The IRS has released guidance, in the form of questions and answers regarding requirements imposed by the Employment Retirement Income Security Act (ERISA) §101(j), which requires notice to be given to participants and beneficiaries relating to benefit limitations on pension plans imposed under ERISA §206(g). Code Sec. 436 contains provisions parallel to ERISA §206(g), and provides benefit limitations to pension plans depending on each plan’s funding level, which is measured by the plan’s adjusted funding target attainment percentage (AFTAP).
Under Code Sec. 436(b) , if a participant is entitled to an unpredictable contingent event benefit (for example, a benefit payable solely by reason of a plant shutdown), that benefit may not be paid if the plan’s AFTAP for the plan year is less than 60 percent (or would be, taking in account the occurrence of the contingent event benefit). Other benefits are limited when a plan’s AFTAP falls below certain prescribed percentages.
Written notice must be given under ERISA §101(j) to plan participants and beneficiaries within 30 days after a plan becomes subject to the benefit limitations of Code Sec. 436(e) , relating to cessation of benefit accruals. Notice is also required within 30 days of a plan becoming subject to a limitation on unpredictable contingent event benefits under Code Sec. 436(b) or a limitation on prohibited payments under Code Sec. 436(d) .
The IRS guidance summarizes the various limiting provisions and provides answers to questions on issues such as the general timing requirements for providing a §101(j) notice; when a plan with an AFTAP of less than 60 percent, or one greater than 60 percent, becomes subject to a limitation relating to unpredictable contingent event benefits; when a plan becomes subject to the limitation on prohibited payments; when a plan becomes subject to a limitation on benefit accruals; when notice is required other than in the preceding situations; the interaction of certain distinct ERISA notice requirements; persons who must be provided within a §101(j) notice; information required in the notice; and acceptable methods of providing the notice.
The guidance is applicable as of August 1, 2012, but may be relied on by plan administrators before that date. The IRS has also solicited comments on whether a §101(j) notice should be provided at additional times, such as when a limitation ceases to apply, as well as on whether a §101(j) notice should be provided to those who become participants or beneficiaries after the first date the limitation applies, or to such persons at later dates if the limitation continues to apply to the plan, such as on an annual or tri-annual basis.
Notice 2012-46, 2012FED ¶46,402
Code Sec. 436
CCH Reference – 2012FED ¶20,221.021
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