IRS Final Rules Govern Required Minimum Contributions for Single-Employer Pension Plans

By Sally P. Schreiber, J.D.

The IRS issued final regulations on Tuesday on determining the required minimum contributions for single-employer defined benefit pension plans (T.D. 9732). The regulations also explain how the Sec. 4971 excise tax for failure to satisfy the required minimum contribution is calculated. They finalize proposed regulations that were issued in 2008.

Minimum Contributions

Sec. 430, which was added to the Code by the Pension Protection Act of 2006 (PPA), P.L. 109-280, specifies the rules that apply for minimum funding of single-employer defined benefit plans. Under those rules, if the value of plan assets (less the sum of the plan’s prefunding balance and funding standard carryover balance) is less than the funding target, the minimum required contribution under Sec. 430(a)(1) is the sum of the plan’s target normal cost and the shortfall and waiver amortization charges for the plan year. If the value of plan assets (less the sum of the plan’s prefunding balance and funding standard carryover balance) equals or exceeds the funding target, the contribution is the plan’s target normal cost for the plan year reduced (but not below zero) by the amount of the excess.  

Payment of any required minimum contribution must be made by 8½ months after the end of the plan year. Any funding shortfall for earlier plan years must be made up by making quarterly payments of 25% of the required annual payment. The regulations provide the due dates for each installment, and they permit the plan sponsor to make a standing election to allow the enrolled actuary to use the funding standard carryover balance and the prefunding balance to satisfy any otherwise unpaid portion. This election may be suspended by written notice to the actuary.

The payment is calculated as the lesser of 90% of the required minimum contribution or 100% of that amount (determined without regard to any Sec. 412(c) funding waiver) for the preceding plan year. Interest at the rate of the plan’s effective interest rate plus 5 basis points applies to any payment of a quarterly installment made after the due date.

The payments for plans that have unpaid contributions are treated as late contributions for the earliest plan year for which there is an unpaid minimum required contribution (to the extent necessary to correct that required contribution). To the extent the contribution exceeds that amount, the excess is treated as a late contribution for the next earliest plan year for which there is an unpaid minimum contribution (to the extent necessary to correct that next earliest unpaid minimum required contribution). The allocation is repeated until all unpaid minimum required contributions have been corrected or until the entire contribution is allocated, whichever comes first.

Under the new final rules, the shortfall amortization installments for a shortfall amortization base established for a plan year generally are the annual amounts necessary to amortize that shortfall amortization base in level annual installments over the seven-year period beginning with that plan year. Regs. Sec. 1.430(h)(2)-1(f)(2) provides that these installments are determined assuming that they are paid on the valuation date for each plan year and using the Sec. 430(h)(2)(C) or (D) interest rates.

The shortfall amortization installments are not redetermined in later plan years to reflect subsequent changes in interest rates, and they are not redetermined even if the valuation date for a plan changes after the plan year was established. In that case, the dates on which the installments are assumed to be paid are changed to the anniversaries of the new valuation date, and the difference in present value attributable to this change is reflected in any new shortfall amortization base.

The final rules also determine how to calculate these amounts for short plan years, in which case the amortization payments are prorated.

Excise Tax

Sec. 4971 imposes an excise tax on the employer for a failure to meet minimum funding requirements. For a single-employer plan, the tax is 10% of the aggregate unpaid minimum required contributions for all plan years remaining unpaid as of the end of any plan year ending with or within a tax year.

In addition, Sec. 4971(b) imposes an additional tax if the minimum funding requirements remain unsatisfied for a specified period. Sec. 4971(f)(1) imposes a 10% tax on the amount of the liquidity shortfall for a quarter that is not paid by the due date for the installment for that quarter. Sec. 4971(f)(2) adds an excise tax that applies if a plan has a liquidity shortfall at the close of five consecutive quarters.

The excise tax is imposed on unpaid minimum required contributions for all years until corrected, which was not the rule before the PPA was enacted. The final regulations apply this rule to unpaid minimum required contributions for all years, without special treatment for pre-PPA funding deficiencies, because the statute provides the same rules for all unpaid contributions for all years.    

Sally P. Schreiber ( is a Tax Adviser senior editor.

Tax Insider Articles


Business meal deductions after the TCJA

This article discusses the history of the deduction of business meal expenses and the new rules under the TCJA and the regulations and provides a framework for documenting and substantiating the deduction.


Quirks spurred by COVID-19 tax relief

This article discusses some procedural and administrative quirks that have emerged with the new tax legislative, regulatory, and procedural guidance related to COVID-19.