed in paragraph (3), years of service for the recipient shall be determined by taking into account any period for which such employee would have been a leased employee but for the requirements of paragraph (2)(B).
(5) Safe harbor
(A) In general
In the case of requirements described in subparagraphs (A) and (B) of paragraph (3), this subsection shall not apply to any leased employee with respect to services performed for a recipient if—
(i) such employee is covered by a plan which is maintained by the leasing organization and meets the requirements of subparagraph (B), and
(ii) leased employees (determined without regard to this paragraph) do not constitute more than 20 percent of the recipient's nonhighly compensated work force.
(B) Plan requirements
A plan meets the requirements of this subparagraph if—
(i) such plan is a money purchase pension plan with a nonintegrated employer contribution rate for each participant of at least 10 percent of compensation,
(ii) such plan provides for full and immediate vesting, and
(iii) each employee of the leasing organization (other than employees who perform substantially all of their services for the leasing organization) immediately participates in such plan.
Clause (iii) shall not apply to any individual whose compensation from the leasing organization in each plan year during the 4-year period ending with the plan year is less than $1,000.
(C) Definitions
For purposes of this paragraph—
(i) Highly compensated employee
The term "highly compensated employee" has the meaning given such term by section 414(q).
(ii) Nonhighly compensated work force
The term "nonhighly compensated work force" means the aggregate number of individuals (other than highly compensated employees)—
(I) who are employees of the recipient (without regard to this subsection) and have performed services for the recipient (or for the recipient and related persons) on a substantially full-time basis for a period of at least 1 year, or
(II) who are leased employees with respect to the recipient (determined without regard to this paragraph).
(iii) Compensation
The term "compensation" has the same meaning as when used in section 415; except that such term shall include—
(I) any employer contribution under a qualified cash or deferred arrangement to the extent not included in gross income under section 402(e)(3) or 402(h)(1)(B),
(II) any amount which the employee would have received in cash but for an election under a cafeteria plan (within the meaning of section 125), and
(III) any amount contributed to an annuity contract described in section 403(b) pursuant to a salary reduction agreement (within the meaning of section 3121(a)(5)(D)).
(6) Other rules
For purposes of this subsection—
(A) Related persons
The term "related persons" has the same meaning as when used in section 144(a)(3).
(B) Employees of entities under common control
The rules of subsections (b), (c), (m), and (o) shall apply.
(o) Regulations
The Secretary shall prescribe such regulations (which may provide rules in addition to the rules contained in subsections (m) and (n)) as may be necessary to prevent the avoidance of any employee benefit requirement listed in subsection (m)(4) or (n)(3) or any requirement under section 457 through the use of—
(1) separate organizations,
(2) employee leasing, or
(3) other arrangements.
The regulations prescribed under subsection (n) shall include provisions to minimize the recordkeeping requirements of subsection (n) in the case of an employer which has no top-heavy plans (within the meaning of section 416(g)) and which uses the services of persons (other than employees) for an insignificant percentage of the employer's total workload.
(p) Qualified domestic relations order defined
For purposes of this subsection and section 401(a)(13)—
(1) In general
(A) Qualified domestic relations order
The term "qualified domestic relations order" means a domestic relations order—
(i) which creates or recognizes the existence of an alternate payee's right to, or assigns to an alternate payee the right to, receive all or a portion of the benefits payable with respect to a participant under a plan, and
(ii) with respect to which the requirements of paragraphs (2) and (3) are met.
(B) Domestic relations order
The term "domestic relations order" means any judgment, decree, or order (including approval of a property settlement agreement) which—
(i) relates to the provision of child support, alimony payments, or marital property rights to a spouse, former spouse, child, or other dependent of a participant, and
(ii) is made pursuant to a State domestic relations law (including a community property law).
(2) Order must clearly specify certain facts
A domestic relations order meets the requirements of this paragraph only if such order clearly specifies—
(A) the name and the last known mailing address (if any) of the participant and the name and mailing address of each alternate payee covered by the order,
(B) the amount or percentage of the participant's benefits to be paid by the plan to each such alternate payee, or the manner in which such amount or percentage is to be determined,
(C) the number of payments or period to which such order applies, and
(D) each plan to which such order applies.
(3) Order may not alter amount, form, etc., of benefits
A domestic relations order meets the requirements of this paragraph only if such order—
(A) does not require a plan to provide any type or form of benefit, or any option, not otherwise provided under the plan,
(B) does not require the plan to provide increased benefits (determined on the basis of actuarial value), and
(C) does not require the payment of benefits to an alternate payee which are required to be paid to another alternate payee under another order previously determined to be a qualified domestic relations order.
(4) Exception for certain payments made after earliest retirement age
(A) In general
A domestic relations order shall not be treated as failing to meet the requirements of subparagraph (A) of paragraph (3) solely because such order requires that payment of benefits be made to an alternate payee—
(i) in the case of any payment before a participant has separated from service, on or after the date on which the participant attains (or would have attained) the earliest retirement age,
(ii) as if the participant had retired on the date on which such payment is to begin under such order (but taking into account only the present value of the benefits actually accrued and not taking into account the present value of any employer subsidy for early retirement), and
(iii) in any form in which such benefits may be paid under the plan to the participant (other than in the form of a joint and survivor annuity with respect to the alternate payee and his or her subsequent spouse).
For purposes of clause (ii), the interest rate assumption used in determining the present value shall be the interest rate specified in the plan or, if no rate is specified, 5 percent.
(B) Earliest retirement age
For purposes of this paragraph, the term "earliest retirement age" means the earlier of—
(i) the date on which the participant is entitled to a distribution under the plan, or
(ii) the later of—
(I) the date the participant attains age 50, or
(II) the earliest date on which the participant could begin receiving benefits under the plan if the participant separated from service.
(5) Treatment of former spouse as surviving spouse for purposes of determining survivor benefits
To the extent provided in any qualified domestic relations order—
(A) the former spouse of a participant shall be treated as a surviving spouse of such participant for purposes of sections 401(a)(11) and 417 (and any spouse of the participant shall not be treated as a spouse of the participant for such purposes), and
(B) if married for at least 1 year, the surviving former spouse shall be treated as meeting the requirements of section 417(d).
(6) Plan procedures with respect to orders
(A) Notice and determination by administrator
In the case of any domestic relations order received by a plan—
(i) the plan administrator shall promptly notify the participant and each alternate payee of the receipt of such order and the plan's procedures for determining the qualified status of domestic relations orders, and
(ii) within a reasonable period after receipt of such order, the plan administrator shall determine whether such order is a qualified domestic relations order and notify the participant and each alternate payee of such determination.
(B) Plan to establish reasonable procedures
Each plan shall establish reasonable procedures to determine the qualified status of domestic relations orders and to administer distributions under such qualified orders.
(7) Procedures for period during which determination is being made
(A) In general
During any period in which the issue of whether a domestic relations order is a qualified domestic relations order is being determined (by the plan administrator, by a court of competent jurisdiction, or otherwise), the plan administrator shall separately account for the amounts (hereinafter in this paragraph referred to as the "segregated amounts") which would have been payable to the alternate payee during such period if the order had been determined to be a qualified domestic relations order.
(B) Payment to alternate payee if order determined to be qualified domestic relations order
If within the 18-month period described in subparagraph (E) the order (or modification thereof) is determined to be a qualified domestic relations order, the plan administrator shall pay the segregated amounts (including any interest thereon) to the person or persons entitled thereto.
(C) Payment to plan participant in certain cases
If within the 18-month period described in subparagraph (E)—
(i) it is determined that the order is not a qualified domestic relations order, or
(ii) the issue as to whether such order is a qualified domestic relations order is not resolved,
then the plan administrator shall pay the segregated amounts (including any interest thereon) to the person or persons who would have been entitled to such amounts if there had been no order.
(D) Subsequent determination or order to be applied prospectively only
Any determination that an order is a qualified domestic relations order which is made after the close of the 18-month period described in subparagraph (E) shall be applied prospectively only.
(E) Determination of 18-month period
For purposes of this paragraph, the 18-month period described in this subparagraph is the 18-month period beginning with the date on which the first payment would be required to be made under the domestic relations order.
(8) Alternate payee defined
The term "alternate payee" means any spouse, former spouse, child or other dependent of a participant who is recognized by a domestic relations order as having a right to receive all, or a portion of, the benefits payable under a plan with respect to such participant.
(9) Subsection not to apply to plans to which section 401(a)(13) does not apply
This subsection shall not apply to any plan to which section 401(a)(13) does not apply. For purposes of this title, except as provided in regulations, any distribution from an annuity contract under section 403(b) pursuant to a qualified domestic relations order shall be treated in the same manner as a distribution from a plan to which section 401(a)(13) applies.
(10) Waiver of certain distribution requirements
With respect to the requirements of subsections (a) and (k) of section 401, section 403(b), and section 409(d), a plan shall not be treated as failing to meet such requirements solely by reason of payments to an alternative payee pursuant to a qualified domestic relations order.
(11) Application of rules to governmental and church plans
For purposes of this title, a distribution or payment from a governmental plan (as defined in subsection (d)) or a church plan (as described in subsection (e)) shall be treated as made pursuant to a qualified domestic relations order if it is made pursuant to a domestic relations order which meets the requirement of clause (i) of paragraph (1)(A).
(12) Consultation with the Secretary
In prescribing regulations under this subsection and section 401(a)(13), the Secretary of Labor shall consult with the Secretary.
(q) Highly compensated employee
(1) In general
The term "highly compensated employee" means any employee who, during the year or the preceding year—
(A) was at any time a 5-percent owner,
(B) received compensation from the employer in excess of $75,000,
(C) received compensation from the employer in excess of $50,000 and was in the top-paid group of employees for such year, or
(D) was at any time an officer and received compensation greater than 50 percent of the amount in effect under section 415(b)(1)(A) for such year.
The Secretary shall adjust the $75,000 and $50,000 amounts under this paragraph at the same time and in the same manner as under section 415(d).
(2) Special rule for current year
In the case of the year for which the relevant determination is being made, an employee not described in subparagraph (B), (C), or (D) of paragraph (1) for the preceding year (without regard to this paragraph) shall not be treated as described in subparagraph (B), (C), or (D) of paragraph (1) unless such employee is a member of the group consisting of the 100 employees paid the greatest compensation during the year for which such determination is being made.
(3) 5-percent owner
An employee shall be treated as a 5-percent owner for any year if at any time during such year such employee was a 5-percent owner (as defined in section 416(i)(1)) of the employer.
(4) Top-paid group
An employee is in the top-paid group of employees for any year if such employee is in the group consisting of the top 20 percent of the employees when ranked on the basis of compensation paid during such year.
(5) Special rules for treatment of officers
(A) Not more than 50 officers taken into account
For purposes of paragraph (1)(D), no more than 50 employees (or, if lesser, the greater of 3 employees or 10 percent of the employees) shall be treated as officers.
(B) At least 1 officer taken into account
If for any year no officer of the employer is described in paragraph (1)(D), the highest paid officer of the employer for such year shall be treated as described in such paragraph.
(6) Treatment of certain family members
(A) In general
If any individual is a member of the family of a 5-percent owner or of a highly compensated employee in the group consisting of the 10 highly compensated employees paid the greatest compensation during the year, then—
(i) such individual shall not be considered a separate employee, and
(ii) any compensation paid to such individual (and any applicable contribution or benefit on behalf of such individual) shall be treated as if it were paid to (or on behalf of) the 5-percent owner or highly compensated employee.
(B) Family
For purposes of subparagraph (A), the term "family" means, with respect to any employee, such employee's spouse and lineal ascendants or descendants and the spouses of such lineal ascendants or descendants.
(C) Rules to apply to other provisions
(i) In general
Except as provided in regulations and in clause (ii), the rules of subparagraph (A) shall be applied in determining the compensation of (or any contributions or benefits on behalf of) any employee for purposes of any section with respect to which a highly compensated employee is defined by reference to this subsection.
(ii) Exception for determining integration levels
Clause (i) shall not apply in determining the portion of the compensation of a participant which is under the integration level for purposes of section 401(l).
(7) Compensation
For purposes of this subsection—
(A) In general
The term "compensation" means compensation within the meaning of section 415(c)(3).
(B) Certain provisions not taken into account
The determination under subparagraph (A) shall be made—
(i) without regard to sections 125, 402(e)(3), and 402(h)(1)(B), and
(ii) in the case of employer contributions made pursuant to a salary reduction agreement, without regard to section 403(b).
(8) Excluded employees
For purposes of subsection (r) and for purposes of determining the number of employees in the top-paid group under paragraph (4) or the number of officers taken into account under paragraph (5), the following employees shall be excluded—
(A) employees who have not completed 6 months of service,
(B) employees who normally work less than 17½ hours per week,
(C) employees who normally work during not more than 6 months during any year,
(D) employees who have not attained age 21, and
(E) except to the extent provided in regulations, employees who are included in a unit of employees covered by an agreement which the Secretary of Labor finds to be a collective bargaining agreement between employee representatives and the employer.
Except as provided by the Secretary, the employer may elect to apply subparagraph (A), (B), (C), or (D) by substituting a shorter period of service, smaller number of hours or months, or lower age for the period of service, number of hours or months, or age (as the case may be) than that specified in such subparagraph.
(9) Former employees
A former employee shall be treated as a highly compensated employee if—
(A) such employee was a highly compensated employee when such employee separated from service, or
(B) such employee was a highly compensated employee at any time after attaining age 55.
(10) Coordination with other provisions
Subsections (b), (c), (m), (n), and (o) shall be applied before the application of this section.
(11) Special rule for nonresident aliens
For purposes of this subsection and subsection (r), employees who are nonresident aliens and who receive no earned income (within the meaning of section 911(d)(2)) from the employer which constitutes income from sources within the United States (within the meaning of section 861(a)(3)) shall not be treated as employees.
(12) Simplified method for determining highly compensated employees
(A) In general
If an election by the employer under this paragraph applies to any year, in determining whether an employee is a highly compensated employee for such year—
(i) subparagraph (B) of paragraph (1) shall be applied by substituting "$50,000" for "$75,000", and
(ii) subparagraph (C) of paragraph (1) shall not apply.
(B) Requirement for election
An election under this paragraph shall not apply to any year unless—
(i) at all times during such year, the employer maintained significant business activities (and employed employees) in at least 2 significantly separate geographic areas, and
(ii) the employer satisfies such other conditions as the Secretary may prescribe.
(r) Special rules for separate line of business
(1) In general
For purposes of sections 129(d)(8) and 410(b), an employer shall be treated as operating separate lines of business during any year if the employer for bona fide business reasons operates separate lines of business.
(2) Line of business must have 50 employees, etc.
A line of business shall not be treated as separate under paragraph (1) unless—
(A) such line of business has at least 50 employees who are not excluded under subsection (q)(8),
(B) the employer notifies the Secretary that such line of business is being treated as separate for purposes of paragraph (1), and
(C) such line of business meets guidelines prescribed by the Secretary or the employer receives a determination from the Secretary that such line of business may be treated as separate for purposes of paragraph (1).
(3) Safe harbor rule
(A) In general
The requirements of subparagraph (C) of paragraph (2) shall not apply to any line of business if the highly compensated employee percentage with respect to such line of business is—
(i) not less than one-half, and
(ii) not more than twice,
the percentage which highly compensated employees are of all employees of the employer. An employer shall be treated as meeting the requirements of clause (i) if at least 10 percent of all highly compensated employees of the employer perform services solely for such line of business.
(B) Determination may be based on preceding year
The requirements of subparagraph (A) shall be treated as met with respect to any line of business if such requirements were met with respect to such line of business for the preceding year and if—
(i) no more than a de minimis number of employees were shifted to or from the line of business after the close of the preceding year, or
(ii) the employees shifted to or from the line of business after the close of the preceding year contained a substantially proportional number of highly compensated employees.
(4) Highly compensated employee percentage defined
For purposes of this subsection, the term "highly compensated employee percentage" means the percentage which highly compensated employees performing services for the line of business are of all employees performing services for the line of business.
(5) Allocation of benefits to line of business
For purposes of this subsection, benefits which are attributable to services provided to a line of business shall be treated as provided by such line of business.
(6) Headquarters personnel, etc.
The Secretary shall prescribe rules providing for—
(A) the allocation of headquarters personnel among the lines of business of the employer, and
(B) the treatment of other employees providing services for more than 1 line of business of the employer or not in lines of business meeting the requirements of paragraph (2).
(7) Separate operating units
For purposes of this subsection, the term "separate line of business" includes an operating unit in a separate geographic area separately operated for a bona fide business reason.
(8) Affiliated service groups
This subsection shall not apply in the case of any affiliated service group (within the meaning of section 414(m)).
(s) Compensation
For purposes of any applicable provision—
(1) In general
Except as provided in this subsection, the term "compensation" has the meaning given such term by section 415(c)(3).
(2) Employer may elect to treat certain deferrals as compensation
An employer may elect to include as compensation any amount which is contributed by the employer pursuant to a salary reduction agreement and which is not includible in the gross income of an employee under section 125, 402(e)(3), 402(h), or 403(b).
(3) Alternative determination of compensation
The Secretary shall by regulation provide for alternative methods of determining compensation which may be used by an employer, except that such regulations shall provide that an employer may not use an alternative method if the use of such method discriminates in favor of highly compensated employees (within the meaning of subsection (q)).
(4) Applicable provision
For purposes of this subsection, the term "applicable provision" means any provision which specifically refers to this subsection.
(t) Application of controlled group rules to certain employee benefits
(1) In general
All employees who are treated as employed by a single employer under subsection (b), (c), or (m) shall be treated as employed by a single employer for purposes of an applicable section. The provisions of subsection (o) shall apply with respect to the requirements of an applicable section.
(2) Applicable section
For purposes of this subsection, the term "applicable section" means section 79, 106, 117(d), 120, 125, 127, 129, 132, 274(j), 505, or 4980B.
(Added
References in Text
The Railroad Retirement Act of 1935 or 1937, referred to in subsec. (d), means act Aug. 29, 1935, ch. 812,
The International Organizations Immunities Act (
The Employee Retirement Income Security Act of 1974, referred to in subsecs. (f) (3), (5) and (l)(1), (2)(E), is
The date of the enactment of the Multiemployer Pension Plan Amendments Act of 1980, referred to in subsec. (f)(4), (5), means the date of the enactment of
Effective date of the Multiemployer Pension Plan Amendments Act of 1980, referred to in subsec. (f)(5), probably means the date of enactment of the Multiemployer Pension Plan Amendments Act of 1980, which was approved Sept. 26, 1980.
Amendments
1992—Subsec. (n)(5)(C)(iii)(I).
Subsec. (q)(7)(B)(i).
Subsec. (s)(2).
1990—Subsec. (n)(2)(B).
1989—Subsec. (n)(3)(C).
Subsec. (p)(10).
Subsec. (p)(11).
Subsec. (r)(1).
Subsec. (t)(2).
1988—Subsec. (k)(2).
Subsec. (l).
Subsec. (l)(2)(G).
Subsec. (m)(4)(A).
Subsec. (m)(4)(C), (D).
"(C) section 105(h), and
"(D) section 125."
Subsec. (n)(3)(A).
Subsec. (n)(3)(C).
Subsec. (o).
Subsec. (p)(4)(B).
Subsec. (p)(9).
Subsec. (p)(10).
Subsec. (q)(1).
Subsec. (q)(1)(D).
Subsec. (q)(6)(C).
Subsec. (q)(8).
Subsec. (q)(8)(F).
Subsec. (q)(11).
Subsec. (q)(12).
Subsec. (r)(3).
"(A) not less than one-half, and
"(B) not more than twice,
the percentage which highly compensated employees are of all employees of the employer. An employer shall be treated as meeting the requirements of subparagraph (A) if at least 10 percent of all highly compensated employees of the employer perform services solely for such line of business."
Subsec. (s).
Subsec. (s)(1).
Subsec. (s)(2) to (4).
Subsec. (t)(1).
Subsec. (t)(2).
1987—Subsec. (b).
1986—Subsec. (k)(2).
Subsec. (m)(2)(B)(ii).
Subsec. (m)(5).
Subsec. (m)(7).
Subsec. (n)(1).
Subsec. (n)(2)(B).
Subsec. (n)(3).
Subsec. (n)(4).
Subsec. (n)(5).
"(A) is a money purchase pension plan with a nonintegrated employer contribution rate of at least 7½ percent, and
"(B) provides for immediate participation and for full and immediate vesting."
Subsec. (n)(6).
Subsec. (o).
Subsec. (p)(1)(B)(i).
Subsec. (p)(3)(B).
Subsec. (p)(4)(A).
Subsec. (p)(4)(B).
Subsec. (p)(5).
Subsec. (p)(5)(A).
Subsec. (p)(5)(B).
Subsec. (p)(6)(A)(i).
Subsec. (p)(7)(A).
Subsec. (p)(7)(B).
Subsec. (p)(7)(C).
Subsec. (p)(7)(D).
Subsec. (p)(7)(E).
Subsec. (p)(9).
Subsec. (p)(10).
Subsec. (p)(11).
Subsec. (q).
Subsecs. (r), (s).
Subsec. (t).
1984—Subsec. (h)(1)(B).
Subsec. (l).
Subsec. (m)(6)(B).
Subsec. (m)(7).
Subsec. (n)(2).
Subsec. (o).
Subsec. (p).
1982—Subsecs. (b), (c).
Subsec. (m)(4)(B).
Subsec. (m)(5) to (7).
Subsec. (n).
1980—Subsec. (e).
Subsec. (f).
Subsec. (l).
Subsec. (m).
1978—Subsecs. (b), (c).
1976—Subsecs. (a) to (c).
Subsec. (f).
Subsec. (g)(2)(C).
Subsec. (l).
Effective Date of 1992 Amendment
Amendment by
Effective Date of 1990 Amendment
Section 11703(b)(2) of
Effective Date of 1989 Amendments
Amendment by sections 7811(m)(5) and 7813(b) of
Amendment by section 7841(a)(2) of
Amendment by section 203(a)(6) of
Amendment by section 204(b)(2) of
Effective Date of 1988 Amendment
Amendment by sections 1011(d)(8), (e)(4), (h)(5), (i)(1)–(4)(A), (j)(1), (2), 1011A(b)(3), 1011B(a)(16), (17), (19), (20), and 1018(t)(8)(E)–(G) of
Section 2005(c)(3) of
"(A) Except as provided in subparagraph (B), the amendments made by this subsection [amending this section] shall apply with respect to transactions occurring after July 26, 1988.
"(B) The amendments made by this subsection shall not apply to any transaction occurring after July 26, 1988, if on or before such date the board of directors of the employer, approves such transaction or the employer took similar binding action."
Amendment by section 3011(b)(4), (5) of
Amendment by section 3021(b)(1), (2)(A) of
Section 6067(c) of
Effective Date of 1987 Amendment
Amendment by
Effective Date of 1986 Amendment
Section 1114(c) of
"(1)
"(2)
"(3)
"(4)
Section 1115(b) of
Amendment by section 1117(c) of
Section 1146(c) of
"(1)
"(2)
"(3)
Amendment by section 1151(e)(1), (i) of
Amendment by section 1301(j)(4) of
Amendment by section 1852(f) of
Amendment by section 1898(c)(2)(A), (4)(A), (6)(A), (7)(A)(ii)–(vii) of
Effective Date of 1984 Amendments
Amendment by
Amendment by section 491(d)(26), (27) of
Section 526(a)(2) of
Section 526(b)(2) of
Section 526(d)(3) of
Amendment by section 713(i) of
Effective Date of 1982 Amendment
Amendment by section 240(c) of
Section 246(b) of
Section 248(b) of
Effective Date of 1980 Amendments
Section 201(c) of
"(1)
"(2)
Section 407(c) of
Amendment by sections 207 and 208(a) of
Effective Date of 1978 Amendment
Amendment by
Effective Date of 1976 Amendment
Amendment by section 1901(a)(64) of
Effective Date
Section applicable, except as otherwise provided in section 1017(c) through (i) of
Regulations
Secretary of the Treasury or his delegate to issue before Feb. 1, 1988, final regulations to carry out amendments made by sections 1114, 1115, and 1117 of
Application of Line of Business Test for Period Before Guidelines Issued
Section 204(b)(1) of
[Section 204(d)(3) of
Nonenforcement of Amendment Made by Section 1151 of Pub. L. 99–514 for Fiscal Year 1990
No monies appropriated by
Study Reflecting Allocation of Assets
Section 6067(b) of
Plan Amendments Not Required Until January 1, 1994
For provisions directing that if any amendments made by subtitle B [§§521–523] of title V of
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
Section Referred to in Other Sections
This section is referred to in
§415. Limitations on benefits and contribution under qualified plans
(a) General rule
(1) Trusts
A trust which is a part of a pension, profitsharing, or stock bonus plan shall not constitute a qualified trust under section 401(a) if—
(A) in the case of a defined benefit plan, the plan provides for the payment of benefits with respect to a participant which exceed the limitation of subsection (b),
(B) in the case of a defined contribution plan, contributions and other additions under the plan with respect to any participant for any taxable year exceed the limitation of subsection (c), or
(C) in any case in which an individual is a participant in both a defined benefit plan and a defined contribution plan maintained by the employer, the trust has been disqualified under subsection (g).
(2) Section applies to certain annuities and accounts
In the case of—
(A) an employee annuity plan described in section 403(a),
(B) an annuity contract described in section 403(b), or
(C) a simplified employee pension described in section 408(k),
such a contract, plan, or pension shall not be considered to be described in section 403(a), 403(b), or 408(k), as the case may be, unless it satisfies the requirements of subparagraph (A) or subparagraph (B) of paragraph (1), whichever is appropriate, and has not been disqualified under subsection (g). In the case of an annuity contract described in section 403(b), the preceding sentence shall apply only to the portion of the annuity contract which exceeds the limitation of subsection (b) or the limitation of subsection (c), whichever is appropriate, and the amount of the contribution for such portion shall reduce the exclusion allowance as provided in section 403(b)(2).
(b) Limitation for defined benefit plans
(1) In general
Benefits with respect to a participant exceed the limitation of this subsection if, when expressed as an annual benefit (within the meaning of paragraph (2)), such annual benefit is greater than the lesser of—
(A) $90,000, or
(B) 100 percent of the participant's average compensation for his high 3 years.
(2) Annual benefit
(A) In general
For purposes of paragraph (1), the term "annual benefit" means a benefit payable annually in the form of a straight life annuity (with no ancillary benefits) under a plan to which employees do not contribute and under which no rollover contributions (as defined in sections 402(c), 403(a)(4), and 408(d)(3)) are made.
(B) Adjustment for certain other forms of benefit
If the benefit under the plan is payable in any form other than the form described in subparagraph (A), or if the employees contribute to the plan or make rollover contributions (as defined in sections 402(c), 403(a)(4), and 408(d)(3)), the determinations as to whether the limitation described in paragraph (1) has been satisfied shall be made, in accordance with regulations prescribed by the Secretary by adjusting such benefit so that it is equivalent to the benefit described in subparagraph (A). For purposes of this subparagraph, any ancillary benefit which is not directly related to retirement income benefits shall not be taken into account; and that portion of any joint and survivor annuity which constitutes a qualified joint and survivor annuity (as defined in section 417) shall not be taken into account.
(C) Adjustment to $90,000 limit where benefit begins before the social security retirement age
If the retirement income benefit under the plan begins before the social security retirement age, the determination as to whether the $90,000 limitation set forth in paragraph (1)(A) has been satisfied shall be made, in accordance with regulations prescribed by the Secretary, by reducing the limitation of paragraph (1)(A) so that such limitation (as so reduced) equals an annual benefit (beginning when such retirement income benefit begins) which is equivalent to a $90,000 annual benefit beginning at the social security retirement age. The reduction under this subparagraph shall be made in such manner as the Secretary may prescribe which is consistent with the reduction for old-age insurance benefits commencing before the social security retirement age under the Social Security Act.
(D) Adjustment to $90,000 limit where benefit begins after the social security retirement age
If the retirement income benefit under the plan begins after the social security retirement age, the determination as to whether the $90,000 limitation set forth in paragraph (1)(A) has been satisfied shall be made, in accordance with regulations prescribed by the Secretary, by increasing the limitation of paragraph (1)(A) so that such limitation (as so increased) equals an annual benefit (beginning when such retirement income benefit begins) which is equivalent to a $90,000 annual benefit beginning at the social security retirement age.
(E) Limitation on certain assumptions
(i) Except as provided in clause (ii), for purposes of adjusting any benefit or limitation under subparagraph (B) or (C), the interest rate assumption shall not be less than the greater of 5 percent or the rate specified in the plan.
(ii) For purposes of adjusting the benefit or limitation of any form of benefit subject to section 417(e)(3), the applicable interest rate (as defined in section 417(e)(3)) shall be substituted for "5 percent" in clause (i).
(iii) For purposes of adjusting any limitation under subparagraph (D), the interest rate assumption shall not be greater than the lesser of 5 percent or the rate specified in the plan.
(iv) For purposes of this subsection, no adjustments under subsection (d)(1) shall be taken into account before the year for which such adjustment first takes effect.
(v) For purposes of adjusting any benefit or limitation under subparagraph (B), (C), or (D), the mortality table used shall be the table prescribed by the Secretary. Such table shall be based on the prevailing commissioners' standard table (described in section 807(d)(5)(A)) used to determine reserves for group annuity contracts issued on the date the adjustment is being made (without regard to any other subparagraph of section 807(d)(5)).
(F) Plans maintained by governments and tax-exempt organizations
In the case of a governmental plan (within the meaning of section 414(d)), a plan maintained by an organization (other than a governmental unit) exempt from tax under this subtitle, or a qualified merchant marine plan—
(i) subparagraph (C) shall be applied—
(I) by substituting "age 62" for "social security retirement age" each place it appears, and
(II) as if the last sentence thereof read as follows: "The reduction under this subparagraph shall not reduce the limitation of paragraph (1)(A) below (i) $75,000 if the benefit begins at or after age 55, or (ii) if the benefit begins before age 55, the equivalent of the $75,000 limitation for age 55.", and
(ii) subparagraph (D) shall be applied by substituting "age 65" for "social security retirement age" each place it appears.
For purposes of this subparagraph, the term "qualified merchant marine plan" means a plan in existence on January 1, 1986, the participants in which are merchant marine officers holding licenses issued by the Secretary of Transportation under
(G) Special limitation for qualified police or firefighters
In the case of a qualified participant—
(i) subparagraph (C) shall not reduce the limitation of paragraph (1)(A) to an amount less than $50,000, and
(ii) the rules of subparagraph (F) shall apply.
The Secretary shall adjust the $50,000 amount in clause (i) at the same time and in the same manner as under section 415(d).
(H) Qualified participant defined
For purposes of subparagraph (G), the term "qualified participant" means a participant—
(i) in a defined benefit plan which is maintained by a State or political subdivision thereof,
(ii) with respect to whom the period of service taken into account in determining the amount of the benefit under such defined benefit plan includes at least 15 years of service of the participant—
(I) as a full-time employee of any police department or fire department which is organized and operated by the State or political subdivision maintaining such defined benefit plan to provide police protection, firefighting services, or emergency medical services for any area within the jurisdiction of such State or political subdivision, or
(II) as a member of the Armed Forces of the United States.
(3) Average compensation for high 3 years
For purposes of paragraph (1), a participant's high 3 years shall be the period of consecutive calendar years (not more than 3) during which the participant both was an active participant in the plan and had the greatest aggregate compensation from the employer. In the case of an employee within the meaning of section 401(c)(1), the preceding sentence shall be applied by substituting for "compensation from the employer" the following: "the participant's earned income (within the meaning of section 401(c)(2) but determined without regard to any exclusion under section 911)".
(4) Total annual benefits not in excess of $10,000
Notwithstanding the preceding provisions of this subsection, the benefits payable with respect to a participant under any defined benefit plan shall be deemed not to exceed the limitation of this subsection if—
(A) the retirement benefits payable with respect to such participant under such plan and under all other defined benefit plans of the employer do not exceed $10,000 for the plan year, or for any prior plan year, and
(B) the employer has not at any time maintained a defined contribution plan in which the participant participated.
(5) Reduction for participation or service of less than 10 years
(A) Dollar limitation
In the case of an employee who has less than 10 years of participation in a defined benefit plan, the limitation referred to in paragraph (1)(A) shall be the limitation determined under such paragraph (without regard to this paragraph) multiplied by a fraction—
(i) the numerator of which is the number of years (or part thereof) of participation in the defined benefit plan of the employer, and
(ii) the denominator of which is 10.
(B) Compensation and benefits limitations
The provisions of subparagraph (A) shall apply to the limitations under paragraphs (1)(B) and (4) and subsection (e), except that such subparagraph shall be applied with respect to years of service with an employer rather than years of participation in a plan.
(C) Limitation on reduction
In no event shall subparagraph (A) or (B) reduce the limitations referred to in paragraphs (1) and (4) to an amount less than 1/10 of such limitation (determined without regard to this paragraph).
(D) Application to changes in benefit structure
To the extent provided in regulations, subparagraph (A) shall be applied separately with respect to each change in the benefit structure of a plan.
(6) Computation of benefits and contributions
The computation of—
(A) benefits under a defined contribution plan, for purposes of section 401(a)(4),
(B) contributions made on behalf of a participant in a defined benefit plan, for purposes of section 401(a)(4), and
(C) contributions and benefits provided for a participant in a plan described in section 414(k), for purposes of this section
shall not be made on a basis inconsistent with regulations prescribed by the Secretary.
(7) Benefits under certain collectively bargained plans
For a year, the limitation referred to in paragraph (1)(B) shall not apply to benefits with respect to a participant under a defined benefit plan—
(A) which is maintained for such year pursuant to a collective bargaining agreement between employee representatives and one or more employers,
(B) which, at all times during such year, has at least 100 participants,
(C) under which benefits are determined solely by reference to length of service, the particular years during which service was rendered, age at retirement, and date of retirement,
(D) which provides that an employee who has at least 4 years of service has a nonforfeitable right to 100 percent of his accrued benefit derived from employer contributions, and
(E) which requires, as a condition of participation in the plan, that an employee complete a period of not more than 60 consecutive days of service with the employer or employers maintaining the plan.
This paragraph shall not apply to a participant whose compensation for any 3 years during the 10-year period immediately preceding the year in which he separates from service exceeded the average compensation for such 3 years of all participants in such plan. This paragraph shall not apply to a participant for any period for which he is a participant under another plan to which this section applies which is maintained by an employer maintaining this plan. For any year for which the paragraph applies to benefits with respect to a participant, paragraph (1)(A) and subsection (d)(1)(A) shall be applied with respect to such participant by substituting the greater of $68,212 or one-half the amount otherwise applicable for such year under paragraph (1)(A) for "$90,000".
(8) Social security retirement age defined
For purposes of this subsection, the term "social security retirement age" means the age used as the retirement age under section 216(l) of the Social Security Act, except that such section shall be applied—
(A) without regard to the age increase factor, and
(B) as if the early retirement age under section 216(l)(2) of such Act were 62.
(9) Special rule for commercial airline pilots
(A) In general
Except as provided in subparagraph (B), in the case of any participant who is a commercial airline pilot—
(i) the rule of paragraph (2)(F)(i)(II) shall apply, and
(ii) if, as of the time of the participant's retirement, regulations prescribed by the Federal Aviation Administration require an individual to separate from service as a commercial airline pilot after attaining any age occurring on or after age 60 and before the social security retirement age, paragraph (2)(C) (after application of clause (i)) shall be applied by substituting such age for the social security retirement age.
(B) Individuals who separate from service before age 60
If a participant described in subparagraph (A) separates from service before age 60, the rules of paragraph (2)(F) shall apply.
(10) Special rule for State and local government plans
(A) Limitation to equal accrued benefit
In the case of a plan maintained for its employees by any State or political subdivision thereof, or by any agency or instrumentality of the foregoing, the limitation with respect to a qualified participant under this subsection shall not be less than the accrued benefit of the participant under the plan (determined without regard to any amendment of the plan made after October 14, 1987).
(B) Qualified participant
For purposes of this paragraph, the term "qualified participant" means a participant who first became a participant in the plan maintained by the employer before January 1, 1990.
(C) Election
This paragraph shall not apply to any plan unless each employer maintaining the plan elects before the close of the 1st plan year beginning after December 31, 1989, to have this subsection (other than paragraph (2)(G)) applied without regard to paragraph (2)(F).
(c) Limitation for defined contribution plans
(1) In general
Contributions and other additions with respect to a participant exceed the limitation of this subsection if, when expressed as an annual addition (within the meaning of paragraph (2)) to the participant's account, such annual addition is greater than the lesser of—
(A) $30,000, or
(B) 25 percent of the participant's compensation.
(2) Annual addition
For purposes of paragraph (1), the term "annual addition" means the sum of any year of—
(A) employer contributions,
(B) the employee contributions, and
(C) forfeitures.
For the purposes of this paragraph, employee contributions under subparagraph (B) are determined without regard to any rollover contributions (as defined in sections 402(c), 403(a)(4), 403(b)(8), and 408(d)(3)) without regard to employee contributions to a simplified employee pension which are excludable from gross income under section 408(k)(6). Subparagraph (B) of paragraph (1) shall not apply to any contribution for medical benefits (within the meaning of section 419A(f)(2)) after separation from service which is treated as an annual addition.
(3) Participant's compensation
For purposes of paragraph (1)—
(A) In general
The term "participant's compensation" means the compensation of the participant from the employer for the year.
(B) Special rule for self-employed individuals
In the case of an employee within the meaning of section 401(c)(1), subparagraph (A) shall be applied by substituting "the participant's earned income (within the meaning of section 401(c)(2) but determined without regard to any exclusion under section 911)" for "compensation of the participant from the employer".
(C) Special rules for permanent and total disability
In the case of a participant in any defined contribution plan—
(i) who is permanently and totally disabled (as defined in section 22(e)(3)),
(ii) who is not a highly compensated employee (within the meaning of section 414(q)), and
(iii) with respect to whom the employer elects, at such time and in such manner as the Secretary may prescribe, to have this subparagraph apply,
the term "participant's compensation" means the compensation the participant would have received for the year if the participant was paid at the rate of compensation paid immediately before becoming permanently and totally disabled. This subparagraph shall apply only if contributions made with respect to amounts treated as compensation under this subparagraph are nonforfeitable when made.
(4) Special election for section 403(b) contracts purchased by educational organizations, hospitals,,1 home health service agencies, and certain churches, etc.
(A) In the case of amounts contributed for an annuity contract described in section 403(b) for the year in which occurs a participant's separation from the service with an educational organization, a hospital, a home health service agency, a health and welfare service agency, or a church, convention or association of churches, or an organization described in section 414(e)(3)(B)(ii), at the election of the participant there is substituted for the amount specified in paragraph (1)(B) the amount of the exclusion allowance which would be determined under section 403(b)(2) (without regard to this section) for the participant's taxable year in which such separation occurs if the participant's years of service were computed only by taking into account his service for the employer (as determined for purposes of section 403(b)(2)) during the period of years (not exceeding ten) ending on the date of such separation.
(B) In the case of amounts contributed for an annuity contract described in section 403(b) for any year in the case of a participant who is an employee of an educational organization, a hospital, a home health service agency, a health and welfare service agency, or a church, convention or association of churches, or an organization described in section 414(e)(3)(B)(ii), at the election of the participant there is substituted for the amount specified in paragraph (1)(B) the least of—
(i) 25 percent of the participant's includible compensation (as defined in section 403(b)(3)) plus $4,000,
(ii) the amount of the exclusion allowance determined for the year under section 403(b)(2), or
(iii) $15,000.
(C) In the case of amounts contributed for an annuity contract described in section 403(b) for any year for a participant who is an employee of an educational organization, a hospital, a home health service agency, a health and welfare service agency, or a church, convention or association of churches, or an organization described in section 414(e)(3)(B)(ii), at the election of the participant the provisions of section 403(b)(2)(A) shall not apply.
(D)(i) The provisions of this paragraph apply only if the participant elects its application at the time and in the manner provided under regulations prescribed by the Secretary. Not more than one election may be made under subparagraph (A) by any participant. A participant who elects to have the provisions of subparagraph (A), (B), or (C) of this paragraph apply to him may not elect to have any other subparagraph of this paragraph apply to him. Any election made under this paragraph is irrevocable.
(ii) For purposes of this paragraph the term "educational organization" means an educational organization described in section 170(b)(1)(A)(ii).
(iii) For purposes of this paragraph the term "home health service agency" means an organization described in subsection 501(c)(3) which is exempt from tax under section 501(a) and which has been determined by the Secretary of Health, Education, and Welfare to be a home health agency (as defined in section 1861(o) of the Social Security Act).
(iv) For purposes of this paragraph, the terms "church" and "convention or association of churches" have the same meaning as when used in section 414(e).
[(5) Repealed. Pub. L. 97–248, title II, §238(d)(5), Sept. 3, 1982, 96 Stat. 513 ]
(6) Special rule for employee stock ownership plans
If no more than one-third of the employer contributions to an employee stock ownership plan (as described in section 4975(e)(7)) for a year which are deductible under paragraph (9) of section 404(a) are allocated to highly compensated employees (within the meaning of section 414(q)), the limitations imposed by this section shall not apply to—
(A) forfeitures of employer securities (within the meaning of section 409) under such an employee stock ownership plan if such securities were acquired with the proceeds of a loan (as described in section 404(a)(9)(A)), or
(B) employer contributions to such an employee stock ownership plan which are deductible under section 404(a)(9)(B) and charged against the participant's account.
(7) Certain contributions by church plans not treated as exceeding limits
(A) Alternative exclusion allowance
Any contribution or addition with respect to any participant, when expressed as an annual addition, which is allocable to the application of section 403(b)(2)(D) to such participant for such year, shall be treated as not exceeding the limitations of paragraph (1).
(B) Contributions not in excess of $40,000 ($10,000 per year)
(i) In general
Notwithstanding any other provision of this subsection, at the election of a participant who is an employee of a church, a convention or association of churches, including an organization described in section 414(e)(3)(B)(ii), contributions and other additions for an annuity contract or retirement income account described in section 403(b) with respect to such participant, when expressed as an annual addition to such participant's account, shall be treated as not exceeding the limitation of paragraph (1) if such annual addition is not in excess of $10,000.
(ii) $40,000 aggregate limitation
The total amount of additions with respect to any participant which may be taken into account for purposes of this subparagraph for all years may not exceed $40,000.
(iii) No election if paragraph (4)(A) election made
No election may be made under this subparagraph for any year if an election is made under paragraph (4)(A) for such year.
(C) Annual addition
For purposes of this paragraph, the term "annual addition" has the meaning given such term by paragraph (2).
(d) Cost-of-living adjustments
(1) In general
The Secretary shall adjust annually—
(A) the $90,000 amount in subsection (b)(1)(A),
(B) in the case of a participant who is separated from service, the amount taken into account under subsection (b)(1)(B), and
(C) the $30,000 amount in subsection (c)(1)(A),
for increases in the cost-of-living in accordance with regulations prescribed by the Secretary.
(2) Method
The regulations prescribed under paragraph (1) shall provide for—
(A) an adjustment with respect to any calendar year based on the increase in the applicable index for the calendar quarter ending September 30 of the preceding calendar year over such index for the base period, and
(B) adjustment procedures which are similar to the procedures used to adjust benefit amounts under section 215(i)(2)(A) of the Social Security Act.
(3) Base period
For purposes of paragraph (2)—
(A) $90,000 amount
The base period taken into account for purposes of paragraph (1)(A) is the calendar quarter beginning October 1, 1986.
(B) Separations after December 31, 1994
The base period taken into account for purposes of paragraph (1)(B) with respect to individuals separating from service with the employer after December 31, 1994, is the calendar quarter beginning July 1 of the calendar year preceding the calendar year in which such separation occurs.
(C) Separations before January 1, 1995
The base period taken into account for purposes of paragraph (1)(B) with respect to individuals separating from service with the employer before January 1, 1995, is the calendar quarter beginning October 1 of the calendar year preceding the calendar year in which such separation occurs.
(D) $30,000 amount
The base period taken into account for purposes of paragraph (1)(C) is the calendar quarter beginning October 1, 1993.
(4) Rounding
Any increase under subparagraph (A) or (C) of paragraph (1) which is not a multiple of $5,000 shall be rounded to the next lowest multiple of $5,000.
(e) Limitation in case of defined benefit plan and defined contribution plan for same employee
(1) In general
In any case in which an individual is a participant in both a defined benefit plan and a defined contribution plan maintained by the same employer, the sum of the defined benefit plan fraction and the defined contribution plan fraction for any year may not exceed 1.0.
(2) Defined benefit plan fraction
For purposes of this subsection, the defined benefit plan fraction for any year is a fraction—
(A) the numerator of which is the projected annual benefit of the participant under the plan (determined as of the close of the year), and
(B) the denominator of which is the lesser of—
(i) the product of 1.25, multiplied by the dollar limitation in effect under subsection (b)(1)(A) for such year, or
(ii) the product of—
(I) 1.4, multiplied by
(II) the amount which may be taken into account under subsection (b)(1)(B) with respect to such individual under the plan for such year.
(3) Defined contribution plan fraction
For purposes of this subsection, the defined contribution plan fraction for any year is a fraction—
(A) the numerator of which is the sum of the annual additions to the participant's account as of the close of the year, and
(B) the denominator of which is the sum of the lesser of the following amounts determined for such year and for each prior year of service with the employer:
(i) the product of 1.25, multiplied by the dollar limitation in effect under subsection (c)(1)(A) for such year (determined without regard to subsection (c)(6)), or
(ii) the product of—
(I) 1.4, multiplied by—
(II) the amount which may be taken into account under subsection (c)(1)(B) (or subsection (c)(7), if applicable) with respect to such individual under such plan for such year.
(4) Special transition rules for defined contribution fraction
In applying paragraph (3) with respect to years beginning before January 1, 1976—
(A) the aggregate amount taken into account under paragraph (3)(A) may not exceed the aggregate amount taken into account under paragraph (3)(B), and
(B) the amount taken into account under subsection (c)(2)(B)(i) for any year concerned is an amount equal to—
(i) the excess of the aggregate amount of employee contributions for all years beginning before January 1, 1976, during which the employee was an active participant of the plan, over 10 percent of the employee's aggregate compensation for all such years, multiplied by
(ii) a fraction the numerator of which is 1 and the denominator of which is the number of years beginning before January 1, 1976, during which the employee was an active participant in the plan.
Employee contributions made on or after October 2, 1973, shall be taken into account under subparagraph (B) of the preceding sentence only to the extent that the amount of such contributions does not exceed the maximum amount of contributions permissible under the plan as in effect on October 2, 1973.
(5) Special rules for sections 403(b) and 408
For purposes of this section, any annuity contract described in section 403(b) (except in the case of a participant who has elected under subsection (c)(4)(D) to have the provisions of subsection (c)(4)(C) apply) for the benefit of a participant shall be treated as a defined contribution plan maintained by each employer with respect to which the participant has the control required under subsection (b) or (c) of section 414 (as modified by subsection (h)). For purposes of this section, any contribution by an employer to a simplified employee pension for an individual for a taxable year shall be treated as an employer contribution to a defined contribution plan for such individual for such year. In the case of any annuity contract described in section 403(b), the amount of the contribution disqualified by reason of subsection (g) shall reduce the exclusion allowance as provided in section 403(b)(2).
(6) Special transition rule for defined contribution fraction for years ending after December 31, 1982
(A) In general
At the election of the plan administrator, in applying paragraph (3) with respect to any year ending after December 31, 1982, the amount taken into account under paragraph (3)(B) with respect to each participant for all years ending before January 1, 1983, shall be an amount equal to the product of—
(i) the amount determined under paragraph (3)(B) (as in effect for the year ending in 1982) for the year ending in 1982, multiplied by
(ii) the transition fraction.
(B) Transition fraction
The term "transition fraction" means a fraction—
(i) the numerator of which is the lesser of—
(I) $51,875, or
(II) 1.4, multiplied by 25 percent of the compensation of the participant for the year ending in 1981, and
(ii) the denominator of which is the lesser of—
(I) $41,500, or
(II) 25 percent of the compensation of the participant for the year ending in 1981.
(C) Plan must have been in existence on or before July 1, 1982
This paragraph shall apply only to plans which were in existence on or before July 1, 1982.
(f) Combining of plans
(1) In general
For purposes of applying the limitations of subsections (b), (c), and (e)—
(A) all defined benefit plans (whether or not terminated) of an employer are to be treated as one defined benefit plan, and
(B) all defined contribution plans (whether or not terminated) of an employer are to be treated as one defined contribution plan.
(2) Annual compensation taken into account for defined benefit plans
If the employer has more than one defined benefit plan—
(A) subsection (b)(1)(B) shall be applied separately with respect to each such plan, but
(B) in applying subsection (b)(1)(B) to the aggregate of such defined benefit plans for purposes of this subsection, the high 3 years of compensation taken into account shall be the period of consecutive calendar years (not more than 3) during which the individual had the greatest aggregate compensation from the employer.
(g) Aggregation of plans
The Secretary, in applying the provisions of this section to benefits or contributions under more than one plan maintained by the same employer, and to any trusts, contracts, accounts, or bonds referred to in subsection (a)(2), with respect to which the participant has the control required under section 414(b) or (c), as modified by subsection (h), shall, under regulations prescribed by the Secretary, disqualify one or more trusts, plans, contracts, accounts, or bonds, or any combination thereof until such benefits or contributions do not exceed the limitations contained in this section. In addition to taking into account such other factors as may be necessary to carry out the purposes of subsections (e) and (f), the regulations prescribed under this paragraph shall provide that no plan which has been terminated shall be disqualified until all other trusts, plans, contracts, accounts, or bonds have been disqualified.
(h) 50 percent control
For purposes of applying subsections (b) and (c) of section 414 to this section, the phrase "more than 50 percent" shall be substituted for the phrase "at least 80 percent" each place it appears in section 1563(a)(1).
(i) Records not available for past periods
Where for the period before January 1, 1976, or (if later) the first day of the first plan year of the plan, the records necessary for the application of this section are not available, the Secretary may by regulations prescribe alternate methods for determining the amounts to be taken into account for such period.
(j) Regulations; definition of year
The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this section, including, but not limited to, regulations defining the term "year" for purposes of any provision of this section.
(k) Special rules
(1) Defined benefit plan and defined contribution plan
For purposes of this title, the term "defined contribution plan" or "defined benefit plan" means a defined contribution plan (within the meaning of section 414(i)) or a defined benefit plan (within the meaning of section 414(j)), whichever applies, which is—
(A) a plan described in section 401(a) which includes a trust which is exempt from tax under section 501(a),
(B) an annuity plan described in section 403(a),
(C) an annuity contract described in section 403(b),
(D) an individual retirement account described in section 408(a),
(E) an individual retirement annuity described in section 408(b), or
(F) a simplified employee pension.
(2) Contributions to provide cost-of-living protection under defined benefit plans
(A) In general
In the case of a defined benefit plan which maintains a qualified cost-of-living arrangement—
(i) any contribution made directly by an employee under such arrangement—
(I) shall not be treated as an annual addition for purposes of subsection (c), but
(II) shall be so treated for purposes of subsection (e), and
(ii) any benefit under such arrangement which is allocable to an employer contribution which was transferred from a defined contribution plan and to which the requirements of subsection (c) were applied shall, for purposes of subsection (b), be treated as a benefit derived from an employee contribution (and subsections (c) and (e) shall not again apply to such contribution by reason of such transfer).
(B) Qualified cost-of-living arrangement defined
For purposes of this paragraph, the term "qualified cost-of-living arrangement" means an arrangement under a defined benefit plan which—
(i) provides a cost-of-living adjustment to a benefit provided under such plan or a separate plan subject to the requirements of section 412, and
(ii) meets the requirements of subparagraphs (C), (D), (E), and (F) and such other requirements as the Secretary may prescribe.
(C) Determination of amount of benefit
An arrangement meets the requirement of this subparagraph only if the cost-of-living adjustment of participants is based—
(i) on increases in the cost-of-living after the annuity starting date, and
(ii) on average cost-of-living increases determined by reference to 1 or more indexes prescribed by the Secretary, except that the arrangement may provide that the increase for any year will not be less than 3 percent of the retirement benefit (determined without regard to such increase).
(D) Arrangement elective; time for election
An arrangement meets the requirements of this subparagraph only if it is elective, it is available under the same terms to all participants, and it provides that such election may at least be made in the year in which the participant—
(i) attains the earliest retirement age under the defined benefit plan (determined without regard to any requirement of separation from service), or
(ii) separates from service.
(E) Nondiscrimination requirements
An arrangement shall not meet the requirements of this subparagraph if the Secretary finds that a pattern of discrimination exists with respect to participation.
(F) Special rules for key employees
(i) In general
An arrangement shall not meet the requirements of this paragraph if any key employee is eligible to participate.
(ii) Key employee
For purposes of this subparagraph, the term "key employee" has the meaning given such term by section 416(i)(1), except that in the case of a plan other than a top-heavy plan (within the meaning of section 416(g)), such term shall not include an individual who is a key employee solely by reason of section 416(i)(1)(A)(i).
(l) Treatment of certain medical benefits
(1) In general
For purposes of this section, contributions allocated to any individual medical account which is part of a pension or annuity plan shall be treated as an annual addition to a defined contribution plan for purposes of subsection (c). Subparagraph (B) of subsection (c)(1) shall not apply to any amount treated as an annual addition under the preceding sentence.
(2) Individual medical benefit account
For purposes of paragraph (1), the term "individual medical benefit account" means any separate account—
(A) which is established for a participant under a pension or annuity plan, and
(B) from which benefits described in section 401(h) are payable solely to such participant, his spouse, or his dependents.
(Added
References in Text
The Social Security Act, referred to in subsecs. (b)(2)(C), (8), (c)(4)(D)(iii), and (d)(2)(B), is act Aug. 14, 1935, ch. 531,
Amendments
1994—Subsec. (b)(2)(E).
Subsec. (c)(1)(A).
Subsec. (d).
1992—Subsecs. (b)(2)(A), (B), (c)(2).
1989—Subsec. (c)(6).
1988—Subsec. (b)(2)(H)(ii).
Subsec. (b)(5)(B).
Subsec. (b)(5)(D).
Subsec. (b)(10).
Subsec. (c)(6)(A).
Subsec. (k).
Subsec. (k)(2)(C)(ii).
Subsec. (k)(2)(D).
"(i) the year in which the participant—
"(I) attains the earliest retirement age under the defined benefit plan (determined without regard to any requirement of separation from service), or
"(II) separates from service, or
"(ii) both such years."
Subsec. (l)(1).
1986—Subsec. (b)(2)(B).
Subsec. (b)(2)(C).
"(i) if the benefit begins at or after age 55, $75,000, or
"(ii) if the benefit begins before age 55, the amount which is the equivalent of the $75,000 limitation for age 55."
Subsec. (b)(2)(D).
Subsec. (b)(2)(E)(iii).
Subsec. (b)(2)(F) to (H).
Subsec. (b)(5).
Subsec. (b)(8).
Subsec. (b)(9).
Subsec. (c)(1)(A).
Subsec. (c)(2).
Subsec. (c)(2)(B).
"(i) the amount of the employee contributions in excess of 6 percent of his compensation, or
"(ii) one-half of the employee contributions, and".
Subsec. (c)(3)(C).
Subsec. (c)(3)(C)(i).
Subsec. (c)(3)(C)(ii).
Subsec. (c)(4)(A) to (C).
Subsec. (c)(6)(A).
Subsec. (c)(6)(B)(iii), (iv).
"(iii) an employee described in this clause is any participant whose compensation for a year exceeds an amount equal to twice the amount described in paragraph (1)(A) for such year (as adjusted for such year pursuant to subsection (d)(1)), determined without regard to subparagraph (A) of this paragraph, and
"(iv) an individual shall be considered to own more than 10 percent of the employer's stock if, without regard to stock held under the employee stock ownership plan, he owns (after application of section 1563(e)) more than 10 percent of the total combined voting power of all classes of stock entitled to vote or more than 10 percent of the total value of shares of all classes of stock."
Subsec. (c)(6)(C).
Subsec. (d)(1)(B), (C).
Subsec. (d)(2)(A).
Subsec. (d)(2)(B).
Subsec. (d)(3).
Subsec. (k).
Subsec. (k)(2).
Subsec. (l).
1984—Subsec. (a)(2).
Subsec. (b)(2)(A), (B).
Subsec. (b)(2)(C).
Subsec. (b)(2)(D).
Subsec. (b)(2)(E).
Subsec. (c)(2).
Subsec. (c)(3)(C).
Subsec. (c)(6)(B)(ii).
Subsec. (c)(6)(C).
Subsec. (c)(7), (8).
Subsec. (d)(2)(A).
Subsec. (d)(3).
Subsec. (e)(3)(B)(ii)(II).
Subsec. (e)(6)(C).
Subsec. (k)(1).
Subsec. (l).
1983—Subsec. (c)(3)(C)(i).
1982—Subsec. (b)(1)(A).
Subsec. (b)(2)(C).
Subsec. (b)(2)(D), (E).
Subsec. (b)(7).
Subsec. (c)(1)(A).
Subsec. (c)(3).
Subsec. (c)(4).
Subsec. (c)(5).
Subsec. (c)(8).
Subsec. (d)(1).
Subsec. (d)(2)(A).
Subsec. (d)(3).
Subsec. (e)(1).
Subsec. (e)(2)(B).
Subsec. (e)(3)(B).
Subsec. (e)(6).
1981—Subsec. (a)(2).
Subsec. (a)(3).
Subsec. (c)(2).
Subsec. (c)(6)(C).
Subsec. (e)(5).
1980—Subsec. (b)(7).
Subsec. (c)(6)(A).
Subsec. (c)(6)(B)(i).
Subsec. (e)(5).
1978—Subsec. (a)(2).
Subsec. (b)(7).
Subsec. (c)(6)(B)(i).
Subsec. (c)(6)(B)(ii).
Subsec. (e)(5).
Subsec. (k)(1)(G), (H).
1976—Subsec. (a)(2).
Subsec. (a)(3).
Subsec. (b)(2)(A).
Subsec. (b)(2)(B).
Subsec. (b)(2)(C), (6).
Subsec. (c)(4).
Subsec. (c)(5).
Subsec. (c)(6).
Subsec. (c)(7).
Subsec. (d)(1).
Subsec. (e)(3)(B).
Subsec. (e)(5).
Subsecs. (g), (i), (j).
Change of Name
Secretary of Health, Education, and Welfare redesignated Secretary of Health and Human Services by
Effective Date of 1994 Amendment
Amendment by section 732(b) of
Amendment by section 767(b) of
Effective Date of 1992 Amendment
Amendment by
Effective Date of 1989 Amendment
Section 7304(c)(2) of
Effective Date of 1988 Amendment
Amendment by sections 1011(d)(2), (3), (6), (7) and 1018(t)(3)(B), (8)(D) of
Section 6054(b) of
"(1)
"(2)
Section 6059(b) of
Effective Date of 1986 Amendment
Section 1106(i) of
"(1)
"(2)
"(3)
"(A)
"(B)
"(i)
"(ii)
"(I) no change in the terms and conditions of the plan after May 5, 1986, and
"(II) no cost-of-living adjustment occurring after May 5, 1986,
shall be taken into account. For purposes of subclause (I), any change in the terms and conditions of the plan pursuant to a collective bargaining agreement ratified before May 6, 1986, shall be treated as a change made before May 6, 1986.
"(4)
"(5)
"(A)
"(B)
"(i) the later of—
"(I) the date determined under paragraph (2)(A), or
"(II) January 1, 1989, or
"(ii) January 1, 1991.
"(6)
[Section 6062(b) of
Amendment by section 1108(g)(5) of
Amendment by section 1114(b)(12) of
Section 1174(d)(3) of
Amendment by sections 1847(b)(4), 1852(h)(2), (3), and 1875(c)(9), (11) of
Amendment by section 1898(b)(15)(C) of
Effective Date of 1984 Amendment
Amendment by section 15 of
Amendment by section 491(d)(28)–(32) of
Amendment by section 491(e)(6) of
Amendment by section 528(a) of
Amendment by section 713 of
Effective Date of 1983 Amendment
Amendment by
Effective Date of 1982 Amendment
Section 235(g) of
"(1)
"(A)
"(B)
"(i) In the case of any plan which is in existence on July 1, 1982, the amendments made by this section [amending this section and
"(ii)
"(2)
"(A)
"(B)
"(3)
"(4)
"(A)
"(B)
"(i)
"(ii)
"(I) no change in the terms and conditions of the plan after July 1, 1982, and
"(II) no cost-of-living adjustment occurring after July 1, 1982,
shall be taken into account. For purposes of subclause (I), any change in the terms and conditions of the plan pursuant to a collective bargaining agreement entered into before July 1, 1982, and ratified before September 3, 1982, shall be treated as a change made before July 1, 1982.
"(5)
"(A) the date on which the last of the collective bargaining agreements relating to the plan terminates (determined without regard to any extension thereof agreed to after the date of the enactment of this Act [Sept. 3, 1982]), or
"(B) January 1, 1986.
For purposes of subparagraph (A), any plan amendment made pursuant to a collective bargaining agreement relating to the plan which amends the plan solely to conform to any requirement added by this section and section 242 shall not be treated as a termination of such collective bargaining agreement."
Amendment by section 238(d)(5) of
Amendment by section 251(c)(1), (2) of
Amendment by section 253(a) of
Effective Date of 1981 Amendment
Amendment by section 311(g)(4), (h)(3) of
Section 333(b)(2) of
Effective Date of 1980 Amendments
Section 222(b) of
Section 101(b)(1)(G) of
Amendment by section 101(a)(7)(L)(i)(VII), (iv)(i), (10)(J)(iii), (11) of
Effective Date of 1978 Amendment
Amendment by section 141(f)(7) of
Section 141(g)(5) of
Amendment by section 152(g) of
Section 153(b) of
Effective Date of 1976 Amendment
Amendment by section 803(b)(4), (f) of
Amendment by section 1501(b)(3) of
Section 1502(b) of
Section 1511(b) of
Amendment by section 1901(a)(65), (b)(8)(D) of
Effective Date; Transition Provisions
Section 2004(d) of
"(1)
"(2)
"(A) the annual benefit (within the meaning of section 415(b)(2) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954]) payable to such participant on retirement does not exceed 100 percent of his annual rate of compensation on the earlier of (i) October 2, 1973, or (ii) the date on which he separated from the service of the employer,
"(B) such annual benefit is no greater than the annual benefit which would have been payable to such participant on retirement if (i) all the terms and conditions of such plan in existence on such date had remained in existence until such retirement, and (ii) his compensation taken into account for any period after October 2, 1973, had not exceeded his annual rate of compensation on such date, and
"(C) in the case of a participant who separated from the service of the employer prior to October 2, 1973, such annual benefit is no greater than his vested accrued benefit as of the date he separated from the service,
then such annual benefit shall be treated as not exceeding the limitation of subsection (b) of section 415 of the Internal Revenue Code of 1986."
Regulations
Secretary of the Treasury or his delegate to issue before Feb. 1, 1988, final regulations to carry out amendments made by section 1114 of
Plans May Incorporate Section 415 Limitations by Reference
Section 1106(h) of
Plan Amendments Not Required Until January 1, 1994
For provisions directing that if any amendments made by subtitle B [§§521–523] of title V of
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
Special Rule for Certain Plans in Effect on September 2, 1974
Section 2004(a)(3) of
"(A) the defined benefit plan fraction is not increased, by amendment of the plan or otherwise, after
"(B) no contributions are made under the defined contribution plan after such date.
A trust which is part of a pension, profit-sharing, or stock bonus plan described in the preceding sentence shall not be treated as not constituting a qualified trust under section 401(a) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] on account of the provisions of section 415(e) of such Code, as long as it is described in the preceding sentence of this subsection."
Section Referred to in Other Sections
This section is referred to in
§416. Special rules for top-heavy plans
(a) General rule
A trust shall not constitute a qualified trust under section 401(a) for any plan year if the plan of which it is a part is a top-heavy plan for such plan year unless such plan meets—
(1) the vesting requirements of subsection (b), and
(2) the minimum benefit requirements of subsection (c).
(b) Vesting requirements
(1) In general
A plan satisfies the requirements of this subsection if it satisfies the requirements of either of the following subparagraphs:
(A) 3-year vesting
A plan satisfies the requirements of this subparagraph if an employee who has completed at least 3 years of service with the employer or employers maintaining the plan has a nonforfeitable right to 100 percent of his accrued benefit derived from employer contributions.
(B) 6-year graded vesting
A plan satisfies the requirements of this subparagraph if an employee has a nonforfeitable right to a percentage of his accrued benefit derived from employer contributions determined under the following table:
(2) Certain rules made applicable
Except to the extent inconsistent with the provisions of this subsection, the rules of section 411 shall apply for purposes of this subsection.
(c) Plan must provide minimum benefits
(1) Defined benefit plans
(A) In general
A defined benefit plan meets the requirements of this subsection if the accrued benefit derived from employer contributions of each participant who is a non-key employee, when expressed as an annual retirement benefit, is not less than the applicable percentage of the participant's average compensation for years in the testing period.
(B) Applicable percentage
For purposes of subparagraph (A), the term "applicable percentage" means the lesser of—
(i) 2 percent multiplied by the number of years of service with the employer, or
(ii) 20 percent.
(C) Years of service
For purposes of this paragraph—
(i) In general
Except as provided in clause (ii), years of service shall be determined under the rules of paragraphs (4), (5), and (6) of section 411(a).
(ii) Exception for years during which plan was not top-heavy
A year of service with the employer shall not be taken into account under this paragraph if—
(I) the plan was not a top-heavy plan for any plan year ending during such year of service, or
(II) such year of service was completed in a plan year beginning before January 1, 1984.
(D) Average compensation for high 5 years
For purposes of this paragraph—
(i) In general
A participant's testing period shall be the period of consecutive years (not exceeding 5) during which the participant had the greatest aggregate compensation from the employer.
(ii) Year must be included in year of service
The years taken into account under clause (i) shall be properly adjusted for years not included in a year of service.
(iii) Certain years not taken into account
Except to the extent provided in the plan, a year shall not be taken into account under clause (i) if—
(I) such year ends in a plan year beginning before January 1, 1984, or
(II) such year begins after the close of the last year in which the plan was a top-heavy plan.
(E) Annual retirement benefit
For purposes of this paragraph, the term "annual retirement benefit" means a benefit payable annually in the form of a single life annuity (with no ancillary benefits) beginning at the normal retirement age under the plan.
(2) Defined contribution plans
(A) In general
A defined contribution plan meets the requirements of the subsection if the employer contribution for the year for each participant who is a non-key employee is not less than 3 percent of such participant's compensation (within the meaning of section 415).
(B) Special rule where maximum contribution less than 3 percent
(i) In general
The percentage referred to in subparagraph (A) for any year shall not exceed the percentage at which contributions are made (or required to be made) under the plan for the year for the key employee for whom such percentage is the highest for the year.
(ii) Treatment of aggregation groups
(I) For purposes of this subparagraph, all defined contribution plans required to be included in an aggregation group under subsection (g)(2)(A)(i) shall be treated as one plan.
(II) This subparagraph shall not apply to any plan required to be included in an aggregation group if such plan enables a defined benefit plan required to be included in such group to meet the requirements of section 401(a)(4) or 410.
[(d) Repealed. Pub. L. 99–514, title XI, §1106(d)(3)(B)(i), Oct. 22, 1986, 100 Stat. 2424 ]
(e) Plan must meet requirements without taking into account social security and similar contributions and benefits
A top-heavy plan shall not be treated as meeting the requirement of subsection (b) or (c) unless such plan meets such requirement without taking into account contributions or benefits under
(f) Coordination where employer has 2 or more plans
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section where the employer has 2 or more plans including (but not limited to) regulations to prevent inappropriate omissions or required duplication of minimum benefits or contributions.
(g) Top-heavy plan defined
For purposes of this section—
(1) In general
(A) Plans not required to be aggregated
Except as provided in subparagraph (B), the term "top-heavy plan" means, with respect to any plan year—
(i) any defined benefit plan if, as of the determination date, the present value of the cumulative accrued benefits under the plan for key employees exceeds 60 percent of the present value of the cumulative accrued benefits under the plan for all employees, and
(ii) any defined contribution plan if, as of the determination date, the aggregate of the accounts of key employees under the plan exceeds 60 percent of the aggregate of the accounts of all employees under such plan.
(B) Aggregated plans
Each plan of an employer required to be included in an aggregation group shall be treated as a top-heavy plan if such group is a top-heavy group.
(2) Aggregation
For purposes of this subsection—
(A) Aggregation group
(i) Required aggregation
The term "aggregation group" means—
(I) each plan of the employer in which a key employee is a participant, and
(II) each other plan of the employer which enables any plan described in subclause (I) to meet the requirements of section 401(a)(4) or 410.
(ii) Permissive aggregation
The employer may treat any plan not required to be included in an aggregation group under clause (i) as being part of such group if such group would continue to meet the requirements of sections 401(a)(4) and 410 with such plan being taken into account.
(B) Top-heavy group
The term "top-heavy group" means any aggregation group if—
(i) the sum (as of the determination date) of—
(I) the present value of the cumulative accrued benefits for key employees under all defined benefit plans included in such group, and
(II) the aggregate of the accounts of key employees under all defined contribution plans included in such group,
(ii) exceeds 60 percent of a similar sum determined for all employees.
(3) Distributions during last 5 years taken into account
For purposes of determining—
(A) the present value of the cumulative accrued benefit for any employee, or
(B) the amount of the account of any employee,
such present value or amount shall be increased by the aggregate distributions made with respect to such employee under the plan during the 5-year period ending on the determination date. The preceding sentence shall also apply to distributions under a terminated plan which if it had not been terminated would have been required to be included in an aggregation group.
(4) Other special rules
For purposes of this subsection—
(A) Rollover contributions to plan not taken into account
Except to the extent provided in regulations, any rollover contribution (or similar transfer) initiated by the employee and made after December 31, 1983, to a plan shall not be taken into account with respect to the transferee plan for purposes of determining whether such plan is a top-heavy plan (or whether any aggregation group which includes such plan is a top-heavy group).
(B) Benefits not taken into account if employee ceases to be key employee
If any individual is a non-key employee with respect to any plan for any plan year, but such individual was a key employee with respect to such plan for any prior plan year, any accrued benefit for such employee (and the account of such employee) shall not be taken into account.
(C) Determination date
The term "determination date" means, with respect to any plan year—
(i) the last day of the preceding plan year, or
(ii) in the case of the first plan year of any plan, the last day of such plan year.
(D) Years
To the extent provided in regulations, this section shall be applied on the basis of any year specified in such regulations in lieu of plan years.
(E) Benefits not taken into account if employee not employed for last 5 years
If any individual has not performed services for the employer maintaining the plan at any time during the 5-year period ending on the determination date, any accrued benefit for such individual (and the account of such individual) shall not be taken into account.
(F) Accrued benefits treated as accruing ratably
The accrued benefit of any employee (other than a key employee) shall be determined—
(i) under the method which is used for accrual purposes for all plans of the employer, or
(ii) if there is no method described in clause (i), as if such benefit accrued not more rapidly than the slowest accrual rate permitted under section 411(b)(1)(C).
(h) Adjustments in section 415 limits for top-heavy plans
(1) In general
In the case of any top-heavy plan, paragraphs (2)(B) and (3)(B) of section 415(e) shall be applied by substituting "1.0" for "1.25".
(2) Exception where benefits for key employees do not exceed 90 percent of total benefits and additional contributions are made for non-key employees
Paragraph (1) shall not apply with respect to any top-heavy plan if the requirements of subparagraphs (A) and (B) of this paragraph are met with respect to such plan.
(A) Minimum benefit requirements
(i) In general
The requirements of this subparagraph are met with respect to any top-heavy plan if such plan (and any plan required to be included in an aggregation group with such plan) meets the requirements of subsection (c) as modified by clause (ii).
(ii) Modifications
For purposes of clause (i)—
(I) paragraph (1)(B) of subsection (c) shall be applied by substituting "3 percent" for "2 percent", and by increasing (but not by more than 10 percentage points) 20 percent by 1 percentage point for each year for which such plan was taken into account under this subsection, and
(II) paragraph (2)(A) shall be applied by substituting "4 percent" for "3 percent".
(B) Benefits for key employees cannot exceed 90 percent of total benefits
A plan meets the requirements of this subparagraph if such plan would not be a top-heavy plan if "90 percent" were substituted for "60 percent" each place it appears in paragraphs (1)(A) and (2)(B) of subsection (g).
(3) Transition rule
If, but for this paragraph, paragraph (1) would begin to apply with respect to any top-heavy plan, the application of paragraph (1) shall be suspended with respect to any individual so long as there are no—
(A) employer contributions, forfeitures, or voluntary nondeductible contributions allocated to such individual, or
(B) accruals for such individual under the defined benefit plan.
(4) Coordination with transitional rule under section 415
In the case of any top-heavy plan to which paragraph (1) applies, section 415(e)(6)(B)(i) shall be applied by substituting "$41,500" for "$51,875".
(i) Definitions
For purposes of this section—
(1) Key employee
(A) In general
The term "key employee" means an employee who, at any time during the plan year or any of the 4 preceding plan years, is—
(i) an officer of the employer having an annual compensation greater than 50 percent of the amount in effect under section 415(b)(1)(A) for any such plan year,
(ii) 1 of the 10 employees having annual compensation from the employer of more than the limitation in effect under section 415(c)(1)(A) and owning (or considered as owning within the meaning of section 318) the largest interests in the employer,
(iii) a 5-percent owner of the employer, or
(iv) a 1-percent owner of the employer having an annual compensation from the employer of more than $150,000.
For purposes of clause (i), no more than 50 employees (or, if lesser, the greater of 3 or 10 percent of the employees) shall be treated as officers. For purposes of clause (ii), if 2 employees have the same interest in the employer, the employee having greater annual compensation from the employer shall be treated as having a larger interest. Such term shall not include any officer or employee of an entity referred to in section 414(d) (relating to governmental plans). For purposes of determining the number of officers taken into account under clause (i), employees described in section 414(q)(8) shall be excluded.
(B) Percentage owners
(i) 5-percent owner
For purposes of this paragraph, the term "5-percent owner" means—
(I) if the employer is a corporation, any person who owns (or is considered as owning within the meaning of section 318) more than 5 percent of the outstanding stock of the corporation or stock possessing more than 5 percent of the total combined voting power of all stock of the corporation, or
(II) if the employer is not a corporation, any person who owns more than 5 percent of the capital or profits interest in the employer.
(ii) 1-percent owner
For purposes of this paragraph, the term "1-percent owner" means any person who would be described in clause (i) if "1 percent" were substituted for "5 percent" each place it appears in clause (i).
(iii) Constructive ownership rules
For purposes of this subparagraph and subparagraph (A)(ii)—
(I) subparagraph (C) of section 318(a)(2) shall be applied by substituting "5 percent" for "50 percent", and
(II) in the case of any employer which is not a corporation, ownership in such employer shall be determined in accordance with regulations prescribed by the Secretary which shall be based on principles similar to the principles of section 318 (as modified by subclause (I)).
(C) Aggregation rules do not apply for purposes of determining ownership in the employer
The rules of subsections (b), (c), and (m) of section 414 shall not apply for purposes of determining ownership in the employer.
(D) Compensation
For purposes of this paragraph, the term "compensation" has the meaning given such term by section 414(q)(7).
(2) Non-key employee
The term "non-key employee" means any employee who is not a key employee.
(3) Self-employed individuals
In the case of a self-employed individual described in section 401(c)(1)—
(A) such individual shall be treated as an employee, and
(B) such individual's earned income (within the meaning of section 401(c)(2)) shall be treated as compensation.
(4) Treatment of employees covered by collective bargaining agreements
The requirements of subsections (b), (c), and (d) shall not apply with respect to any employee included in a unit of employees covered by an agreement which the Secretary of Labor finds to be a collective bargaining agreement between employee representatives and 1 or more employers if there is evidence that retirement benefits were the subject of good faith bargaining between such employee representatives and such employer or employers.
(5) Treatment of beneficiaries
The terms "employee"' and "key employee" include their beneficiaries.
(6) Treatment of simplified employee pensions
(A) Treatment as defined contribution plans
A simplified employee pension shall be treated as a defined contribution plan.
(B) Election to have determinations based on employer contributions
In the case of a simplified employee pension, at the election of the employer, paragraphs (1)(A)(ii) and (2)(B) of subsection (g) shall be applied by taking into account aggregate employer contributions in lieu of the aggregate of the accounts of employees.
(Added
References in Text
The Federal Insurance Contributions Act, referred to in subsec. (e), is act Aug. 16, 1954, ch. 736, §§3101, 3102, 3111, 3112, 3121 to 3128,
The Social Security Act, referred to in subsec. (e), is act Aug. 14, 1935, ch. 531,
Amendments
1988—Subsec. (i)(1)(A).
Subsec. (i)(1)(A)(i).
Subsec. (i)(1)(D).
1986—Subsec. (a)(3).
Subsec. (c)(2)(B)(ii), (iii).
Subsec. (d).
Subsec. (g)(4)(E).
Subsec. (g)(4)(F).
Subsec. (i)(1)(A).
1984—Subsec. (c)(2)(C).
Subsec. (d)(2).
Subsec. (f).
Subsec. (g)(3).
Subsec. (g)(4)(E).
Subsec. (i)(1)(A).
Subsec. (i)(1)(A)(i).
Subsec. (i)(1)(A)(ii).
Subsec. (i)(1)(B)(iii).
Subsec. (i)(1)(C).
Effective Date of 1988 Amendment
Section 1011(j)(3)(B) of
Amendment by section 1011(d)(8), (i)(4)(B) of
Effective Date of 1986 Amendment
Amendment by section 1106(d)(3)(A), (B) of
Section 1118(b) of
Amendment by section 1852(d) of
Effective Date of 1984 Amendment
Section 524(a)(2) of
Section 524(b)(2) of
Section 524(c)(2) of
Amendment by section 713 of
Effective Date
Section 241 of
"(a)
"(b)
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
Section Referred to in Other Sections
This section is referred to in
§417. Definitions and special rules for purposes of minimum survivor annuity requirements
(a) Election to waive qualified joint and survivor annuity or qualified preretirement survivor annuity
(1) In general
A plan meets the requirements of section 401(a)(11) only if—
(A) under the plan, each participant—
(i) may elect at any time during the applicable election period to waive the qualified joint and survivor annuity form of benefit or the qualified preretirement survivor annuity form of benefit (or both), and
(ii) may revoke any such election at any time during the applicable election period, and
(B) the plan meets the requirements of paragraphs (2), (3), and (4) of this subsection.
(2) Spouse must consent to election
Each plan shall provide that an election under paragraph (1)(A)(i) shall not take effect unless—
(A)(i) the spouse of the participant consents in writing to such election, (ii) such election designates a beneficiary (or a form of benefits) which may not be changed without spousal consent (or the consent of the spouse expressly permits designations by the participant without any requirement of further consent by the spouse), and (iii) the spouse's consent acknowledges the effect of such election and is witnessed by a plan representative or a notary public, or
(B) it is established to the satisfaction of a plan representative that the consent required under subparagraph (A) may not be obtained because there is no spouse, because the spouse cannot be located, or because of such other circumstances as the Secretary may by regulations prescribe.
Any consent by a spouse (or establishment that the consent of a spouse may not be obtained) under the preceding sentence shall be effective only with respect to such spouse.
(3) Plan to provide written explanations
(A) Explanation of joint and survivor annuity
Each plan shall provide to each participant, within a reasonable period of time before the annuity starting date (and consistent with such regulations as the Secretary may prescribe), a written explanation of—
(i) the terms and conditions of the qualified joint and survivor annuity,
(ii) the participant's right to make, and the effect of, an election under paragraph (1) to waive the joint and survivor annuity form of benefit,
(iii) the rights of the participant's spouse under paragraph (2), and
(iv) the right to make, and the effect of, a revocation of an election under paragraph (1).
(B) Explanation of qualified preretirement survivor annuity
(i) In general
Each plan shall provide to each participant, within the applicable period with respect to such participant (and consistent with such regulations as the Secretary may prescribe), a written explanation with respect to the qualified preretirement survivor annuity comparable to that required under subparagraph (A).
(ii) Applicable period
For purposes of clause (i), the term "applicable period" means, with respect to a participant, whichever of the following periods ends last:
(I) The period beginning with the first day of the plan year in which the participant attains age 32 and ending with the close of the plan year preceding the plan year in which the participant attains age 35.
(II) A reasonable period after the individual becomes a participant.
(III) A reasonable period ending after paragraph (5) ceases to apply to the participant.
(IV) A reasonable period ending after section 401(a)(11) applies to the participant.
In the case of a participant who separates from service before attaining age 35, the applicable period shall be a reasonable period after separation.
(4) Requirement of spousal consent for using plan assets as security for loans
Each plan shall provide that, if section 401(a)(11) applies to a participant when part or all of the participant's accrued benefit is to be used as security for a loan, no portion of the participant's accrued benefit may be used as security for such loan unless—
(A) the spouse of the participant (if any) consents in writing to such use during the 90-day period ending on the date on which the loan is to be so secured, and
(B) requirements comparable to the requirements of paragraph (2) are met with respect to such consent.
(5) Special rules where plan fully subsidizes costs
(A) In general
The requirements of this subsection shall not apply with respect to the qualified joint and survivor annuity form of benefit or the qualified preretirement survivor annuity form of benefit, as the case may be, if such benefit may not be waived (or another beneficiary selected) and if the plan fully subsidizes the costs of such benefit.
(B) Definition
For purposes of subparagraph (A), a plan fully subsidizes the costs of a benefit if under the plan the failure to waive such benefit by a participant would not result in a decrease in any plan benefits with respect to such participant and would not result in increased contributions from such participant.
(6) Applicable election period defined
For purposes of this subsection, the term "applicable election period" means—
(A) in the case of an election to waive the qualified joint and survivor annuity form of benefit, the 90-day period ending on the annuity starting date, or
(B) in the case of an election to waive the qualified preretirement survivor annuity, the period which begins on the first day of the plan year in which the participant attains age 35 and ends on the date of the participant's death.
In the case of a participant who is separated from service, the applicable election period under subparagraph (B) with respect to benefits accrued before the date of such separation from service shall not begin later than such date.
(b) Definition of qualified joint and survivor annuity
For purposes of this section and section 401(a)(11), the term "qualified joint and survivor annuity" means an annuity—
(1) for the life of the participant with a survivor annuity for the life of the spouse which is not less than 50 percent of (and is not greater than 100 percent of) the amount of the annuity which is payable during the joint lives of the participant and the spouse, and
(2) which is the actuarial equivalent of a single annuity for the life of the participant.
Such term also includes any annuity in a form having the effect of an annuity described in the preceding sentence.
(c) Definition of qualified preretirement survivor annuity
For purposes of this section and section 401(a)(11)—
(1) In general
Except as provided in paragraph (2), the term "qualified preretirement survivor annuity" means a survivor annuity for the life of the surviving spouse of the participant if—
(A) the payments to the surviving spouse under such annuity are not less than the amounts which would be payable as a survivor annuity under the qualified joint and survivor annuity under the plan (or the actuarial equivalent thereof) if—
(i) in the case of a participant who dies after the date on which the participant attained the earliest retirement age, such participant had retired with an immediate qualified joint and survivor annuity on the day before the participant's date of death, or
(ii) in the case of a participant who dies on or before the date on which the participant would have attained the earliest retirement age, such participant had—
(I) separated from service on the date of death,
(II) survived to the earliest retirement age,
(III) retired with an immediate qualified joint and survivor annuity at the earliest retirement age, and
(IV) died on the day after the day on which such participant would have attained the earliest retirement age, and
(B) under the plan, the earliest period for which the surviving spouse may receive a payment under such annuity is not later than the month in which the participant would have attained the earliest retirement age under the plan.
In the case of an individual who separated from service before the date of such individual's death, subparagraph (A)(ii)(I) shall not apply.
(2) Special rule for defined contribution plans
In the case of any defined contribution plan or participant described in clause (ii) or (iii) of section 401(a)(11)(B), the term "qualified preretirement survivor annuity" means an annuity for the life of the surviving spouse the actuarial equivalent of which is not less than 50 percent of the portion of the account balance of the participant (as of the date of death) to which the participant had a nonforfeitable right (within the meaning of section 411(a)).
(3) Security interests taken into account
For purposes of paragraphs (1) and (2), any security interest held by the plan by reason of a loan outstanding to the participant shall be taken into account in determining the amount of the qualified preretirement survivor annuity.
(d) Survivor annuities need not be provided if participant and spouse married less than 1 year
(1) In general
Except as provided in paragraph (2), a plan shall not be treated as failing to meet the requirements of section 401(a)(11) merely because the plan provides that a qualified joint and survivor annuity (or a qualified preretirement survivor annuity) will not be provided unless the participant and spouse had been married throughout the 1-year period ending on the earlier of—
(A) the participant's annuity starting date, or
(B) the date of the participant's death.
(2) Treatment of certain marriages within 1 year of annuity starting date for purposes of qualified joint and survivor annuities
For purposes of paragraph (1), if—
(A) a participant marries within 1 year before the annuity starting date, and
(B) the participant and the participant's spouse in such marriage have been married for at least a 1-year period ending on or before the date of the participant's death,
such participant and such spouse shall be treated as having been married throughout the 1-year period ending on the participant's annuity starting date.
(e) Restrictions on cash-outs
(1) Plan may require distribution if present value not in excess of $3,500
A plan may provide that the present value of a qualified joint and survivor annuity or a qualified preretirement survivor annuity will be immediately distributed if such value does not exceed $3,500. No distribution may be made under the preceding sentence after the annuity starting date unless the participant and the spouse of the participant (or where the participant has died, the surviving spouse) consents in writing to such distribution.
(2) Plan may distribute benefit in excess of $3,500 only with consent
If—
(A) the present value of the qualified joint and survivor annuity or the qualified preretirement survivor annuity exceeds $3,500, and
(B) the participant and the spouse of the participant (or where the participant has died, the surviving spouse) consent in writing to the distribution,
the plan may immediately distribute the present value of such annuity.
(3) Determination of present value
(A) In general
(i) Present value
Except as provided in subparagraph (B), for purposes of paragraphs (1) and (2), the present value shall not be less than the present value calculated by using the applicable mortality table and the applicable interest rate.
(ii) Definitions
For purposes of clause (i)—
(I) Applicable mortality table
The term "applicable mortality table" means the table prescribed by the Secretary. Such table shall be based on the prevailing commissioners' standard table (described in section 807(d)(5)(A)) used to determine reserves for group annuity contracts issued on the date as of which present value is being determined (without regard to any other subparagraph of section 807(d)(5)).
(II) Applicable interest rate
The term "applicable interest rate" means the annual rate of interest on 30-year Treasury securities for the month before the date of distribution or such other time as the Secretary may by regulations prescribe.
(B) Exception
In the case of a distribution from a plan that was adopted and in effect before the date of the enactment of the Retirement Protection Act of 1994, the present value of any distribution made before the earlier of—
(i) the later of the date a plan amendment applying subparagraph (A) is adopted or made effective, or
(ii) the first day of the first plan year beginning after December 31, 1999,
shall be calculated, for purposes of paragraphs (1) and (2), using the interest rate determined under the regulations of the Pension Benefit Guaranty Corporation for determining the present value of a lump sum distribution on plan termination that were in effect on September 1, 1993, and using the provisions of the plan as in effect on the day before such date of enactment; but only if such provisions of the plan met the requirements of section 417(e)(3) as in effect on the day before such date of enactment.
(f) Other definitions and special rules
For purposes of this section and section 401(a)(11)—
(1) Vested participant
The term "vested participant" means any participant who has a nonforfeitable right (within the meaning of section 411(a)) to any portion of such participant's accrued benefit.
(2) Annuity starting date
(A) In general
The term "annuity starting date" means—
(i) the first day of the first period for which an amount is payable as an annuity, or
(ii) in the case of a benefit not payable in the form of an annuity, the first day on which all events have occurred which entitle the participant to such benefit.
(B) Special rule for disability benefits
For purposes of subparagraph (A), the first day of the first period for which a benefit is to be received by reason of disability shall be treated as the annuity starting date only if such benefit is not an auxiliary benefit.
(3) Earliest retirement age
The term "earliest retirement age" means the earliest date on which, under the plan, the participant could elect to receive retirement benefits.
(4) Plan may take into account increased costs
A plan may take into account in any equitable manner (as determined by the Secretary) any increased costs resulting from providing a qualified joint or survivor annuity or a qualified preretirement survivor annuity.
(5) Distributions by reason of security interests
If the use of any participant's accrued benefit (or any portion thereof) as security for a loan meets the requirements of subsection (a)(4), nothing in this section or section 411(a)(11) shall prevent any distribution required by reason of a failure to comply with the terms of such loan.
(6) Requirements for certain spousal consents
No consent of a spouse shall be effective for purposes of subsection (e)(1) or (e)(2) (as the case may be) unless requirements comparable to the requirements for spousal consent to an election under subsection (a)(1)(A) are met.
(7) Consultation with the Secretary of Labor
In prescribing regulations under this section and section 401(a)(11), the Secretary shall consult with the Secretary of Labor.
(Added
References in Text
The date of the enactment of the Retirement Protection Act of 1994, referred to in subsec. (e)(3)(B), is the date of enactment of subtitle F (§§750–781) of title VII of
Amendments
1994—Subsec. (e)(3).
1989—Subsec. (a)(3)(B)(ii).
1988—Subsec. (e)(3)(A).
1986—Subsec. (a)(1).
Subsec. (a)(1)(B).
Subsec. (a)(2)(A).
Subsec. (a)(3)(B).
Subsec. (a)(4).
Subsec. (a)(5), (6).
Subsec. (c)(1).
Subsec. (c)(2).
Subsec. (c)(3).
Subsec. (e)(3).
Subsec. (f)(1).
Subsec. (f)(2).
Subsec. (f)(5).
Subsec. (f)(6), (7).
Effective Date of 1994 Amendment
Amendment by
Effective Date of 1989 Amendment
Amendment by
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by section 1139(b) of
Section 1898(b)(4)(C) of
"(i) The amendments made by this paragraph [amending this section and
"(ii) In the case of any loan which was made on or before August 18, 1985, and which is secured by a portion of the participant's accrued benefit, nothing in the amendments made by sections 103 and 203 of the Retirement Equity Act of 1984 [sections 103 and 203 of
"(iii) For purposes of this subparagraph, any loan which is revised, extended, renewed, or renegotiated after August 18, 1985, shall be treated as made after August 18, 1985.
Section 1898(b)(6)(C) of
Section 1898(b)(8)(C) of
Amendment by section 1898(b)(1)(A), (5)(A), (9)(A), (10)(A), (11)(A), (12)(A), (15)(A), (B) of
Effective Date
Section applicable to plan years beginning after Dec. 31, 1984, except as otherwise provided, see sections 302 and 303 of
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
Section Referred to in Other Sections
This section is referred to in