Defined Benefit Plan Funding Relief
Rev. 07/01/10; E-mail Alert 2010-10

On June 25, 2010, President Obama signed into law the Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010 (H.R. 3962).  This law includes a provision that provides much needed funding relief for single employer and multiemployer defined benefit plans. This relief allows additional time to amortize funding deficiencies exacerbated by the severe market slide in 2008.  The eligible plan years under the new law are up to two plan years during the 2008-2011 plan year period.

Single employer plans can amortize the shortfall by electing either a “2 plus 7” schedule or a 15-year schedule. The first 2 years of payments will be interest-only in the “2 plus 7” schedule followed by a 7-year amortization of the shortfall.  The 15-year schedule allows for the shortfall to be amortized in level installments over the 15-year period. 

Employers can utilize the relief for one or two plan years beginning in any year between 2008 and 2011. If relief is elected for two years, the method of relief must be the same for both years. Rules for electing the relief will be provided by the Treasury Department. Plan sponsors who elect relief must provide notice to participants, beneficiaries, and the PBGC.

Additional contributions may also be required due to excess employee compensation (in excess of $1 million per year to any employee) and extraordinary dividends paid by the plan sponsor. 

This Act provides relief for both active and frozen plans.  Multiemployer plan relief is also addressed. Additional relief is available to plan sponsors of certain charitable organizations. 

The law contains many further details and may be found by clicking here.  

For more on this subject come to either our Retirement Plan Insights or Practitioner seminars.