IRS Extends Deadline for Amendments to Defined Benefit Pension Plans to Comply with Funding-Based Limitations of Section 436

IRS Notice 2011-96, released by the IRS on November 29, 2011, extends the deadline for defined benefit pension plan amendments to comply with the funding-based limitations of Code section 436 and provides a sample amendment that meets those requirements.

Internal Revenue Code section 436 limits benefit payments and accruals for plan years in which a defined benefit pension plan falls short of the funding targets described in the Pension Protection Act of 2006. Some limits of that section apply if the plan's adjusted funding target attainment percentage (AFTAP) falls below 80%, with more severe limits if the plan's AFTAP is below 60%. 

The IRS previously extended the deadline for plan amendments to comply with Code section 436 to the last day of the first plan year starting on or after January 1, 2011, which would be December 31, 2011 for calendar year plans.  Notice 2011-96 extends that deadline to the latest of:

1. The last day of the first plan year that begins on or after January 1, 2012 (e.g., December 31, 2012 for calendar year plans);
2. The last day of the plan year for which section 436 is first effective for the plan; or
3. The due date (including extensions) of the employer's tax return for the tax year that contains the first day of the plan year for which section 436 is first effective for the plan.

Notice 2011-96 also provides a sample 436 amendment that will be deemed to comply with that section and the applicable regulations for plans that adopt the amendment without material modification prior to the extended deadline described above. The sample amendment has three parts. Part I applies to all plans and details the different limitations on benefit accruals and payments for plans with AFTAPs below both 60% and 80% or upon the plan sponsor's bankruptcy. Part II only applies to multiple employer plans and contains two subsections, one of which must be included in the plan's amendment based on whether Code section 413(c)(4)(A) applies. Part III provides four optional provisions that may be added to Part I relating to later restoration of limited benefit accruals and distribution options, dates and forms of payment.