IRS Issues Guidance for Certain Pension Plans Under New Code Section 430(m)

The IRS on Aug. 13 in Notice 2020-60 provided guidance regarding the election of alternative minimum funding standards for certain pension plans under Internal Revenue Code Section 430(m).

Section 430(m) was added to the Internal Revenue Code by Section 115 of the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act), Division O of the Further Consolidated Appropriations Act, 2020, Pub. L. No. 116-94 (133 Stat. 2534). 

Notice 2020-60:

 

 

The Treasury obligation yield curves that are to be used under Section 430(m)(3)(A)(ii) are set out on the Treasury yield curve website at https://home.treasury.gov/data/treasury-coupon-issuesand-corporate-bond-yield-curves/treasury-coupon-issues. The webpage provides links to a number of yield curves for each month. Under Section 430(m)(3)(A)(iii), the yield curve that applies to a plan depends on whether the valuation date for the plan year is the first or last day of a month or another day within a month. 

 

 

If an election under Section 430(m) is made for a plan year after a plan’s adjusted funding target attainment percentage (AFTAP) under Section 436 has been certified for the plan year, the election will affect that certified AFTAP.  Treas. Reg. §1.436-1(h)(4)(iii) sets forth rules relating to changes in certified AFTAPs; the effect of such a change depends on whether it is material or immaterial; under Treas. Reg. §1.436-1(h)(4)(iv)(A), a material change in a plan’s AFTAP will cause a plan to fail to comply with Code Section 401(a).

 

Under Treas. Reg. §1.436-1(h)(4)(iii)(C)(9), Notice 2020-60 designates an election under Section 430(m) as an event for which a resulting change in AFTAP may be deemed to be immaterial.  Accordingly, the change in AFTAP attributable to such an election is deemed to be an immaterial change in the plan’s AFTAP, if the plan’s enrolled actuary recertifies the AFTAP as soon as reasonably practicable after the election in accordance with Treas. Reg. §1.436-1(h)(4)(v)(D).

 

 

Under Section 115(c) of the SECURE Act, Code Section 430(m) applies to plan years ending after Dec. 31, 2017. In light of this retroactive effective date, Notice 2020-60 provides an exception to the general timing rule restricting changes in actuarial assumptions after they have been established for a plan year, to facilitate making a Section 430(m) election for a prior year.  Under this exception, a change of the interest rate assumption that applies to a plan pursuant to an election under Section 430(m) may be made for a plan year after the actuarial assumptions for that plan year have been established under Treas. Reg. §1.430(d)-1(f)(1)(iii), if certain conditions are satisfied.

 

Specifically, an election under Section 430(m)(3) may be made for a plan year ending after Dec. 31, 2017, after the actuarial assumptions for that plan year have been established, provided that:

 

In order to fully reflect the impact of the reduced minimum funding requirement resulting from a retroactive Section 430(m) election, Notice 2020-60 provides additional flexibility regarding certain funding balance elections for a plan year.

 

 

The appendix to Notice 2020-60 provides a model election for application of the alternative minimum funding standards under Section 430(m)(3).