| ELECTION |
DESCRIPTION |
REQUIREMENTS / TIMING |
| §1.430(d)-1 Determination of Funding Target and Target Normal Cost |
| § 412(d)(2) Election –
Whether an
amendment is treated
as having been adopted
as of the 1st day of the
plan year |
For an amendment that is adopted after the
valuation date (and not later than 2-1/2 months
after the close of the plan year), but which takes
effect during that plan year, an election can be
made to take the full increase in liability into
account as of the valuation date of that plan
year. If no election is made, none of the
increase in liability is taken into account as of
the valuation date of that plan year. |
Election must be made by the time for
filing the Annual Return relating to the
minimum funding standards for the Plan
(i.e., election on Schedule R to Form
5500 with supporting statement). Treas.
Reg. § 11.412(c)-7. |
| §1.430(f)-1 Effect of Prefunding Balance and Funding Standard Carryover Balance |
| §430(f)(1) Election –
Pre-PPA Funding
Standard Account |
A plan that had a positive balance in its funding
standard account at the end of its pre-PPA
effective plan year automatically has a funding
standard carryover balance unless the plan
sponsor elects to reduce it to zero. |
No election is required to establish a
funding standard carryover balance. If
the plan sponsor wants to reduce the
funding standard carryover balance to
zero the election must be made no later
than the last day of the plan year to
which the election relates. |
| §430(f)(2) Election –
To Reduce the
Prefunding Balance or
Funding Standard
Carryover Balance |
An election can be made to reduce the
prefunding balance or funding standard
carryover balance for a plan year. |
The plan sponsor must provide a written
election to the plan administrator and
enrolled actuary no later than the last
day of the plan year to which the
election relates. |
| §430(f)(3) Election –
To Add to Prefunding
Balance or Offset
Minimum Required
Contributions |
An election can be made to add to the
prefunding balance, or to use or reduce the
prefunding balance or funding standard
carryover balance to offset the minimum
required contributions for a plan year. |
The plan sponsor must provide a written
election to the plan administrator and
enrolled actuary no later than the last
day for making the minimum required
contributions for the plan year.
Ordering rules apply which can result in
a missed quarterly contribution if not
carefully followed. |
| §430(f) Election –
Standing Elections |
A standing election can be made to:
- use the prefunding balance and funding
standard carryover balance to the extent
needed to avoid an unpaid minimum
required contribution taking in to account
any contributions that are or are not made;
or
- add the maximum amount possible each
year to the prefunding balance.
|
A standing election is deemed to occur
on the last possible day to make the
election.
Note: A standing election cannot be
made with respect to quarterly
contributions. This is to be addressed in
future regulations. |
| §430(f)(3) Election –
Revocation of Election |
An election to use the prefunding balance or
funding standard carryover balance to offset
minimum required contributions can sometimes
be revoked. |
These elections are generally
irrevocable. However, to the extent the
amount to be used to offset the
minimum required contribution exceeds
the minimum required contribution for
the plan year, the election can be
revoked by written notice from the plan
sponsor by the end of the plan year.
In the case of the 2008 plan year, this
deadline is extended to the due date
(including extension) for filing the
Schedule SB for the plan. |
| §430(f) Election –
Quarterly Contribution
Requirements |
An election can be made to use the prefunding
balance or funding standard carryover balance to
satisfy quarterly contribution requirements with
respect to installments due before the valuation
date. |
[This will be addressed in future
regulations.] |
| §1.430(g)-1 Valuation Date and Valuation of Plan Assets |
| § 430(g) – Plan
Valuation Date |
Selection of the plan’s valuation date is part of
the plan’s funding method and cannot be
changed without the consent of the
Commissioner of the IRS. |
A change in valuation date that is
required by § 430 is treated as approved
by the Commissioner. |
| §1.430(h)(2)-1 Interest Rates Used to Determine Present Value |
| § 430(h)(2) – Election
to Use Alternative
Interest Rates |
An election can be made to use alternative
interest rates rather than the segment rates for
the month that includes the valuation date. One
alternative election would be to use the segment
rate but elect the use of an alternative month
(i.e., one of the four months preceding the
month that includes the valuation date).
Another alternative election would be to use the
monthly corporate bond yield curve in lieu of
segment rates. For plan years beginning in 2008
and 2009, this latter election could be paired
with an election to also use an alternative
month. Use of an alternative month in
connection with the monthly corporate bond
yield curve for plan years after 2009, however,
is not permitted. |
Election is made by the plan sponsor
who must provide written notice to the
plan’s actuary. Once an election to use
an alternative interest rate is adopted,
the election applies for all future plan
years unless a change is approved by the
Commissioner. (However, see the
special exception for the 2009 and 2010
plan years noted under § 430(h)(2)
below.) |
| §430(h)(2) – Election
to Not Apply
Transition Rule |
An election can be made not to use the transition
rule which would otherwise apply to plan years
beginning in 2008 and 2009 and would require
the use of a weighted average of the first, second
and third segment rates. |
The election is made by the plan sponsor
and is irrevocable once made, unless the
approval of the Commissioner is
obtained. |
| §430(h)(2) – Interest
Rate Changes for the
2009 and 2010 Plan
Years |
A change can be made to an interest rate
election for 2009 or 2010. |
Any change to any interest rate election
that is made for the first plan year
beginning in 2009 or 2010 is
automatically approved. |
| §1.436-1 Limits on Benefits and Benefit Accruals under Single Employer Defined Benefit Plans |
| § 436(c) – Option to
Make the Plan
Amendment Effective
Once the Restriction is
Lifted |
If a plan amendment cannot take effect during
the plan year because of § 436(c), it is treated as
never adopted – unless the amendment provides
otherwise. |
A plan amendment that fails to take
effect in the plan year because the
AFTAP is less than 80%, can be drafted
so that it will take effect in a later plan
year once the restriction is lifted. |
| §436(e) – Option to
Not Allow Automatic
Resumption of Benefit
Accruals |
If a limitation on benefit accruals applies under
§ 436(e), the benefit accruals will automatically
resume effective as of the § 436 measurement
date as of which the benefit accruals are no
longer restricted – unless the plan provides
otherwise. |
If accruals resume mid-year, the plan
must comply with Department of Labor
rules regarding partial years of
participation and the prohibition on
double proration. |
| §436(d) – Option to
Allow New Election of
Form of Benefit |
For participants who are barred from receiving
an optional form of benefit because of the
restrictions on prohibited payments under §
436(d), a plan is permitted to provide that a
participant will have the opportunity to have a
new election under which the form of benefit
previously elected may be modified. |
The new election would be subject to
applicable qualification requirements,
and would result in a new annuity
starting date. |
| §436(f)(3) – Deemed
Election to Reduce
Funding Balances |
If a limitation on prohibited payments would
otherwise apply under § 436(d)(1) or (d)(3) (i.e.,
the AFTAP is less than 60% or 80%), the
employer is treated as having made an election
under § 436(f)(3) to reduce the prefunding
balance or funding standard carryover balance
by the amount necessary for the AFTAP to be
above the applicable threshold (i.e., 60% or
80%) in order for the limitation not to apply. |
The deemed election is treated as made
on the § 436 measurement date as of
which the benefit limitation would
otherwise apply.
The deemed reduction only applies if
the balances to be reduced are large
enough to avoid application of the
limitations (i.e., no reduction is required
if the limitation would still apply for as
year even if the funding balances were
reduced to zero). |
| §436(d)(1) – Special
Optional Forms of
Benefit During
Restricted Period (i.e.,
where the AFTAP is
less than 60%) |
Plans are permitted to offer participants who
commence benefits during the period in which §
436(d)(1) applies with special optional forms of
benefits (e.g., a form which provides a
participant with an election to receive payment
of a single lump sum of the remaining benefit
once the limitation ceases to apply, to the extent
permitted under § 436(d)(3)). |
Such optional forms must satisfy the
applicable qualification requirements,
including § 417(e) and § 415 (at each
annuity starting date). |
| §436(d)(3) – Separate
Elections Allowed for
Restricted and
Unrestricted Portions
of the Benefit (i.e.,
where the AFTAP is
less than 80% but
more than 60%) |
Plans are permitted to provide separate elections
for the restricted and unrestricted portions of the
benefit, regardless of whether the participant
elects an optional form that includes a
prohibited payment that is not permitted to be
paid under § 436(d)(3). |
Such optional forms must also satisfy
the applicable qualification
requirements, including § 417(e), and in
the case of optional forms with different
annuity starting dates, § 415 at the later
annuity starting date for the restricted
portion of the benefit. |
In addition, as pointed out in the preambles to the Final Regulation, the Worker, Retiree, and Employer Recovery Act of 2008 amended § 430(b) to modify the definition of “target normal cost” by adding the amount of plan-related expenses expected to be paid from plan assets during the year, and by subtracting the amount of mandatory employee contributions expected to be made during the plan year. While the modification applies to plan years beginning after 2008, a plan sponsor can elect to apply the new definition beginning with the first plan year beginning after 2007.
