29 U.S.C. § 1085a — Minimum funding standards

(a) General rule. For section 1082, an “accumulated funding deficiency” for a CSEC plan^* is the excess of total charges to the funding standard account for all plan years beginning with the first plan year^* covered by section 1082 over the total credits to that account for those years. If the excess of total charges to the alternative minimum funding standard account for those plan years over the total credits to that account is less, use that lesser excess instead. This section does not define “CSEC plan.”

(b) Funding standard account.
(1) Each plan covered by this section must create and maintain a funding standard account. The account may receive credits and charges only as this section provides.
(2) Charges. For each plan year, charge the account for:
(A) the plan’s normal cost for that year; and
(B) amounts needed to pay off, in equal yearly installments until fully paid:
(i) for a plan existing on January 1, 1974, its unfunded past service liability on the first day of the first year covered by section 1082, over 40 plan years;
(ii) for a plan created after January 1, 1974, but before the first day of the first plan year beginning after December 31, 2013, that liability on that first day, over 30 plan years;
(iii) separately for each year, any net increase in unfunded past service liability caused by amendments adopted that year, over 15 plan years;
(iv) separately for each year, any net experience loss, over 5 plan years; and
(v) separately for each year, any net loss caused by changes in the plan’s actuarial assumptions, over 10 plan years;
(C) each waived funding deficiency^* for an earlier plan year, as that term is understood under section 1082(c)(3), over 5 plan years;
(D) over 5 plan years, any amount credited under paragraph (3)(D); and
(E) over 20 years, contributions that would have been required but for section 1082(c)(7)(A)(i)(I), as that provision was in effect on August 16, 2006.
(3) Credits. For each plan year, credit the account for:
(A) the amount treated as contributed by the employer^* for that year;
(B) amounts needed to pay off, in equal yearly installments until fully paid:
(i) separately for each year, any net decrease in unfunded past service liability caused by amendments adopted that year, over 15 plan years;
(ii) separately for each year, any net experience gain, over 5 plan years; and
(iii) separately for each year, any net gain caused by changes in actuarial assumptions, over 10 plan years;
(C) the waived funding deficiency for that year, as that term is understood under section 1082(c)(3); and
(D) when the deficiency for the current year is determined under the funding standard account and the prior year’s deficiency was determined under the alternative minimum funding standard, any excess of the funding standard account’s debit balance, calculated without this subparagraph, over the alternative account’s debit balance.
(4) Combining and offsetting. Treasury regulations may allow amounts that must be amortized under paragraph (2) or (3) to be combined into one amount under that paragraph. The combined amount is amortized over a period based on the remaining periods for all items combined. The regulations may also allow amounts under one paragraph to be offset against amounts under the other. The resulting amount is amortized over a period based on the remaining periods for all items in the larger of the two amounts being offset.
(5) Interest.
(A) Unless subparagraph (B) applies, regulations must determine how to charge or credit interest to the account and its items at an appropriate rate consistent with the interest rate or rates the plan uses to determine costs.
(B) For the amortization charge in subsection (b)(2)(C), and for an arrangement under subsection (d), the rate for a plan year is the greater of 150 percent of the Federal mid-term rate in effect under section 1274 of title 26 for the first month of that year, or the rate under subparagraph (A).
(6) Amortization schedules for paragraph (2) and (3) amounts that were in effect on the last day of the last plan year beginning before January 1, 2014, because of section 104 of the Pension Protection Act of 2006, stay in effect under their terms and this section. Those amounts may not be amortized again under this section.

(c) Special rules.
(1) Determine normal costs, accrued liability, past service liabilities, and experience gains and losses using the funding method the plan uses to determine costs.
(2) Asset value.
(A) Determine the plan’s asset value using a reasonable actuarial valuation method that considers fair market value and is allowed by Treasury regulations.
(B) Treasury regulations may allow the value of a dedicated bond portfolio to be determined using the interest rate in section 1082(b)(5), as that provision was in effect on August 16, 2006.
(3) Determine all plan costs, liabilities, interest rates, and other factors using actuarial assumptions and methods that are each reasonable, considering the plan’s experience and reasonable expectations, and that together give the actuary’s best estimate of expected plan experience.
(4) Treat certain changes as experience gains or losses. If a change in Social Security benefits or other retirement benefits created by Federal or State^* law, or a change in the definition or amount of “wages” under the cited provisions of title 26, increases or decreases the plan’s accrued liability, treat that increase as an experience loss and that decrease as an experience gain.
(5) Funding method and plan year.
(A) All funding methods available to CSEC plans under section 1082 as it was in effect on August 16, 2006, remain available.
(B) A changed funding method may be used to determine costs and liabilities only after Treasury approval. A changed plan year may be used only after Treasury approval.
(C) Approval for certain assumption changes.
(i) An actuarial assumption used to determine current liability may not be changed without Treasury approval, except for assumptions described in subsection (h)(3).
(ii) This rule applies only if: (I) the plan is a CSEC plan; (II) the combined unfunded vested benefits at the end of the prior plan year for this plan and all other plans maintained by its contributing sponsors and their controlled-group members and covered by subchapter III exceed $50 million, ignoring plans with no unfunded vested benefits; and (III) the assumption change, after considering changes in interest rates and mortality tables, lowers the plan’s current-year funding shortfall by more than $50 million, or by more than $5 million and by at least 5 percent of the plan’s current liability before the change. This section does not define the quoted terms “contributing sponsors” or “controlled groups.”
(6) Full funding. If, at the end of a plan year, the plan would have an accumulated funding deficiency above the full-funding limitation, ignoring the alternative account allowed by subsection (e), credit the funding standard account with the excess. Also treat as fully amortized all amounts under subsection (b)(2)(B), (C), or (D), and (b)(3)(B), that otherwise must be amortized.
(7) Full-funding limitation. This means the excess, if any, of the plan’s accrued liability, including normal cost, over the lesser of the fair market value of the assets or their value under paragraph (2). If the accrued liability cannot be directly calculated under the plan’s funding method, use the entry-age-normal funding method. The limitation may not be less than the excess, if any, of 90 percent of current liability, including the expected increase from benefits earned during the year and ignoring subsection (h)(4), over the asset value under paragraph (2). For this minimum calculation, do not reduce assets by a funding-standard-account credit balance.
(8) Annual valuation.
(A) Determine experience gains and losses and value plan liability at least once each year, and more often when Treasury regulations require.
(B) The valuation must be dated within the plan year being valued or within one month before it, unless the prior-year rule applies. A prior-year valuation is allowed if, on its valuation date, plan assets are at least 100 percent of current liability. Regulations must require actuarial adjustment for significant participant^* differences. A funding-method change to use a prior-year valuation is not allowed unless assets were at least 125 percent of current liability on that prior-year valuation date.
(9) Contributions made by an employer for a plan year between the day after that year ends and 8½ months after it closes are treated as made on the last day of that year.
(10) When projecting benefits under a collectively bargained CSEC plan described in section 413(a) of title 26, the funding method must anticipate increases scheduled during the applicable collective-bargaining agreement.

(d) Extension of amortization periods. Treasury may extend, by no more than 10 years, the period for amortizing an unfunded liability described in subsection (b)(2)(B). Treasury may do this only if the extension serves this chapter’s purposes, adequately protects participants and beneficiaries, and refusing it would create a substantial risk that the plan would not continue voluntarily or would substantially reduce pension benefits or employee^* compensation.

(e) Alternative minimum funding standard.
(1) A CSEC plan using a funding method that requires contributions in every year at least as large as those under the entry-age-normal method may maintain an alternative minimum funding standard account for a plan year. Charge and credit it only as this subsection provides.
(2) For each year, charge it with: (A)(i) the lesser of normal cost under the plan’s method or normal cost under the unit-credit method; (ii) any excess of the present value of accrued benefits over the assets’ fair market value; and (iii) any excess of credits to this account for all earlier years over charges for those years. Credit it with (B) the amount treated as contributed by the employer for the year.
(3) Charge or credit interest to this account and its items in the way subsection (b)(5) provides for the funding standard account.

(f) Quarterly contributions.
(1) If a CSEC plan had a funded current liability percentage below 100 percent for the prior year and fails to pay a required installment in full, charge interest on the unpaid amount for the unpaid period at the greater of 175 percent of the Federal mid-term rate for the first month of the plan year or the plan’s cost-determination interest rate.
(2) The unpaid amount is the required installment minus what was contributed by its due date. Interest runs from the due date until that part is contributed, ignoring subsection (c)(9). Credit contributions against unpaid installments in the order the installments were due.
(3) There are four installments each year. Their due dates are April 15, July 15, October 15, and January 15 of the following year.
(4) Each installment is 25 percent of the required annual payment. The required annual payment is the lesser of 90 percent of the amount required for the current year under section 1082, ignoring waivers under that section, or 100 percent of the amount required for the prior year. The prior-year amount cannot be used if that year was not 12 months.
(5) Liquidity requirement.
(A) A covered plan is treated as failing to pay an installment to the extent the value of liquid assets paid in it is less than the liquidity shortfall, even if the shortfall is larger than the installment otherwise required.
(B) This applies to a CSEC plan, other than a plan described in section 1082(d)(6)(A) as in effect on August 16, 2006, that must pay installments and has a liquidity shortfall during a quarter of the plan year.
(C) The part treated as unpaid remains unpaid until the end of the quarter containing the installment’s due date.
(D) Any increase in an installment may not exceed the amount needed, after adding earlier installments, to raise the funded current liability percentage to 100 percent, counting the expected liability increase from benefits earned during the year.
(E) Definitions. (i) A “liquidity shortfall” is the excess, on the quarter’s last day, of the base amount for that quarter over the plan’s liquid assets. This section does not define “liquidity shortfall” beyond this rule. (ii) The “base amount” is three times adjusted disbursements for the 12 months ending on that day. If that result is more than twice adjusted disbursements for the 36 months ending that day, and an enrolled actuary^* certifies to Treasury that the excess comes from nonrecurring circumstances, exclude amounts tied to those circumstances. (iii) “Disbursements from the plan” means all trust payments, including annuity purchases, single-sum and other benefits, and administrative expenses. (iv) “Adjusted disbursements” means those disbursements minus the product of the plan’s funded current liability percentage and the sum of annuity purchases, single sums, and other disbursements specified by Treasury regulations. (v) “Liquid assets” means cash, marketable securities, and other assets Treasury regulations specify. (vi) A “quarter” is the three-month period before the month when the installment is due.
(F) Treasury may issue regulations needed to carry out this paragraph.
(6) For a plan year beginning on a date other than January 1, substitute the corresponding months. Apply this subsection to a year shorter than 12 months as Treasury regulations provide.

(g) Lien for failure to make required contributions.
(1) If a person^* fails to make a required installment or other required payment by its due date, and the unpaid amount including interest, added to all earlier unpaid amounts including interest, exceeds $1 million, a lien arises in favor of the plan for the amount in paragraph (3) on all real and personal property and property rights of that person and every member of the same controlled group.
(2) This applies to a CSEC plan for a year when its funded current liability percentage is below 100 percent. It does not apply to a plan to which section 1321 did not apply as that section was in effect on December 8, 1994.
(3) The lien equals all unpaid required installments and other payments required under this section, including interest, for plan years beginning after 1987 for which payment was not made by the due date.
(4) The person who failed must notify the Pension Benefit Guaranty Corporation within 10 days after the due date. The lien arises on the due date and continues through the last day of the first year in which the plan no longer meets the $1 million condition in paragraph (1), even if the plan stops meeting paragraph (2) during that period. The lien amount is treated as taxes owed to the United States, and rules similar to section 1368(c), (d), and (e) apply.
(5) Only the Pension Benefit Guaranty Corporation, or a contributing employer or controlled-group member acting at its direction, may perfect and enforce the lien.
(6) “Due date” and “required installment” have the meanings in subsection (f), except that another payment’s due date is the date this section requires it. “Controlled group” means a group treated as one employer under section 414(b), (c), (m), and (o) of title 26. This section does not define “controlled group” separately.

(h) Current liability. For this section, (1) “current liability” means all liabilities under the plan to employees and their beneficiaries. (2) An unpredictable contingent event benefit is not counted until the event occurs. It is a benefit dependent on an event other than age, service, compensation, death, disability, or an event Treasury finds reasonably and reliably predictable.
(3) The interest rate for current liability is the third segment rate under section 1083(h)(2)(C). Treasury may prescribe mortality tables based on pension-plan experience and projected trends, considering independent mortality studies. Treasury must review those tables at least every five years and update them when needed. For plan years beginning after December 31, 1995, Treasury must establish alternative tables for people receiving benefits because of disability: separate tables for disabilities arising before January 1, 1995, and on or after that date. For disabilities arising after December 31, 1994, those tables apply only to people disabled under title II of the Social Security Act and its regulations.
(4) Certain service is disregarded. For a covered participant, count only the applicable percentage of service before participation. The percentage is 20 percent for 1 year of participation, 40 percent for 2, 60 percent for 3, 80 percent for 4, and 100 percent for 5 or more. This applies to a participant who, when joining, had no other benefit accrued under any defined-benefit plan maintained by the employer or its controlled-group member, first joined this plan in a year beginning after December 31, 1987, and had more service than the minimum needed to participate. The employer may elect not to apply this rule, but may revoke that election only with Treasury consent.

(i) Funded current liability percentage. For a plan year, this percentage is the plan-asset value determined under subsection (c)(2), divided by the plan’s current liability, expressed as a percentage.

(j) Funding restoration status.
(1) Normal-cost payment.
(A) For a CSEC plan in funding restoration status, the accumulated funding deficiency for section 1082 is the greater of the amount in subsection (a) or the plan’s normal cost for the year minus the amount actually contributed for the year.
(B) For a spread-gain funding method, “normal cost” means normal cost under the entry-age-normal method.
(2) Plan amendments. During a year in funding restoration status, an amendment may not take effect if it increases liabilities by increasing benefits, creating benefits, changing the accrual rate, or changing the rate at which benefits become nonforfeitable. This does not apply to an amendment required by law. The rule stops applying at the beginning of the year, or later at the amendment’s effective date, when the sponsor makes an additional contribution equal to the increase in funding liability caused by the amendment.
(3) Funding restoration plan. Within 180 days after receiving the actuary’s certification that the plan is in funding restoration status, the sponsor must create a written plan. It must use reasonably expected experience and reasonable actuarial assumptions to raise the funded percentage to 100 percent within no more than the greater of 7 years or the shortest practicable period. It must account for contributions required under this section without this subsection. If the plan remains in restoration status for at least two years, update the plan each year after the first year within 180 days after receiving the actuary’s certification that the status continues.
(4) Annual certification. By the 90th day of each plan year, the plan actuary must certify to the sponsor whether the plan is in restoration status, based on its funded percentage at the year’s beginning. The actuary may conclusively rely on an estimate of the plan’s funding liability based on the prior year and reasonable estimates, assumptions, and methods, and on contributions reasonably expected for the prior year. Count those expected contributions in the beginning funded percentage.
(5) Definitions. (A) A CSEC plan is in restoration status if its beginning-of-year funded percentage is below 80 percent. (B) “Funded percentage” is plan assets under subsection (c)(2) divided by funding liability, expressed as a percentage. (C) “Funding liability” for a year is the present value, at the beginning of the year, of all benefits accrued or earned under the plan, using the plan’s assumptions under this section, including the subsection (b)(5)(A) interest rate and ignoring subsection (b)(5)(B). (D) “Spread gain funding method” has the meaning given by Treasury rules and forms. This section does not define “spread gain funding method” further.