26 U.S.C. § 412 — Minimum funding standards

(a) Requirement to meet minimum funding standard. (1) In general: A pension plan covered by this section must meet the minimum funding standard for every plan year. (2) Minimum funding standard: A plan meets that standard for a year if (A) for a defined benefit plan that is not a multiemployer or CSEC plan, the employer's contributions add up to at least the "minimum required contribution" figured under section 430; (B) for a money purchase plan that is not multiemployer, the employer pays whatever the plan's terms require; (C) for a multiemployer plan, the employers' combined contributions are enough that the plan does not have an "accumulated funding deficiency" under section 431; and (D) for a CSEC plan, the employers' combined contributions are enough that the plan does not have a deficiency under section 433. (b) Liability for contributions. (1) In general: Unless paragraph (2) applies, the employer responsible for the plan must pay any contribution this section requires (including installments required under section 430(j) or 433(f)). (2) Joint and several liability where employer member of controlled group: If that employer belongs to a controlled group of companies, every member of the group is jointly liable for paying the contribution. (3) Multiemployer plans in critical status: Paragraph (1) does not apply to a multiemployer plan for a year it is in "critical status" under section 432, as long as the plan sponsor adopts and follows a rehabilitation plan under section 432(e). (c) Variance from minimum funding standards. (1) Waiver in case of business hardship. (A) In general: The Secretary may waive some or all of the funding standard for a year if (i) the employer (or, for a multiemployer or CSEC plan, 10% or more of the contributing employers) cannot meet it without temporary substantial business hardship, and (ii) making them meet it would hurt plan participants overall. The Secretary cannot waive it for more than 3 years out of any 15 (5 out of 15 for multiemployer plans). (B) Effects of a waiver: the waived amount is instead spread out and paid over time — the mechanics depend on the plan type, using section 430, 431, or 433 as applicable. (C) The Secretary cannot waive any part of the standard that is already the result of an earlier year's waived amount still being paid off. (2) Determining business hardship: Relevant factors include whether the employer is operating at a loss, whether the industry has substantial unemployment, whether industry sales and profits are down, and whether the plan would only continue if the waiver is granted. (3) "Waived funding deficiency" means the part of the minimum funding standard the Secretary waived that the employer did not pay. (4) Security for waivers for single-employer plans, consultations. (A) The Secretary may require a single-employer plan's employer to post security as a condition of getting or changing a waiver, or an extension under section 433(d), subject to the exception in (C). That security can be enforced only by the Pension Benefit Guaranty Corporation, or by the plan's sponsor or its controlled group at the Corporation's direction. (B) Except as (C) provides, before granting or changing a waiver or extension, the Secretary must give the Corporation the completed application and 30 days to comment, and must consider the Corporation's comments plus any written views submitted by a union representing plan participants. Information shared with the Corporation this way is treated as tax-return information and protected under section 6103(p). (C) Exception: none of this applies to a plan where a specific total — combining (I) unpaid required contributions or the funding deficiency, (II) the present value of future waiver installments, and (III) unpaid amounts from a section 433(d) extension — comes to less than $1,000,000. Pending waiver or extension applications are counted as if denied when doing this math. (5) Special rules for single-employer plans. (A) A waiver application for a non-multiemployer defined benefit plan must be filed by the 15th day of the 3rd month after the plan year ends. (B) If the employer belongs to a controlled group, the business-hardship test must be met both by that employer alone and by the whole controlled group treated as a single employer — though the Secretary can skip analyzing a member if it would not change the outcome. (6) Advance notice. (A) Before granting a waiver, the Secretary must require the applicant to prove it notified every "affected party" about the application, including how well-funded the plan is for guaranteed and other benefits. (B) The Secretary must consider any relevant information submitted by anyone who received that notice. (7) Restriction on plan amendments. (A) A plan cannot be amended to raise benefits, change how benefits build up, or speed up vesting while a waiver or extension is in effect, or within 12 months (24 for multiemployer plans) after an amendment that cut a participant's accrued benefit. Violating this cancels the waiver or extension for any plan year on or after the bad amendment. (B) Exception: this restriction does not block an amendment the Secretary finds reasonable with only minor benefit increases, one that simply undoes an earlier benefit-cutting amendment, or one required to keep the plan tax-qualified. (d) Miscellaneous rules. (1) A plan may change its funding method or plan year only with the Secretary's approval. (2) Certain retroactive plan amendments: An amendment can be treated as made on the first day of the plan year it applies to if it (A) is adopted within 2½ months after that year ends (2 years for multiemployer plans), (B) does not cut any participant's already-earned benefit as of the start of that year, and (C) does not cut any participant's benefit as of when it is adopted, beyond what circumstances require — and the plan administrator elects this treatment. An amendment that does cut accrued benefits needs the Secretary's approval (or 90 days of silence after the administrator files notice) to take effect, and the Secretary may approve it only if it is needed because of a business hardship and a waiver or extension is unavailable or not enough. (3) "Controlled group" means a group treated as one employer under section 414(b), (c), (m), or (o). (e) Plans to which section applies. (1) In general: Except as paragraphs (2) and (4) provide, this section covers a plan, starting with the year ERISA's effective date applies to it, if (A) it included a trust qualified under section 401(a), or (B) it met the annuity-plan requirements of section 403(a). (2) Exceptions: This section does not apply to (A) profit-sharing or stock-bonus plans; (B) certain insurance-contract plans described in paragraph (3); (C) government plans; (D) church plans that have not elected coverage under section 410(d); (E) plans that never required employer contributions after September 2, 1974; or (F) plans run by certain tax-exempt societies or associations where employers make no contributions. Plans under (C), (D), or (F) count as tax-qualified only if they meet the pre-ERISA rules of section 401(a)(7) as they stood on September 1, 1974. (3) Certain insurance contract plans: A plan qualifies here if (A) it is funded only by buying individual insurance contracts, (B) those contracts have level annual premiums payable up to retirement age, starting when each person joined the plan, (C) benefits match what each contract guarantees at normal retirement age, backed by a licensed insurer, as long as premiums are paid, (D) all premiums for the current and earlier plan years have been paid without lapse (or the policy has been reinstated), (E) no rights under the contracts were used as loan collateral during the plan year, and (F) no policy loans were outstanding during the plan year. A group-insurance-funded plan with the same features can also qualify, under regulations the Secretary prescribes. (4) Certain terminated multiemployer plans: This section keeps applying to a terminated multiemployer plan covered by ERISA section 4021, until the end of the plan year in which it actually terminates (as defined in ERISA section 4041A(a)(2)).