Guidance Issued for Single-Employer Defined Benefit Funding Rules
The IRS has issued Notice 2021-48, providing guidance about changes to the funding rules for single-employer defined benefit pension plans that were made by the American Rescue Plan Act of 2021 (ARPA). ARPA included provisions that addressed amortization relief by allowing existing shortfall amortization bases to be reduced to zero and extending funding shortfall installments for new shortfall bases to 15 years. In addition, ARPA amended segment rate minimum and maximum percentages and created an interest rate “floor” of five percent in a period of lower interest rates. These provisions are to be applied to all plans with plan years beginning in 2022 and, by election, may be adopted sooner.
The notice provides details concerning several items.
- Applicability of IRS Notice 2020-61 when ARPA segment rates are elected
- Written election requirements documenting whether ARPA provisions will be implemented prior to plan years beginning in 2022
- Form 5500 Schedule SB reporting and revocation requirements
- Election and revocation details relative to prefunding balances
- Effect of ARPA elections on the plan’s Adjusted Funding Target Attainment Percentage (AFTAP)
- Corrective actions related to a new certified AFTAP