[Federal Register Volume 80, Number 174 (Wednesday, September 9, 2015)]
[Rules and Regulations]
[Pages 54374-54402]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-20914]



[[Page 54373]]

Vol. 80

Wednesday,

No. 174

September 9, 2015

Part II





Department of the Treasury





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Internal Revenue Service





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26 CFR Parts 1 and 54





Determination of Minimum Required Pension Contributions; Final Rule

  Federal Register / Vol. 80 , No. 174 / Wednesday, September 9, 2015 / 
Rules and Regulations  

[[Page 54374]]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 54

[TD 9732]
RIN 1545-BH71


Determination of Minimum Required Pension Contributions

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: This document contains final regulations providing guidance on 
the determination of minimum required contributions for single-employer 
defined benefit pension plans. In addition, this document contains 
final regulations regarding the excise tax for failure to satisfy the 
minimum funding requirements for defined benefit pension plans. These 
regulations affect sponsors, administrators, participants, and 
beneficiaries of defined benefit pension plans.

DATES: Effective Date: These regulations are effective on September 9, 
2015.
    Applicability Date: These regulations apply to plan years beginning 
on or after January 1, 2016.

FOR FURTHER INFORMATION CONTACT: Michael P. Brewer or Linda S.F. 
Marshall at (202) 317-6700 (not a toll-free number).

SUPPLEMENTARY INFORMATION: 

Background

    This document contains final Income Tax Regulations (26 CFR part 1) 
under sections 430(a), 430(c), 430(e), 430(f), 430(h), 430(j) and 436, 
as added to the Internal Revenue Code (Code) by the Pension Protection 
Act of 2006 (PPA '06), Public Law 109-280 (120 Stat. 780 (2006)), and 
amended by the Worker, Retiree, and Employer Recovery Act of 2008 
(WRERA), Public Law 110-458 (122 Stat. 5092 (2008)), the Moving Ahead 
for Progress in the 21st Century Act of 2012 (MAP-21), Public Law 112-
141 (126 Stat. 405 (2012)), and the Highway and Transportation Funding 
Act of 2014 (HATFA), Public Law 113-159 (128 Stat. 1839 (2014)).\1\ In 
addition, this document contains final Excise Tax Regulations (26 CFR 
part 54) under section 4971 applicable to both single-employer and 
multiemployer defined benefit plans.
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    \1\ The Preservation of Access to Care for Medicare 
Beneficiaries and Pension Relief Act of 2010 (PRA 2010), Public Law 
111-192 (124 Stat. 1280 (2010)), added section 430(c)(3)(D) and 
section 430(c)(7) and made changes to certain provisions of PPA '06 
to provide temporary relief with respect to the minimum funding 
requirements and related benefit restrictions under section 436. 
This document generally does not provide guidance regarding those 
changes. Guidance regarding the changes made by PRA 2010 was issued 
in Notice 2011-3 (2011-2 IRB 263).
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    Section 412 provides minimum funding requirements that generally 
apply for pension plans (including both defined benefit pension plans 
and money purchase pension plans). PPA '06 made extensive changes to 
those minimum funding requirements that generally apply for plan years 
beginning on or after January 1, 2008. Section 430, which was added by 
PPA '06, specifies the minimum funding requirements that apply to 
single-employer defined benefit pension plans (including multiple 
employer plans) pursuant to section 412. Section 430 does not apply to 
multiemployer plans within the meaning of section 414(f) or CSEC plans 
within the meaning of section 414(y).\2\
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    \2\ Rules regarding CSEC plans were added by the Cooperative and 
Small Employer Charity Pension Flexibility Act of 2014 (CSEC Act), 
Public Law 113-97 (128 Stat. 1137), enacted April 7, 2014, and 
amended by Consolidated and Further Continuing Appropriations Act, 
2015, Public Law 113-235 (128 Stat. 2130), enacted December 16, 
2014. A CSEC plan is defined in section 414(y). In general, CSEC 
plans are certain plans maintained by groups of cooperatives and 
related organizations or groups of charitable organizations.
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    Section 302 of the Employee Retirement Income Security Act of 1974, 
as amended (ERISA), sets forth funding rules that are parallel to those 
in section 412 of the Code, and section 303 of ERISA sets forth 
additional funding rules for single-employer plans that are parallel to 
those in section 430 of the Code. Under section 101 of Reorganization 
Plan No. 4 of 1978 (92 Stat. 3790) and section 3002 of ERISA, the 
Secretary of the Treasury has interpretive jurisdiction over the 
subject matter addressed in these regulations for purposes of ERISA, as 
well as the Code. Thus, the Treasury regulations issued under section 
430 of the Code apply as well for purposes of section 303 of ERISA.
    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, section 430(a)(1) defines the minimum required 
contribution as 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, section 430(a)(2) defines the minimum required contribution as 
the plan's target normal cost for the plan year reduced (but not below 
zero) by the amount of the excess.
    Section 430(c)(1) provides that the shortfall amortization charge 
is the total (not less than zero) of the shortfall amortization 
installments for the plan year with respect to any shortfall 
amortization base that has not been fully amortized. Section 
430(c)(2)(A) provides that the shortfall amortization installments with 
respect to a shortfall amortization base established for a plan year 
are the amounts necessary to amortize the shortfall amortization base 
in level annual installments over the 7-plan-year period beginning with 
that plan year.
    Section 430(c)(3) provides that a shortfall amortization base is 
determined for a plan year based on the plan's funding shortfall for 
the plan year. Under section 430(c)(4), the funding shortfall is 
generally the amount (if any) by which the plan's funding target for 
the year exceeds the value of the plan's assets (as reduced by the 
funding standard carryover balance and prefunding balance under section 
430(f)(4)(B)). The shortfall amortization base for a plan year is the 
plan's funding shortfall, minus the present value of future 
amortization installments.
    Under section 430(c)(5), a shortfall amortization base is not 
established for a plan year if the value of a plan's assets is at least 
equal to the plan's funding target for the plan year. For this purpose, 
the prefunding balance is subtracted from the value of plan assets, but 
only if an election to use that prefunding balance to offset the 
minimum required contribution is in effect for the plan year.
    Under section 430(c)(6), if a plan's funding shortfall for a plan 
year is zero, any shortfall amortization bases and waiver amortization 
bases established for preceding plan years (and any associated 
shortfall amortization installments and waiver amortization 
installments) are eliminated.
    Under section 430(e), the waiver amortization charge for a plan 
year is the total of the waiver amortization installments for the plan 
year with respect to any waiver amortization bases established for the 
5 preceding plan years. Under section 430(e)(2), the waiver 
amortization installments with respect to a waiver amortization base 
established for a plan year (the amount of the waived funding 
deficiency for the plan year) are the amounts necessary to amortize the 
waiver amortization base in level annual installments over the 5-plan-
year period beginning with the succeeding plan year.
    Under section 430(f)(3), the prefunding balance and the funding 
standard carryover balance (collectively referred to as funding 
balances) are

[[Page 54375]]

permitted to be used to reduce the otherwise applicable minimum 
required contribution for a plan year in certain situations. Under 
section 430(f)(6), the prefunding balance is based on the accumulation 
of the contributions (other than contributions made under section 
436(f) to avoid benefit restrictions) that an employer has made for 
preceding plan years that exceeded the minimum required contribution 
for those years. Under section 430(f)(7), the funding standard 
carryover balance generally is based on the funding standard account 
credit balance as determined under section 412 for a plan as of the 
last day of the last plan year beginning in 2007.
    Section 430(h)(2) specifies the interest rates that must be used in 
determining a plan's target normal cost and funding target. Under 
section 430(h)(2)(B), in general, present value is determined using 
three interest rates (segment rates) for the applicable month, each of 
which applies to benefit payments expected to be paid during a certain 
period.\3\ Prior to amendments made by HATFA, section 430(h)(2)(B)(i) 
provided that the first segment rate applies to benefits reasonably 
determined to be payable during the 5-year period beginning on the 
first day of the plan year. The second segment rate applies to benefits 
reasonably determined to be payable during the 15-year period following 
the initial 5-year period. The third segment rate applies to benefits 
reasonably determined to be payable after the end of that 15-year 
period.
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    \3\ Section 430(h)(2)(D)(ii) provides an alternative to the use 
of the three segment rates, under which the corporate bond yield 
curve (determined without regard to the 24-month average) is 
substituted for the segment rates.
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    Section 2003(d)(1) of HATFA amended section 430(h)(2)(B)(i) to 
provide that the first segment rate applies to benefits reasonably 
determined to be payable during the 5-year period beginning on the 
valuation date for the plan year. Pursuant to section 2003(e) of HATFA, 
this change is required to be applied for plan years beginning on or 
after January 1, 2014.
    Under section 430(j), as under pre-PPA '06 law, the due date for 
the payment of any minimum required contribution for a plan year is 
8\1/2\ months after the end of the plan year. Any payment made on a 
date other than the valuation date for the plan year must be adjusted 
for interest accruing at the plan's effective interest rate under 
section 430(h)(2)(A) for the plan year for the period between the 
valuation date and the payment date. Pursuant to section 430(g)(2), the 
valuation date for a plan year must be the first day of the plan year, 
except in the case of a small plan described in section 430(g)(2)(B).
    Under section 430(j)(3), if the plan had a funding shortfall for 
the preceding plan year, then the plan sponsor must pay certain 
quarterly installments toward the required minimum contribution for the 
plan year. Each quarterly installment is 25 percent of the required 
annual payment. The required annual payment is equal to the lesser of 
90 percent of the minimum required contribution under section 430 for 
the plan year or 100 percent of the minimum required contribution under 
section 430 (determined without regard to any funding waiver under 
section 412(c)) for the preceding plan year. If a quarterly installment 
is made after the due date for that installment, then the interest rate 
that applies for the period of underpayment is the plan's effective 
interest rate plus 5 percentage points.\4\ The requirements regarding 
quarterly installments are similar to the requirements that formerly 
applied under section 412(m) as in effect before amendments made by PPA 
'06.\5\
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    \4\ Additional potential consequences of late quarterly 
contributions are found in section 430(k) of the Code (regarding the 
imposition of a lien) and sections 101(d) and 4043 of ERISA 
(regarding notice to participants and beneficiaries and to the 
Pension Benefit Guaranty Corporation).
    \5\ Guidance regarding quarterly contribution requirements under 
former section 412(m) was issued in Notice 89-52 (1989-1 CB 692), 
and guidance regarding the liquidity requirements under former 
section 412(m)(5) was issued in Revenue Ruling 95-31 (1995-1 CB 76).
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    A plan sponsor that is required under section 430(j)(3) to pay 
quarterly installments to a plan (other than a small plan described in 
section 430(g)(2)(B)) for a plan year must make quarterly installments 
of liquid assets that are sufficient to ensure that a minimum level of 
liquid assets is available to pay benefits. Generally, this minimum 
level of liquid assets is the amount of liquid assets needed to pay for 
three years of disbursements. A plan sponsor that fails to satisfy this 
liquidity requirement is treated as failing to make the required 
quarterly installment, and pursuant to section 206(e) of ERISA, the 
plan is required to cease making certain types of accelerated payments 
that are described in section 401(a)(32)(B) of the Code. Under section 
430(j)(4)(C), the period of underpayment continues until the close of 
the quarter in which the due date of the installment occurs. These 
liquidity requirements are substantially similar to the requirements 
that formerly applied under section 412(m)(5), as in effect before 
amendments made by PPA '06.
    Section 4971(a) imposes an excise tax on the employer for a failure 
to meet applicable minimum funding requirements. In the case of a 
single-employer plan (other than a CSEC plan), the tax is 10 percent 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 
taxable year. In the case of a multiemployer plan, the tax is 5 percent 
of the accumulated funding deficiency as of the end of any plan year 
ending with or within the taxable year. In the case of a CSEC plan, the 
tax is 10 percent of the CSEC accumulated funding deficiency. Section 
4971(b) provides an additional excise tax that applies if the 
applicable minimum funding requirements remain unsatisfied for a 
specified period. Section 4971(c) provides definitions that apply for 
purposes of section 4971, including a definition of unpaid minimum 
required contribution (which is based on the new section 430 rules for 
determining the minimum required contribution for a year). Section 
4971(f)(1) imposes a tax of 10 percent of the amount of the liquidity 
shortfall for a quarter that is not paid by the due date for the 
installment for that quarter. Section 4971(f)(2) provides an additional 
excise tax that applies if a plan has a liquidity shortfall as of the 
close of 5 consecutive quarters.
    Final regulations (TD 9467) under sections 430 and 436 were 
published in the Federal Register (74 FR 53004) on October 15, 2009 
(the October 2009 final regulations). Those final regulations address 
issues under sections 430(b), 430(d), 430(f), 430(g), 430(h), 430(i), 
and 436.
    These regulations finalize proposed regulations under sections 430 
and 4971 that were published on April 15, 2008 (REG-108508-08, 73 FR 
20203). The proposed regulations under section 430, addressing issues 
that were not addressed in the October 2009 final regulations, were 
proposed to apply generally to plan years beginning on or after January 
1, 2009. The preamble to the proposed regulations and Notice 2008-21 
(2008-1 CB 431) provided guidance on standards for applying section 430 
for plan years beginning during 2008.
    The proposed regulations under section 4971 generally were proposed 
to apply at the same time the statutory changes to section 4971 under 
PPA '06 become effective, but would not apply to any taxable years 
ending before the date the proposed regulations were published (April 
15, 2008). In the case of a plan to which a delayed effective date 
applies pursuant to sections 104 through 106 of PPA '06, the proposed

[[Page 54376]]

regulations provided that the amendments made to section 4971 apply to 
the same taxable years, but only with respect to plan years for which 
section 430 applies to the plan.
    Comments were received regarding the proposed regulations, and a 
public hearing was held on August 4, 2008. These final regulations are 
generally similar to the proposed regulations, but a number of changes 
were made in response to comments received. In addition, the final 
regulations reflect certain changes made by WRERA, the CSEC Act, and 
HATFA. The final regulations also provide the IRS with flexibility to 
extend certain regulatory deadlines.

Explanation of Provisions

I. Overview

    These regulations finalize the rules proposed in REG-108508-08 
(published April 15, 2008), providing guidance regarding the minimum 
required contribution rules that apply to sponsors of single-employer 
defined benefit plans under section 430 and the related excise tax 
rules of section 4971. These regulations also make changes to Sec.  
1.430(f)-1 (relating to elections with respect to a plan's prefunding 
balance and funding standard carryover balance), Sec.  1.430(h)(2)-1 
(relating to interest rates) and Sec.  1.436-1 (relating to benefit 
restrictions).

II. Section 1.430(a)-1 Determination of Minimum Required Contribution

    Section 1.430(a)-1 provides rules under section 430(a) for 
determining the minimum required contribution for a plan year for a 
single-employer defined benefit plan (including a multiple employer 
plan under section 413(c)) subject to section 430. The determination of 
the amount of the minimum required contribution for a plan year depends 
on whether the value of plan assets, as reduced to reflect certain 
funding balances pursuant to section 430(f)(4)(B) (but not below zero), 
is less than or at least equal to the plan's funding target for the 
plan year. If this value of plan assets is less than the funding target 
for the plan year, the minimum required contribution for that plan year 
is equal to the sum of the plan's target normal cost for the plan year 
plus any applicable shortfall amortization installments and waiver 
amortization installments. If this value of plan assets equals or 
exceeds the funding target for the plan year, the minimum required 
contribution for that plan year is equal to the target normal cost of 
the plan for the plan year reduced (but not below zero) by any such 
excess.
    The regulations provide that the shortfall amortization 
installments with respect to 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 
7-year period beginning with that plan year. As provided in Sec.  
1.430(h)(2)-1(f)(2), these installments are determined assuming that 
the installments are paid on the valuation date for each plan year and 
using the interest rates applicable under section 430(h)(2)(C) or (D). 
The shortfall amortization installments are determined using the 
interest rates that apply for the plan year for which the shortfall 
amortization base is established and are not redetermined in subsequent 
plan years to reflect changes in interest rates under section 430(h)(2) 
for those subsequent plan years. The regulations also provide that 
shortfall amortization installments are not redetermined even if the 
valuation date for a plan changes after the plan year for which the 
shortfall amortization base was established. In such a 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.
    Under the regulations, in general, a shortfall amortization base is 
established for a plan year only if the value of plan assets (reduced, 
but not below zero, by the prefunding balance if an election is made to 
use any portion of the prefunding balance to offset the minimum 
required contribution for the plan year) is less than the funding 
target for the plan year. This shortfall amortization base (which can 
be either positive or negative) is equal to the funding shortfall for 
the plan year, minus the sum of the present values of any remaining 
shortfall amortization installments and waiver amortization 
installments (determined in accordance with Sec.  1.430(h)(2)-1(f)(2) 
using the interest rates that apply for the current plan year rather 
than the amortization rates that were applied when the amortization 
installments were determined). For this purpose, the funding shortfall 
for any plan year is the excess (if any) of the funding target for the 
plan year over the value of plan assets for the plan year (as reduced 
to reflect the subtraction of the funding standard carryover balance 
and prefunding balance to the extent provided under Sec.  1.430(f)-
1(c)).
    Commenters noted that the special rule of section 430(c)(5) can 
produce anomalous results in certain cases where the prefunding balance 
is greater than the excess of the plan assets (without reduction for 
such balance) over the funding target. One case in which this occurs is 
for a plan with no funding standard carryover balance and actuarial 
gains that would have caused the shortfall amortization base (and 
related shortfall amortization installments) to be negative. In such a 
case, if a small portion of the prefunding balance is used to offset 
the minimum required contribution, then it is possible that the minimum 
required contribution would be reduced by even more than the amount so 
used.
    Another case raised by commenters--with results that are not only 
anomalous but also potentially circular--is a situation in which a plan 
has a funding standard carryover balance and the plan sponsor's 
election to use a portion of the prefunding balance (in addition to 
using the funding standard carryover balance) to offset the minimum 
required contribution would result in the establishment of a negative 
shortfall amortization base and a minimum required contribution that is 
smaller than the funding standard carryover balance. As a result, none 
of the prefunding balance can be used to offset the minimum required 
contribution (because no prefunding balance can be used to offset the 
minimum required contribution as long as the plan has a funding 
standard carryover balance), and the minimum required contribution must 
be recalculated. This results in the recalculated minimum required 
contribution being large enough that some of the prefunding balance 
would be needed to fully offset that minimum required contribution, and 
the first calculation would once again apply.
    After consideration of these comments, the IRS and the Treasury 
Department have concluded that the statutory provisions require this 
result in these limited factual situations. However, a plan sponsor can 
avoid the circular results by electing to reduce the funding standard 
carryover balance to an amount that is too small to offset the entire 
minimum required contribution. After that reduction, in order to offset 
the entire minimum required contribution, the plan sponsor must use the 
full remaining funding standard carryover balance plus at least some 
portion of the prefunding balance. The regulations include an example 
of a plan sponsor reducing the funding standard carryover balance in 
order to avoid the circularity (Example 10 of Sec.  1.430(a)-1(g)).

[[Page 54377]]

    The proposed regulations did not count contributions under section 
436(b)(2), (c)(2), and (e)(2) either toward minimum required 
contributions for the current year or as included in plan assets for 
that year. Commenters suggested that any contribution under section 
436(b)(2), (c)(2), or (e)(2) should be reflected in plan assets for 
purposes of section 430 if the corresponding increase in funding target 
is required to be reflected. This would have the effect of reducing the 
funding shortfall for the plan year. However, under sections 436(b)(2), 
(c)(2), and (e)(2), these contributions are characterized as ``in 
addition to any minimum required contribution under section 430.'' The 
final regulations adopt the rule as proposed because it reflects this 
requirement of the statute. This rule is also consistent with section 
430(f)(6)(B)(iii), which excludes section 436 contributions from the 
amount that may be added to the plan's prefunding balance. The final 
regulations do not include any special rule that would reduce the 
funding shortfall for a plan year to take into account section 436 
contributions for the plan year (by either including section 436 
contributions in plan assets or modifying the definition of funding 
shortfall). Any such section 436 contributions will be part of plan 
assets when measured for the following plan year and, accordingly, will 
reduce any positive shortfall amortization base (or increase any 
negative shortfall amortization base) that would otherwise be 
established for that following year.
    Under the regulations, the waiver amortization installments with 
respect to a waiver amortization base established for a plan year are 
the annual amounts necessary to amortize that waiver amortization base 
in level annual installments over the 5-year period beginning with the 
following plan year. As provided in Sec.  1.430(h)(2)-1(f)(2), these 
installments are determined assuming that the installments are paid on 
the valuation date for each plan year and using the interest rates 
applicable under section 430(h)(2). Thus, if a plan uses the segment 
rates, the installments are determined by applying the first segment 
rate to the first four installments and the second segment rate to the 
fifth (and final) installment. The waiver amortization installments 
established with respect to a waiver amortization base are determined 
using the interest rates that apply for the plan year for which the 
waiver is granted (even though the first installment with respect to 
the waiver amortization base is not due until the subsequent plan year) 
and are not redetermined in subsequent plan years to reflect changes in 
interest rates under section 430(h)(2) for those subsequent plan years.
    The regulations provide rules for determining the amount of a 
minimum required contribution for a short plan year. Under the 
regulations, the amortization installments are prorated for a short 
plan year. The regulations do not provide for any proration of the 
target normal cost. Instead, the determination of target normal cost 
must reflect benefits that accrue or are expected to accrue during the 
short plan year.\6\ The regulations also provide rules for the 
treatment of amortization installments in subsequent plan years to take 
into account the proration of these installments for short plan years 
and to clarify the treatment of these installments in the event of a 
change in valuation date.
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    \6\ See 29 CFR 2530.204-2(e) for rules relating to changes in 
accrual computation periods.
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    In light of the rules in the proposed regulations for determining 
the amount of a minimum required contribution for a short plan year 
(which would normally be followed by another plan year with its own 
minimum required contribution), questions have arisen about how to 
determine the minimum required contribution for a plan year if the plan 
terminates before the last day of the year. Under Revenue Ruling 79-237 
(1979-2 CB 190) (see 26 CFR 601.601(d)(2)(ii)(b)), the minimum funding 
requirements apply for the year that a plan terminates but not for 
later years. These regulations clarify that the rules for short plan 
years apply for the year of termination by specifying that if a plan 
terminates before the last day of a plan year, then, for purposes of 
section 430, the plan is treated as having a short plan year that ends 
on the termination date. As a result, the minimum required contribution 
for such a plan is determined based on that short plan year. If a plan 
terminates before the date that would otherwise have been the valuation 
date for a plan year, then the valuation date for the plan year must be 
changed so that it falls within the short plan year.
    The rules for terminated plans include a definition of termination 
date that is consistent with the 1982 proposed regulations under Sec.  
1.412(b)-4(d)(1) and Revenue Ruling 89-87 (1989-2 CB 2) (see 26 CFR 
601.601(d)(2)(ii)(b)). These final regulations provide that, in the 
case of a plan subject to Title IV of ERISA, the termination date is 
the plan's termination date established under section 4048(a) of ERISA.
    In the case of a plan not subject to Title IV of ERISA, the 
regulations provide that the termination date is the plan's termination 
date established by the plan administrator, provided that the 
termination date may be no earlier than the date on which all actions 
necessary to effect the plan termination (other than the distribution 
of plan assets) are taken. However, a plan is not treated as terminated 
on that date if the plan assets are not distributed as soon as 
administratively feasible after that date. Whether plan assets are 
distributed as soon as administratively feasible is determined based on 
all the relevant facts and circumstances. A distribution of plan assets 
that was delayed merely for the purpose of obtaining a higher value 
than current market value is generally not deemed to have been made as 
soon as administratively feasible. Additionally, if the plan assets are 
not distributed within one year following the plan's termination date 
established by the plan administrator, the distribution is presumed not 
to have been made as soon as administratively feasible. However, a plan 
is not treated as failing to meet the requirement to make distributions 
of plan assets as soon as administratively feasible after that date to 
the extent that a delay in distributing plan assets is attributable to 
either: (1) Circumstances beyond the control of the plan administrator; 
or (2) the period of time necessary to obtain a determination letter 
from the Commissioner on the plan's qualified status upon its 
termination, provided that the request for a determination letter is 
timely and the distributions of plan assets are made as soon as 
administratively feasible after the letter is obtained.

III. Section 1.430(h)(2)-1 Interest Rates Used To Determine Present 
Value

    The regulations update the 2009 regulations to reflect the 
modification under HATFA to the 5-year period for which the first 
segment rate applies. In accordance with section 430(h)(2)(C)(i) prior 
to its amendment by HATFA, Sec.  1.430(h)(2)-1(b)(2)(i) provided that, 
for a plan with a valuation date that is the first day of the plan 
year, the first segment rate was used to determine present value of 
benefits expected to be payable during the 5-year period beginning on 
the first day of the plan year. Section 1.430(h)(2)-1(b)(2)(ii), 
labeled ``Plans with valuation dates other than the first day of the 
plan year,'' was reserved. The preamble to the 2009 regulations notes 
that the IRS and the Treasury Department continue to believe that 
applying the first segment rate to benefits that are

[[Page 54378]]

expected to be payable during the 5-year period beginning on the 
valuation date is the best method of valuing assets and liabilities as 
of the valuation date. Because section 430(h)(2)(C)(i) was then 
inconsistent with that interpretation and it was anticipated that a 
technical correction might later adopt that approach, the 2009 
regulations reserved the issue of guidance on the interest rates to be 
used by plans with valuation dates other than the first day of the plan 
year.
    This anticipated technical correction was made in section 2003(d) 
of HATFA, and the regulations reflect this technical correction. Under 
the regulations, in general, the first segment rate is used to 
determine the present value of benefits expected to be payable during 
the 5-year period beginning on the valuation date for the plan year. 
However, with respect to a plan year beginning before January 1, 2014, 
for a plan with a valuation date other than the first day of the plan 
year, the 5-year period beginning on the first day of the plan year is 
permitted to be used in lieu of the 5-year period beginning on the 
valuation date. Thus, taxpayers must follow the statute as amended for 
this technical correction for plan years beginning on or after January 
1, 2014, and are permitted to apply this technical correction for 
earlier years as well.

IV. Section 1.430(j)-1 Payment of Minimum Required Contributions

A. Payment of Minimum Required Contribution
    The regulations under section 430(j) provide rules related to the 
payment of minimum required contributions, including rules for the 
payment of quarterly contributions, liquidity requirements, and 
determining the plan year to which a contribution applies. Under these 
rules, if the plan has unpaid minimum required contributions that have 
not yet been corrected at the time a contribution is made, then the 
contribution is treated as a contribution for the earliest plan year 
for which there is an unpaid minimum required contribution to the 
extent necessary to correct that unpaid minimum required contribution.
    Any amount of the contribution in excess of the amount needed to 
correct that unpaid minimum required contribution is treated as a 
contribution for the next earliest plan year for which there is an 
unpaid minimum required contribution that has not yet been corrected to 
the extent necessary to correct that unpaid minimum required 
contribution. This allocation to the earliest year with unpaid minimum 
required contributions is automatic and must be shown on the actuarial 
report (Schedule SB, ``Single-Employer Defined Benefit Plan Actuarial 
Information'' of Form 5500, ``Annual Return/Report of Employee Benefit 
Plan'') for the earliest plan year for which a timely contribution 
could be allocated.
    The regulations further provide that if the plan has no unpaid 
minimum required contributions for prior plan years at the time the 
contribution is made, or a portion of the contribution corrects all 
unpaid minimum required contributions, then the contribution (or the 
remainder of the contribution which is not used to correct an unpaid 
minimum required contribution) made during the current plan year but 
before the deadline for contributions for a prior plan year may be 
designated as a contribution for either that prior plan year or the 
current plan year. This designation is established by the completion 
(and filing, if required) of the actuarial report (Schedule SB, 
``Single-Employer Defined Benefit Plan Actuarial Information'' of Form 
5500, ``Annual Return/Report of Employee Benefit Plan'') for the plan 
year for which the contribution is designated, and this designation 
cannot be changed after the actuarial report is completed (and filed, 
if required) except as provided in guidance published in the Internal 
Revenue Bulletin. The regulations provide that any payment of the 
minimum required contribution under section 430 for a plan year that is 
made on a date other than the valuation date for that plan year is 
adjusted for interest for the period between the valuation date and the 
payment date, generally using the effective interest rate for the plan 
for that plan year determined pursuant to Sec.  1.430(h)(2)-1(f)(1). 
The direction of the adjustment depends on whether the contribution is 
paid before or after the valuation date for the plan year. If the 
contribution is paid after the valuation date for the plan year, the 
contribution is discounted to the valuation date. If the contribution 
is paid before the valuation date for the plan year (which could only 
occur in the case of a small plan described in section 430(g)(2)(B)), 
the contribution is increased for interest to the valuation date.
    Under the regulations, a payment of the minimum required 
contribution under section 430 for a plan year can be made no earlier 
than the first day of the plan year. The deadline for any payment of 
any minimum required contribution for a plan year is 8\1/2\ months 
after the close of the plan year. If any portion of a minimum required 
contribution is not paid by this deadline, an excise tax applies under 
section 4971.
B. Requirement for Quarterly Contributions
    The regulations provide rules for accelerated quarterly 
contributions for plans with funding shortfalls. These rules are 
similar to the rules provided under Notice 89-52 (1989-1 CB 692) (see 
26 CFR 601.601(d)(2)(ii)(b)), but have been updated to reflect 
statutory changes. These statutory changes include changes regarding 
which plans are subject to the quarterly contribution requirements as 
well as the interest rates applicable to missed quarterly 
contributions.
    Under the regulations, in any case in which a plan has a funding 
shortfall for the preceding plan year, the employer maintaining the 
plan must make required quarterly installments for the current plan 
year. The amount of each required quarterly installment is equal to 25 
percent of the required annual payment. For this purpose, the required 
annual payment is equal to the lesser of 90 percent of the minimum 
required contribution under section 430(a) for the plan year or 100 
percent of the minimum required contribution under section 430(a) 
(determined without regard to any funding waiver under section 412) for 
the preceding plan year. These minimum required contributions are 
determined under section 430 as of the valuation date for each year and 
are not adjusted for interest. The regulations provide that, for 
purposes of determining the required annual payment, the minimum 
required contribution for a plan year is determined without reflecting 
the use of the prefunding balance or funding standard carryover balance 
to offset the minimum required contribution for either the current year 
or the prior year and without regard to any installment acceleration 
amount under section 430(c)(7).
    Pursuant to section 430(j)(3)(C), the regulations provide that the 
due dates for the four required quarterly installments with respect to 
a full plan year are as follows: The first installment is due on the 
15th day of the 4th plan month, the second installment is due on the 
15th day of the 7th plan month, the third installment is due on the 
15th day of the 10th plan month, and the fourth installment is due on 
the 15th day following the end of the plan year. In the case of a short 
plan year, the regulations provide rules for determining the amount of 
the required quarterly installments and the due dates

[[Page 54379]]

for those installments.\7\ The regulations also provide rules for 
determining the amount of the required quarterly installments if the 
prior plan year was a short plan year and rules for determining the 
plan month in the case of a plan year that does not begin on the first 
day of a calendar month.
---------------------------------------------------------------------------

    \7\ As described above in section II of this preamble, a plan 
that terminates before the last day of the plan year is treated as 
having a short plan year that ends on the termination date. This 
rule also applies for purposes of the 8\1/2\ month deadline 
described in section III.A of this preamble.
---------------------------------------------------------------------------

    As was the case in Notice 89-52, the regulations provide that a 
plan sponsor generally can use a plan's funding balances to satisfy 
quarterly contribution requirements. However, this rule is subject to 
the limitation on the use of funding balances by underfunded plans 
pursuant to section 430(f)(3)(C). Consistent with the approach taken in 
Notice 89-52, a contribution for a prior plan year in excess of the 
required minimum contribution must actually have been made and the plan 
sponsor's election to add the excess to the prefunding balance must 
have taken effect before a plan can elect to use the corresponding 
portion of the prefunding balance to satisfy the quarterly contribution 
requirements. A plan sponsor's election to use the plan's funding 
balances under section 430(f) satisfies the requirement to pay an 
installment on the date of the election, to the extent of the amount 
elected, as adjusted with interest at the plan's effective interest 
rate under section 430(h)(2)(A) for the plan year from the election 
date through the due date of the installment. The amount of a plan's 
funding balances available for such an election is increased with 
interest from the beginning of the plan year to the date of the 
election. The net effect of these two adjustments is an increase in the 
plan's funding balances from the beginning of the plan year to the due 
date of the installment.
    A plan sponsor that elects to use the plan's prefunding balance or 
funding standard carryover balance toward satisfaction of the plan's 
quarterly contribution requirement before the plan's effective interest 
rate for the plan year has been determined should assume, in order to 
ensure that the quarterly contribution requirements are satisfied, that 
the effective interest rate is equal to the lowest of the three segment 
rates (generally the first segment rate) to adjust the elected amount. 
Because the satisfaction of these installments is determined on a 
cumulative basis, if the use of funding balances is more than enough to 
satisfy an installment requirement, then the excess is carried forward 
to use to satisfy later installments.
    The preamble to the proposed regulations noted that the proposed 
rules under section 430(f) would have provided that the amount of the 
funding balance used to satisfy the quarterly contribution requirements 
could not later be added back to the prefunding balance. The October 
2009 final regulations under section 430(f) provide a different rule. 
Under those final regulations, to the extent that a contribution is 
included in the present value of excess contributions solely because 
the minimum required contribution has been offset by an election to use 
the funding standard carryover balance or prefunding balance, the 
contribution is adjusted for investment experience to reflect the 
actual rate of return on plan assets under the rules of Sec.  1.430(f)-
1(b)(3). Thus, to the extent that a quarterly installment is satisfied 
through the use of a funding balance but the plan sponsor replenishes 
its funding balances by subsequently making a contribution for the plan 
year that is added to the prefunding balance, the amount that may be 
added to the prefunding balance on account of that subsequent 
contribution is based on the actual rate of return for the plan year.
    The proposed regulations would have credited interest on an early 
election to use a funding balance for purposes of satisfying the 
quarterly contribution requirement, but would not have credited 
interest on an early contribution for this purpose. Commenters asked 
for early contributions to be credited with interest toward quarterly 
contribution requirements on the same basis as an early election to use 
a funding balance. The final regulations make this change.
    For required installments due after the valuation date, the 
proposed regulations would have provided that, if the employer fails to 
pay the full amount of a required installment when due, then the 
contribution that constitutes a late payment of the required 
installment for the period of time that begins on the due date for the 
required installment and that ends on the date of payment is adjusted 
using the effective interest rate for the plan for that plan year 
determined pursuant to Sec.  1.430(h)(2)-1(f)(1) plus 5 percentage 
points. This increased interest rate would not have applied to 
installments that are due before the valuation date for the plan year 
because the application of an increased interest rate for such a 
contribution would not have had the intended effect of increasing the 
minimum required contribution and section 430(j)(3) did not provide for 
special rules for valuation dates other than the beginning of the plan 
year. The proposed regulations included a reserved paragraph for the 
treatment of quarterly installments that are due before the valuation 
date. However, the preamble to the proposed regulations described a 
rule that the IRS and the Treasury Department were considering for 
inclusion in the final regulations if legislation were enacted 
authorizing special rules for the application of the quarterly 
installment requirements for plans with valuation dates other than the 
first day of the plan year.
    Section 101(b)(2)(G)(iii) of WRERA added section 430(j)(3)(E)(iii) 
which provides authority for special quarterly contribution rules for 
plans with valuation dates other than the first day of the plan year. 
Pursuant to this authority, the final regulations provide for any late 
quarterly installment (and any late election to use the funding 
balances to satisfy a quarterly installment) to be discounted for 
interest from the date of the late contribution or election to the due 
date for the installment using an interest rate equal to the plan's 
effective interest rate under section 430(h)(2)(A) for the plan year 
plus 5 percentage points. The discounted amount is then treated as if 
it were contributed or elected on the due date and further adjusted for 
interest from the due date to the valuation date. This approach is 
mathematically equivalent to the approach suggested in the preamble of 
the proposed regulations if compound interest is used.
C. Standing Election To Satisfy Installments Through Use of Funding 
Balances
    The proposed regulations would have permitted plans to satisfy the 
requirement to pay quarterly installments with an election to use 
funding balances. The preamble to those regulations asked for comments 
on the utility of standing elections with respect to funding balances. 
Commenters uniformly favored permitting this use of standing elections.
    These final regulations include rules for providing a standing 
election to satisfy quarterly installments. Under these rules, a plan 
sponsor may provide a standing election in writing to the plan's 
enrolled actuary to use the funding standard carryover balance and the 
prefunding balance to satisfy any otherwise unpaid portion of a 
required installment under section 430(j)(3). The otherwise unpaid 
portion of a required installment is the amount necessary to satisfy 
the required installment rules

[[Page 54380]]

under section 430(j) based on quarterly installment amounts equal to 25 
percent of the minimum required contribution under section 430 for the 
preceding plan year. Under the regulations, if the amount of the 
prefunding and funding standard carryover balances available is less 
than the amount needed to satisfy any otherwise unpaid portion of a 
required installment, then the entire amount available will be used 
under the standing election. Any election made pursuant to a standing 
election is deemed to occur on the later of the last date for making 
the required installment under section 430(j)(3) and the date the 
standing election is provided to the enrolled actuary.
    The regulations provide that, generally, any standing election to 
use the funding balances to satisfy quarterly installments remains in 
effect for the plan with respect to the enrolled actuary named in the 
election, unless the standing election is revoked or the plan's 
enrolled actuary is changed. However, a plan sponsor may suspend 
operation of a standing election for the remainder of a plan year by 
providing written notice to the enrolled actuary. In addition, if the 
current year's minimum required contribution has been determined by the 
plan's enrolled actuary, the plan sponsor may replace the standing 
election for the remainder of the plan year with a formula election to 
use (to the extent available) the funding balances as necessary so that 
the remaining required installments satisfy the required installment 
rules under section 430(j) based on quarterly installment amounts 
taking into account the determination of the current year's minimum 
required contribution.
D. Liquidity Shortfalls
    The regulations provide rules for the liquidity requirements that 
generally apply to plans for which quarterly contributions are 
required. Under the regulations, if a plan sponsor of a plan (other 
than a small plan described in section 430(g)(2)(B)) is required to pay 
quarterly installments pursuant to section 430(j)(3), then the plan 
sponsor is treated as failing to pay the full amount of the required 
installment for a quarter to the extent that the value of the liquid 
assets contributed after the end of that quarter and on or before the 
due date for the installment is less than the liquidity shortfall (as 
defined in section 430(j)(4)(E)) for that quarter. Thus, in order to 
satisfy the quarterly contribution requirement for a quarter, liquid 
assets in the amount of the liquidity shortfall must be contributed 
after the end of that quarter and on or before the due date for the 
installment. However, the regulations provide that if the amount of a 
required installment for a quarter is increased by reason of this rule, 
this increase generally is limited to the amount which, when added to 
the current required installment (determined without regard to the 
increase) and prior required installments for the plan year, is 
necessary to increase the funding target attainment percentage for the 
plan year to 100 percent (taking into account the expected increase in 
the funding target due to benefits accruing or earned during the plan 
year). The use of funding balances or the contribution of illiquid 
assets cannot remedy a liquidity shortfall.\8\
---------------------------------------------------------------------------

    \8\ In this context, see Department of Labor Interpretive 
Bulletin 94-3 (29 CFR 2509.94-3), which sets forth the Department's 
view that, in the absence of an applicable exemption, a contribution 
by an employer to a defined benefit pension plan in a form other 
than cash constitutes a prohibited transaction under section 406 of 
ERISA and section 4975 of the Code.
---------------------------------------------------------------------------

    The regulations provide that the term liquidity shortfall generally 
means, with respect to any required installment, an amount equal to the 
excess (as of the last day of the quarter for which that installment is 
due) of the base amount with respect to the quarter, over the value (as 
of the last day of the quarter) of the plan's liquid assets. For this 
purpose, the regulations provide that the term base amount generally 
means, with respect to any quarter, an amount equal to three times the 
sum of the adjusted disbursements from the plan for the 12 months 
ending on the last day of such quarter. However, if the generally 
applicable base amount for a quarter exceeds an amount equal to two 
times the sum of the adjusted disbursements from the plan for the 36 
months ending on the last day of the quarter and the enrolled actuary 
for the plan certifies to the satisfaction of the Commissioner that 
such excess is the result of nonrecurring circumstances, the base 
amount with respect to that quarter is determined without regard to 
amounts related to those nonrecurring circumstances.
    In response to comments, the regulations provide special rules for 
applying the liquidity requirements to a multiple employer plan to 
which section 413(c)(4)(A) applies.\9\ Under these rules, the liquidity 
requirement is satisfied for the plan if it would be satisfied if the 
plan were a single-employer plan that is not a multiple employer plan. 
However, if the plan does not satisfy the liquidity requirement on this 
basis, then the liquidity requirement must be applied separately for 
each employer under the plan, as if each employer maintained a separate 
plan. In this case, the value of plan assets as of the end of each 
quarter under a multiple employer plan must be allocated among the 
employers sponsoring the plan.
---------------------------------------------------------------------------

    \9\ The liquidity requirement of section 430(j)(4) does not 
apply to plans with 100 or fewer participants on each day during the 
preceding plan year. For this purpose, the determination of the 
number of participants is made separately for each employer under a 
multiple employer plan to which section 413(c)(4)(A) applies.
---------------------------------------------------------------------------

    The rules under the regulations relating to the liquidity 
requirements are similar to the rules provided under Revenue Ruling 95-
31, but have been updated to reflect statutory changes. For example, 
the definition of liquid assets under the proposed regulations is the 
same as the definition of liquid assets under Revenue Ruling 95-31. 
Unlike Revenue Ruling 95-31, the regulations measure satisfaction of a 
liquidity shortfall by reference to contributions made after the end of 
the quarter and by the due date for the installment (while including 
contributions made during the plan quarter in plan assets). Although 
this may appear to be a change from the rules of Revenue Ruling 95-31, 
the two formulations are mathematically identical.
    Under section 430(j)(4)(C), any unpaid liquidity amount is treated 
as unpaid until the close of the quarter in which the due date for that 
installment occurs. Under the proposed regulations, section 
430(j)(4)(C) would have applied only for purposes of applying the 
additional interest for late quarterly installments, and the unpaid 
liquidity amount due during a quarter would have been treated as unpaid 
until a contribution of liquid assets satisfied that requirement, even 
if the period of underpayment extended beyond the end of the quarter. 
Some commenters objected to the approach in the proposed regulations 
and suggested that section 430(j)(4)(C) should be interpreted so that 
the unpaid liquidity amount is treated as paid at the end of the 
quarter for all purposes.
    After consideration of the comments received, the IRS and the 
Treasury Department have modified the final regulations to provide 
that, pursuant to section 430(j)(4)(C), any portion of a required 
installment for a quarter that is treated as unpaid by reason of the 
liquidity requirements is treated as unpaid until the close of the 
quarter in which the due date for the installment occurs (without 
regard to any contribution of liquid assets that is made after the due 
date of the required installment). After the close of the quarter in 
which the due date for such an installment occurs, any portion of the 
required installment that was treated as

[[Page 54381]]

unpaid solely by reason of the liquidity requirements is no longer 
treated as unpaid (but any portion of the required installment that 
would be treated as unpaid without regard to the liquidity requirements 
must be satisfied in accordance with the generally applicable 
continuing requirement to pay quarterly installments). The requirement 
to satisfy a liquidity shortfall applies separately with respect to 
each quarter. In many cases, the failure to contribute sufficient 
liquid assets to satisfy a liquidity shortfall for a quarter will 
result in a liquidity shortfall for future quarters until sufficient 
liquid assets have been contributed to satisfy the liquidity shortfall.
    Section 430(j)(3)(A) provides that if the employer fails to pay the 
full amount of a required installment, the amount of interest charged 
on the underpayment for the period of underpayment is determined by 
increasing the rate of interest otherwise used to adjust the 
contribution to the valuation date under section 430(j)(2) by 5 
percentage points. In general, the period of underpayment is the period 
between the date the installment is due and the date it is paid. 
However, under section 430(j)(4)(C), any portion of an installment that 
is treated as not paid by reason of the liquidity requirement continues 
to be treated as unpaid until the close of the quarter in which the due 
date for that installment occurs.
    Accordingly, the regulations provide that, to the extent that an 
unpaid liquidity amount is satisfied with a contribution of liquid 
assets during the quarter in which it is due, the increased rate of 
interest applies for purposes of discounting a contribution for the 
period between the last day of the quarter and the due date of the 
contribution. By contrast, any portion of the required installment that 
would be due without regard to the liquidity requirement will remain 
due after the end of the quarter, and the regulations provide for the 
use of the increased rate of interest for purposes of discounting a 
contribution that is applied to that portion from the date of actual 
payment to the due date.
    To the extent that a portion of the unpaid liquidity amount is no 
longer treated as unpaid after the close of the quarter, the 
regulations provide a special rule to reflect the requirement to use a 
higher rate of interest on late required installments by converting 
that requirement into an interest charge that increases the minimum 
required contribution. This ensures that the amount of the 
contributions necessary to satisfy the minimum funding requirements 
reflects the effect of the additional interest required under section 
430(j)(2) even if a portion of the unpaid liquidity amount is no longer 
considered unpaid after the close of the quarter. Otherwise, the 
sponsor of a plan with an unpaid liquidity amount could avoid an 
additional interest adjustment by merely deferring making a 
contribution until after the close of the quarter in which the 
liquidity amount was due, and would therefore be treated more favorably 
than a plan sponsor who made a contribution toward the unpaid liquidity 
amount within that quarter.
    Under this special rule, the increase in the minimum required 
contribution attributable to any unpaid liquidity amount that is no 
longer treated as unpaid after the close of the quarter is equal to the 
difference between (1) the amount that is no longer treated as unpaid, 
discounted for interest from the end of the quarter to the valuation 
date using the plan's effective interest rate, and (2) the amount that 
is no longer treated as unpaid, discounted for interest from the end of 
the quarter to the due date of the required installment using the 
plan's effective interest rate plus 5 percent, and further discounted 
for interest from the due date of the installment to the valuation date 
using the plan's effective interest rate. The regulations include an 
example illustrating the calculation of the increase in the minimum 
required contribution due to an unpaid liquidity amount that is no 
longer treated as unpaid after the close of the quarter in which it is 
due.
    Under the regulations, this increase in the minimum required 
contribution to reflect an interest adjustment for unpaid liquidity 
amounts is disregarded when calculating the required annual payment 
under section 430(j)(3)(D)(ii) (which is used to determine the amount 
of required quarterly installments).
    In addition to the adjustment to reflect the higher interest rate, 
the regulations identify two further consequences of failing to satisfy 
the liquidity requirement. Section 206(e) of ERISA and section 
401(a)(32) of the Code provide rules regarding the suspension of 
accelerated distributions for a plan with an unpaid liquidity 
shortfall. Also, section 4971(f) provides an excise tax with respect to 
the failure to pay a liquidity shortfall.
    The proposed regulations included an ordering rule providing that 
if an employer makes a contribution of liquid assets that is allocated 
toward the required installment for a quarter, but the contribution is 
less than the total amount needed to satisfy the quarterly installment 
for the quarter, then the contribution would be first attributed toward 
satisfying the quarterly installment without regard to the liquidity 
requirement. So that all contributions of liquid assets apply toward 
satisfaction of the liquidity requirement, the final regulations 
provide that any contribution of liquid assets for a quarter applies 
toward satisfying the liquidity requirement (as well as the otherwise 
applicable quarterly installment).

V. Section 54.4971(c)-1 Taxes on Failure To Meet Minimum Funding 
Standards

    These regulations set forth the definitions that were modified by 
PPA '06 that apply for purposes of applying the rules of section 4971. 
These definitions are substantially the same as the definitions in the 
proposed regulations, but they have been modified to reflect certain 
changes made by the CSEC Act.
    The regulations define the term accumulated funding deficiency to 
have the meaning given to that term by section 431, in the case of a 
multiemployer plan, or by section 433, in the case of a CSEC plan. A 
plan's accumulated funding deficiency for a plan year takes into 
account all charges and credits to the funding standard account under 
section 412 for plan years before the first plan year for which section 
431 or section 433 applies to the plan.
    The regulations define the term unpaid minimum required 
contribution, with respect to any plan year, as the portion of the 
minimum required contribution under section 430 for the plan year for 
which contributions have not been made on or before the due date for 
the plan year under section 430(j)(1) (after taking into account 
interest adjustments and any offsets from use of the funding balances). 
The regulations provide that a plan's accumulated funding deficiency 
under section 412 for the pre-effective plan year is treated as an 
unpaid minimum required contribution for that plan year until 
correction is made. Unlike the determination of accumulated funding 
deficiency which applied under section 412 prior to PPA '06, the total 
amount of unpaid minimum required contributions that is subject to the 
excise tax under section 4971 is not adjusted with interest. However, 
as described in the following paragraph, correction of an unpaid 
minimum required contribution does require a contribution that includes 
an adjustment for interest.
    The regulations define the term correct as it applies to an 
accumulated

[[Page 54382]]

funding deficiency or an unpaid minimum required contribution. With 
respect to an accumulated funding deficiency under a multiemployer plan 
or a CSEC plan, the regulations adopt the same definition of correct 
that was proposed to apply to a multiemployer plan. Under the 
regulations, the correction of an unpaid minimum required contribution 
under a single-employer plan for a plan year requires the contribution, 
to or under the plan, of the amount that, when discounted to the 
valuation date for the plan year for which the unpaid minimum required 
contribution is due at the appropriate rate of interest, equals or 
exceeds the unpaid minimum required contribution. For this purpose, the 
appropriate rate of interest is the plan's effective interest rate for 
the plan year for which the unpaid minimum required contribution is due 
except to the extent that the payments are subject to a higher discount 
rate provided under section 430(j)(3) or (j)(4). With respect to an 
unpaid minimum required contribution, the regulations provide an 
ordering rule under which a contribution is attributable first to the 
earliest plan year of any unpaid minimum required contribution for 
which correction has not yet been made. With respect to an accumulated 
funding deficiency under section 412 for the pre-effective plan year 
that is treated as an unpaid minimum required contribution, the 
regulations provide that correction requires the contribution, to or 
under the plan, of the amount of that accumulated funding deficiency 
adjusted with interest from the end of the pre-effective plan year to 
the date of the contribution at the plan's valuation interest rate for 
the pre-effective plan year.
    The regulations define the term single-employer plan to mean a plan 
to which the minimum funding requirements of section 412 apply that is 
not a multiemployer plan as described in section 414(f). Thus, the 
regulations clarify that the term single-employer plan includes a 
multiple employer plan to which section 413(c) applies.
    Section 4971, as amended by PPA '06, imposes an excise tax on 
unpaid minimum required contributions for all years until corrected. In 
contrast to the pre-PPA '06 rule (under which an accumulated funding 
deficiency could be corrected by improvement in the plan's funded 
status sufficient to trigger a full funding limitation credit), an 
unpaid minimum required contribution may only be corrected by making 
the contribution as described under the regulations. Like the proposed 
regulations, the final regulations apply this rule to unpaid minimum 
required contributions for all years, without special treatment for 
pre-PPA '06 funding deficiencies. The final regulations do not reflect 
comments asking for preservation of the full funding rule with respect 
to pre-PPA '06 funding deficiencies, because the statute provides the 
same rules with respect to unpaid contributions for all years.

VI. Authority To Issue Published Guidance With Respect to Certain 
Generally Applicable Regulatory Deadlines

    The regulations contain modifications to Sec.  1.430(f)-1(f)(2) and 
(f)(3) and adds Sec.  1.436-1(h)(4)(iii)(C)(9) to provide the IRS with 
authority to issue published guidance to extend certain deadlines. 
These changes accommodate plan sponsor actions in response to 
retroactive changes in the minimum funding requirements and are the 
modifications that the IRS indicated were expected to be made in Q&A-G-
7 of Notice 2012-61 (which provided guidance regarding MAP-21) and in 
sections IV and V of Notice 2014-53 (which provided guidance regarding 
HATFA).

Effective/Applicability Dates of Regulations

    Section 430 generally applies to plan years beginning on or after 
January 1, 2008. Sections 1.430(a)-1 and 1.430(j)-1 and the changes 
made by this Treasury decision to Sec.  1.430(f)-1 apply generally to 
plan years beginning on or after January 1, 2016. Plans are permitted 
to apply these provisions for plan years beginning before 2016 and 
after 2007. In addition, for plan years beginning before 2016 and after 
2007, plans are also permitted to rely on either these final 
regulations or the proposed regulations published April 15, 2008 that 
are finalized by this Treasury decision. See also Notice 2008-21 for 
additional rules with respect to plan years beginning during 2008.
    Pursuant to section 114(g) of PPA '06, as added by WRERA, the 
statutory changes to section 4971 apply to taxable years beginning 
after 2007, but only with respect to plan years beginning on or after 
January 1, 2008, which end with or within any such taxable year. Thus, 
the statutory changes to section 4971 only apply to taxable years that 
include the last day of a plan year to which section 430 applies to 
determine the minimum required contribution for the plan.
    The amendments to Sec.  54.4971(c)-1 generally apply at the same 
time the statutory changes to section 4971 under PPA '06 become 
effective, but do not apply to any taxable years ending before the date 
the proposed regulations were published (April 15, 2008). Thus, for 
example, the amendments to Sec.  54.4971(c)-1 do not apply to a short 
taxable year beginning January 1, 2008 and ending February 29, 2008.

Special Analyses

    Certain IRS regulations, including this one, are exempt from the 
requirements of Executive Order 12866, as supplemented and reaffirmed 
by Executive Order 13563. Therefore, a regulatory impact assessment is 
not required. It has also been determined that section 553(b) of the 
Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to 
these regulations. In addition, it is hereby certified that any 
collection of information contained in this regulation will not have a 
significant economic impact on a substantial number of small entities. 
The certification is based on the fact that Sec.  301.6059-1 currently 
requires the filing with the IRS of the periodic report of the actuary 
for a defined benefit plan under section 6059 in accordance with 
applicable forms, schedules, and accompanying instructions. These 
regulations make minor changes to this required collection of 
information, and are not expected to impose an additional burden on 
small entities. Furthermore, two provisions of these regulations lessen 
the collection of information imposed on small entitles. Section 
1.430(f)-1(f)(1)(iii) permits certain standing elections to use funding 
balances to satisfy required quarterly installments, thus decreasing 
the number of elections made by a plan sponsor who uses this feature. 
Section 1.430(a)-1(b)(5)(ii) provides that, if a plan's termination 
date is before the date that would otherwise have been the valuation 
date for a plan year, then the valuation date for the plan year must be 
changed so that it falls within the short plan year (so that automatic 
approval is granted for this change). This change avoids the need for 
an employer to request a change in valuation date with respect to 
certain small plans, thus lessening the burden for required collections 
of information for small entities. Based on these facts, a Regulatory 
Flexibility Analysis under the Regulatory Flexibility Act (5 U.S.C. 
chapter 6) is not required.
    Pursuant to section 7805(f) of the Code, the notice of proposed 
rulemaking preceding these regulations was submitted to the Chief 
Counsel for Advocacy of the Small Business Administration for comment 
on its impact on small business.

[[Page 54383]]

Statement of Availability for IRS Documents

    For copies of recently issued Revenue Procedures, Revenue Rulings, 
notices, and other guidance published in the Internal Revenue Bulletin, 
please visit the IRS Web site at http://irs.gov.

Drafting Information

    The principal authors of these regulations are Michael P. Brewer 
and Linda S. F. Marshall, Office of Division Counsel/Associate Chief 
Counsel (Tax Exempt and Government Entities). However, other personnel 
from the IRS and the Treasury Department participated in the 
development of these regulations.

List of Subjects

26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

26 CFR Part 54

    Excise taxes, Health care, Health insurance, Pensions, Reporting 
and recordkeeping requirements.

Adoption of Amendments to the Regulations

    Accordingly, 26 CFR parts 1 and 54 are amended as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 is amended by revising 
the introductory text and adding an entry in numerical order to read in 
part as follows:

    Authority:  26 U.S.C. 7805, unless otherwise noted.
* * * * *

    Sec.  1.430(j) 1 also issued under 26 U.S.C. 430(j)(4)(F).


0
Par. 2. Section 1.430(a)-1 is added to read as follows:


Sec.  1.430(a)-1  Determination of minimum required contribution.

    (a) In general--(1) Overview. This section sets forth rules for 
determining a plan's minimum required contribution for a plan year 
under section 430(a). Section 430 and this section apply to single-
employer defined benefit plans (including multiple employer plans as 
defined in section 413(c)) that are subject to section 412 but do not 
apply to multiemployer plans (as defined in section 414(f)). Paragraph 
(b) of this section defines a plan's minimum required contribution for 
a plan year. Paragraph (c) of this section provides rules for 
determining shortfall amortization installments. Paragraph (d) of this 
section provides rules for determining waiver amortization 
installments. Paragraph (e) of this section provides for early deemed 
amortization of shortfall and waiver amortization bases for fully 
funded plans. Paragraph (f) of this section provides definitions that 
apply for purposes of this section. Paragraph (g) of this section 
provides examples that illustrate the application of this section. 
Paragraph (h) of this section provides effective/applicability dates 
and transition rules.
    (2) Special rules for multiple employer plans--(i) In general. In 
the case of a multiple employer plan to which section 413(c)(4)(A) 
applies, the rules of section 430 and this section are applied 
separately for each employer under the plan, as if each employer 
maintained a separate plan. Thus, the minimum required contribution is 
computed separately for each employer under such a multiple employer 
plan. In the case of a multiple employer plan to which section 
413(c)(4)(A) does not apply (that is, a plan described in section 
413(c)(4)(B) that has not made the election for section 413(c)(4)(A) to 
apply), the rules of section 430 and this section are applied as if all 
participants in the plan were employed by a single employer.
    (ii) CSEC plans. A CSEC plan (that is, a plan that fits within the 
definition of a CSEC plan in section 414(y) for plan years beginning on 
or after January 1, 2014 and for which the election under section 
414(y)(3)(A) has not been made) is not subject to the rules of section 
430. See section 433 for the minimum funding rules that apply to CSEC 
plans.
    (b) Definition of minimum required contribution--(1) In general. In 
the case of a defined benefit plan that is subject to section 430, 
except as offset under section 430(f) and Sec.  1.430(f) 1, the minimum 
required contribution for a plan year is determined as the applicable 
amount determined under paragraph (b)(2) of this section or paragraph 
(b)(3) of this section, reduced by the amount of any funding waiver 
under section 412(c) that is granted for the plan year. See paragraph 
(b)(4) of this section for special rules for a plan maintained by a 
commercial passenger airline (or other eligible employer) for which an 
election under section 402 of the Pension Protection Act of 2006, 
Public Law 109-280 (120 Stat. 780), as amended (PPA '06), has been 
made, and see section 430(j) and Sec.  1.430(j) 1(b) for rules 
regarding the required interest adjustment for a contribution that is 
paid on a date other than the valuation date for the plan year. See 
also Sec.  1.430(j)-1(d)(3)(iv)(B) for rules regarding an increase to 
the minimum required contribution in certain circumstances for a plan 
with an unpaid liquidity amount.
    (2) Plan assets less than funding target--(i) General rule. For any 
plan year in which the value of plan assets (as reduced to reflect the 
subtraction of certain funding balances as provided under Sec.  
1.430(f)-1(c), but not below zero) is less than the funding target for 
the plan year, the minimum required contribution for that plan year is 
equal to the sum of--
    (A) The target normal cost for the plan year;
    (B) The total (not less than zero) of the shortfall amortization 
installments as described in paragraph (c) of this section determined 
with respect to any shortfall amortization base for the plan year and 
for each preceding plan year for which the shortfall amortization base 
has not been fully taken into account (generally, the 6 preceding plan 
years); and
    (C) The total of the waiver amortization installments as described 
in paragraph (d) of this section determined with respect to any waiver 
amortization base for all preceding plan years for which the waiver 
amortization base has not been fully taken into account (generally, the 
5 preceding plan years).
    (ii) Special rule for short plan years--(A) Proration of 
amortization installments. In determining the minimum required 
contribution in the case of a plan year that is shorter than 12 months 
(and is not a 52-week plan year of a plan that uses a 52-53 week plan 
year), the shortfall amortization installments and waiver amortization 
installments that are taken into account under paragraphs (b)(2)(i)(B) 
and (C) of this section are determined by multiplying the amount of 
those installments that would be taken into account for a 12-month plan 
year by a fraction, the numerator of which is the duration of the short 
plan year and the denominator of which is 1 year.
    (B) Effect on subsequent years. In plan years after the short plan 
year, installments with respect to a shortfall amortization base or 
waiver amortization base continue to be taken into account under 
paragraphs (b)(2)(i)(B) and (C) of this section until the total amount 
of those installments, as originally determined when the base was 
established, has been taken into account. Thus, in the case of a plan 
that has a short plan year, an additional partial installment will be 
taken into account under paragraphs (b)(2)(i)(B) and (C) of this 
section for the plan year that ends after the end of the original 
amortization period (generally 7 years

[[Page 54384]]

for shortfall amortization bases and 5 years for waiver amortization 
bases) in an amount determined so that the total of the amortization 
installments (including the prorated installment payable for the short 
plan year and the additional partial installment) is equal to the total 
of the amortization installments as originally determined.
    (3) Plan assets equal or exceed funding target. For any plan year 
in which the value of plan assets (as reduced to reflect the 
subtraction of certain funding balances as provided under Sec.  
1.430(f)-1(c), but not below zero) equals or exceeds the funding target 
for the plan year, the minimum required contribution for that plan year 
is equal to the target normal cost for the plan year reduced (but not 
below zero) by that excess.
    (4) Special rules for commercial passenger airlines--(i) In 
general. This paragraph (b)(4) provides special rules for a plan 
maintained by a commercial passenger airline (or an employer whose 
principal business is providing catering services to a commercial 
passenger airline) for which an election under section 402(a)(1) of PPA 
'06 has been made. See paragraph (c)(4) of this section for special 
rules for a plan maintained by a commercial passenger airline (or an 
employer whose principal business is providing catering services to a 
commercial passenger airline) for which an election under section 
402(a)(2) of PPA '06 has been made.
    (ii) Determinations during 17-year amortization period. If an 
election described in section 402(a)(1) of PPA '06 applies for the plan 
year with respect to an eligible plan described in section 402(c)(1) of 
PPA '06, then the plan's minimum required contribution for purposes of 
section 430 of the Internal Revenue Code (Code) for the plan year is 
equal to the amount necessary to amortize (at an interest rate of 8.85 
percent) the unfunded liability of the plan in equal installments over 
the remaining amortization period. For this purpose, the unfunded 
liability means the excess of the accrued liability under the plan 
determined using the unit credit funding method and an interest rate of 
8.85 percent over the value of assets (as determined under section 
430(g)(3) and Sec.  1.430(g)-1(c)), and the remaining amortization 
period is the 17-plan-year period beginning with the first plan year 
for which the election was made, reduced by 1 year for each plan year 
after the first plan year for which the election was made. In addition, 
the section 430(f)(3) election to apply funding balances against the 
minimum required contribution does not apply to a plan to which the 
election described in section 402(a)(1) of PPA '06 applies for the plan 
year.
    (iii) Determinations following the election period. If an election 
described in section 402(a)(1) of PPA '06 applied to the plan for any 
preceding plan year but does not apply for the current plan year, then 
the plan's minimum required contribution for purposes of section 430 of 
the Code for the plan year is determined without regard to that 
election. For the first plan year for which that election no longer 
applies to the plan, any prefunding balance or funding standard 
carryover balance is reduced to zero.
    (5) Terminated plans--(i) Short plan year. If a plan's termination 
date occurs during a plan year but before the last day of a plan year, 
then, for purposes of section 430, the plan is treated as having a 
short plan year that ends on the termination date.
    (ii) Valuation date. If a plan's termination date is before the 
date that would otherwise have been the valuation date for a plan year, 
then the valuation date for the plan year must be changed so that it 
falls within the short plan year pursuant to Sec.  1.430(g)-1(b)(2)(i). 
See Sec.  1.430(g)-1(b)(2)(iv) for a rule providing automatic approval 
of changes in the valuation date that are required by section 430.
    (c) Shortfall amortization installments--(1) In general. Except as 
otherwise provided in paragraphs (c)(3) and (4) of this section, the 
shortfall amortization installments with respect to a shortfall 
amortization base established for a plan year are the annual amounts 
necessary to amortize that shortfall amortization base in level annual 
installments over the 7-year period beginning with that plan year. See 
Sec.  1.430(h)(2)-1(e) and (f) for rules regarding interest rates used 
for determining shortfall amortization installments and the date within 
each plan year on which the installments are assumed to be paid. The 
shortfall amortization installments are determined using the interest 
rates that apply for the plan year for which the shortfall amortization 
base is established and are not redetermined in subsequent plan years 
to reflect any changes in the valuation date or changes in interest 
rates under section 430(h)(2) for those subsequent plan years.
    (2) Shortfall amortization base--(i) In general. Unless the value 
of plan assets (as reduced to reflect the subtraction of certain 
funding balances as provided under Sec.  1.430(f)-1(c)(2), but not 
below zero) is equal to or greater than the funding target for the plan 
year, a shortfall amortization base is established for the plan year 
equal to--
    (A) The funding shortfall for the plan year; minus
    (B) The amount attributable to future installments determined under 
paragraph (c)(2)(ii) of this section.
    (ii) Amount attributable to future installments. The amount 
attributable to future installments is equal to the sum of the present 
values (determined in accordance with Sec.  1.430(h)(2)-1(e) and (f) 
using the interest rates that apply for the current plan year) of--
    (A) The shortfall amortization installments that have been 
determined for the plan year and any succeeding plan year with respect 
to the shortfall amortization bases for any plan year preceding the 
plan year; and
    (B) The waiver amortization installments that have been determined 
for the plan year and any succeeding plan year with respect to the 
waiver amortization bases for any plan year preceding the plan year.
    (iii) Timing assumption for installments after change in valuation 
date. For purposes of determining the present value in paragraph 
(c)(2)(ii) of this section, the shortfall amortization installments and 
waiver amortization installments are assumed to be paid on the 
valuation date for the current plan year and anniversaries thereof even 
if the valuation date for a subsequent plan year is not the same as the 
valuation date for the plan year for which a shortfall amortization 
base or waiver amortization base was established. For example, assume 
that a plan has a July 1 to June 30 plan year and a valuation date that 
is the first day of the plan year, and that the plan year for the plan 
is changed to the calendar year, so that the plan has a short plan year 
beginning July 1, 2017 and ending December 31, 2017 and a calendar plan 
year thereafter. In this case--
    (A) For the July 1, 2017 actuarial valuation, the shortfall 
amortization payments with respect to shortfall amortization bases 
established for all prior plan years are assumed to be paid on July 1, 
2017 and anniversaries thereof; and
    (B) For the January 1, 2018 actuarial valuation, the shortfall 
amortization payments with respect to shortfall amortization bases 
established for all prior plan years are assumed to be paid on January 
1, 2018 and anniversaries thereof.
    (iv) Transition rule. See paragraph (h)(4) of this section for a 
transition rule under which only a portion of the funding target is 
taken into account in determining whether a shortfall amortization base 
is established under this paragraph (c)(2).

[[Page 54385]]

    (3) Election of funding relief for certain plans--(i) Funding 
relief under the Preservation of Access to Care for Medicare 
Beneficiaries and Pension Relief Act of 2010. See section 430(c)(2)(D) 
and section 430(c)(7) for special rules that apply to determine the 
amount of shortfall amortization installments with respect to shortfall 
amortization bases established for plan years ending on or after 
October 10, 2009 and beginning before January 1, 2012, for which the 
relief under section 430(c)(2)(D) is elected.
    (ii) Funding relief related to eligible charity plans. See section 
104(d)(3)(B) through (F) of PPA '06, which reflects amendments made by 
section 103(b)(2) of the Cooperative and Small Employer Charity Pension 
Flexibility Act of 2014, Public Law 113-97 (128 Stat. 1137), for 
special rules that apply to determine the amount of shortfall 
amortization installments with respect to plan years beginning on or 
after January 1, 2014, in the case of an eligible charity plan for 
which the relief under section 104(d)(3)(A) of PPA '06 is elected.
    (iii) Election by commercial passenger airline under section 
402(a)(2) of PPA '06. If an election described in section 402(a)(2) of 
PPA '06 has been made for an eligible plan described in section 
402(c)(1) of PPA '06, then the minimum required contribution for 
purposes of section 430 is determined under generally applicable rules, 
except that the shortfall amortization base for the first plan year for 
which section 430 applies to the plan is amortized over 10 years 
(rather than over 7 years as provided in paragraph (c)(1) of this 
section) in accordance with Sec.  1.430(h)(2)-1(e) and (f) using the 
interest rates that apply for purposes of determining the target normal 
cost for the first plan year for which section 430 applies to the plan. 
In such a case, the shortfall amortization installments with respect to 
the shortfall amortization base for that plan year will continue to be 
included in determining the minimum required contribution for 10 years 
rather than 7 years. See also Sec.  1.430(h)(2)-1(b)(6) for a special 
rule for determining the funding target in the case of a plan for which 
an election under section 402(a)(2) of PPA '06 has been made.
    (d) Waiver amortization installments--(1) In general. For purposes 
of this section, the waiver amortization installments with respect to a 
waiver amortization base established for a plan year are the annual 
amounts necessary to amortize that waiver amortization base in level 
annual installments over the 5-year period beginning with the following 
plan year. See Sec.  1.430(h)(2)-1(e) and (f) for rules regarding 
interest rates used for determining waiver amortization installments 
and the date within each plan year on which the installments are 
assumed to be paid. The waiver amortization installments established 
with respect to a waiver amortization base are determined using the 
interest rates that apply for the plan year for which the waiver is 
granted (even though the first installment with respect to the waiver 
amortization base is not due until the subsequent plan year) and are 
not redetermined in subsequent plan years to reflect any changes in the 
valuation date or changes in interest rates under section 430(h)(2) for 
those subsequent plan years.
    (2) Waiver amortization base--(i) In general. For purposes of this 
section, a waiver amortization base is established for each plan year 
for which a waiver of the minimum funding standard has been granted in 
accordance with section 412(c). The amount of the waiver amortization 
base is equal to the waived funding deficiency under section 412(c)(3) 
for the plan year.
    (ii) Transition rule. See paragraph (h)(3) of this section for the 
treatment of funding waivers granted for plan years beginning before 
2008.
    (e) Early deemed amortization upon attainment of funding target. In 
any case in which the funding shortfall for a plan year is zero, for 
purposes of determining the minimum required contribution for that plan 
year and subsequent plan years--
    (1) The shortfall amortization bases for all preceding plan years 
(and all shortfall amortization installments determined with respect to 
those bases) are reduced to zero; and
    (2) The waiver amortization bases for all preceding plan years (and 
all waiver amortization installments determined with respect to those 
bases) are reduced to zero.
    (f) Definitions--(1) In general. The definitions set forth in this 
paragraph (f) apply for purposes of this section.
    (2) Funding shortfall. The term funding shortfall means the excess 
(if any) of--
    (i) The funding target for a plan year; over
    (ii) The value of plan assets for the plan year (as reduced to 
reflect the subtraction of the funding standard carryover balance and 
prefunding balance to the extent provided under Sec.  1.430(f)-1(c), 
but not below zero).
    (3) Funding target. The term funding target means the plan's 
funding target for a plan year determined under Sec.  1.430(d)-1(b)(2), 
Sec.  1.430(i)-1(c), or Sec.  1.430(i)-1(e)(1), whichever applies to 
the plan for the plan year.
    (4) Target normal cost. The term target normal cost means the 
plan's target normal cost for a plan year determined under Sec.  
1.430(d)-1(b)(1), Sec.  1.430(i)-1(d), or Sec.  1.430(i)-1(e)(2), 
whichever applies to the plan for the plan year.
    (5) Termination date--(i) Plans subject to Title IV of ERISA. In 
the case of a plan subject to Title IV of the Employee Retirement 
Income Security Act of 1974, as amended (ERISA), the termination date 
means the plan's termination date established under section 4048(a) of 
ERISA.
    (ii) Other plans--(A) In general. In the case of a plan not subject 
to Title IV of ERISA, the termination date means the plan's termination 
date established by the plan administrator, provided that the 
termination date may be no earlier than the date on which all actions 
necessary to effect the plan termination (other than the distribution 
of plan assets) are taken.
    (B) Requirement for prompt distribution. A plan is not treated as 
terminated on the applicable date described in paragraph (f)(5)(ii)(A) 
of this section if the assets are not distributed as soon as 
administratively feasible after that date. Whether distribution of plan 
assets is made as soon as administratively feasible is to be determined 
under all the relevant facts and circumstances. In general, 
distribution of plan assets is deemed to have been made as soon as 
administratively feasible to the extent that any delay in distribution 
was because of circumstances outside the control of the plan 
administrator. However, distribution of plan assets that was delayed 
merely for the purpose of obtaining a higher value than current market 
value is generally not deemed to have been made as soon as 
administratively feasible.
    (C) Presumption applicable to prompt distribution requirement. 
Except as provided in paragraph (f)(5)(ii)(D) of this section, 
distribution of plan assets which is not completed within one year 
following the applicable date described in paragraph (f)(5)(ii)(A) of 
this section is presumed not to have been made as soon as 
administratively feasible.
    (D) Exception to prompt distribution presumption for obtaining 
determination letter from Commissioner. A plan is not treated as 
failing to meet the requirement to distribute plan assets as soon as 
administratively feasible after the proposed termination date if the 
delay is attributable to the period of time necessary to obtain a 
determination letter from the Commissioner on the plan's qualified 
status upon its

[[Page 54386]]

termination, provided that the request for a determination letter is 
timely and the distribution of plan assets is made as soon as 
administratively feasible after the letter is obtained.
    (6) Transition funding shortfall--(i) In general. The term 
transition funding shortfall means the excess, if any, of--
    (A) The applicable percentage of the funding target for a plan 
year; over
    (B) The value of plan assets for the plan year (as reduced to 
reflect the subtraction of the funding standard carryover balance and 
prefunding balance to the extent provided under Sec.  1.430(f)-1(c), 
but not below zero).
    (ii) Applicable percentage. For purposes of this paragraph (f)(6), 
the applicable percentage is determined in accordance with the 
following table:

------------------------------------------------------------------------
                                                              Applicable
        Calendar year in which the plan year begins           percentage
------------------------------------------------------------------------
2008.......................................................           92
2009.......................................................           94
2010.......................................................           96
------------------------------------------------------------------------

    (g) Examples. The following examples illustrate the rules of this 
section. Unless otherwise indicated, these examples are based on the 
following assumptions: Section 430 applies to determine the minimum 
required contribution for plan years beginning on or after January 1, 
2008; the plan year is the calendar year; the valuation date is January 
1; the plan's prefunding balance and funding standard carryover balance 
are equal to $0; the plan sponsor did not elect any funding relief 
under section 430(c)(2)(D) for any plan year; and the plan has not 
received any funding waivers for any relevant time periods.

    Example 1.  (i) Plan A has a funding target of $2,500,000 and 
assets totaling $1,800,000 as of January 1, 2016. For purposes of 
this example, the segment interest rates used for the January 1, 
2016 valuation are assumed to be 5.26% for the first segment 
interest rate and 5.82% for the second segment interest rate. No 
shortfall or waiver amortization bases have been established for 
prior plan years.
    (ii) A $700,000 shortfall amortization base is established for 
2016, which is equal to the $2,500,000 funding target less 
$1,800,000 of assets.
    (iii) With respect to the new shortfall amortization base of 
$700,000, there is a shortfall amortization installment of $116,852 
(which is the amount necessary to amortize the $700,000 shortfall 
amortization base over 7 years) for each year from 2016 through 
2022. The amount of this shortfall amortization installment is 
determined by discounting the first five installments using the 
first segment interest rate of 5.26%, and by discounting the sixth 
and seventh installments using the second segment rate of 5.82%.
    Example 2. (i) The facts are the same as in Example 1, except 
that the plan was granted a funding waiver for 2014, resulting in 
five annual waiver amortization installments of $70,000 each, 
beginning with the 2015 plan year.
    (ii) As of January 1, 2016, the present value of the remaining 
waiver amortization installments is $259,702, which is determined by 
discounting the remaining four waiver amortization installments of 
$70,000 each to January 1, 2016, using the first segment rate of 
5.26%. See paragraph (c)(2)(ii) of this section.
    (iii) A $440,298 shortfall amortization base is established for 
2016, which is equal to the $2,500,000 funding target, less 
$1,800,000 of assets, less $259,702 (which is the present value of 
the remaining four waiver amortization installments).
    (iv) With respect to this shortfall amortization base of 
$440,298, there is a shortfall amortization installment of $73,500 
(which is equal to the $440,298 shortfall amortization base 
amortized over 7 years) for each year from 2016 through 2022.
    Example 3. (i) The facts are the same as in Example 2. Plan A 
has a $100,000 target normal cost for the 2016 plan year and was 
granted a funding waiver for 2016 to the largest extent permitted 
under section 412(c).
    (ii) If the funding waiver for 2016 had not been granted, the 
minimum required contribution for 2016 would have been $243,500. 
This is equal to the $100,000 target normal cost, plus the $70,000 
waiver amortization installment from the 2014 waiver, plus the 
$73,500 January 1, 2016 shortfall amortization installment.
    (iii) In accordance with section 412(c)(1)(C), the portion of 
the minimum required contribution attributable to the amortization 
of the 2014 funding waiver cannot be waived. Therefore, the maximum 
amount of the January 1, 2016 minimum required contribution that can 
be waived is $173,500.
    (iv) In accordance with paragraph (d) of this section, a waiver 
amortization base of $173,500 is established as of January 1, 2016 
to be amortized over 5 years beginning with the 2017 plan year. 
Although the waiver amortization installments for the 2016 funding 
waiver are not included in the minimum required contribution until 
2017, the amount of those installments is determined based on the 
interest rates used for the 2016 plan year.
    (v) The waiver amortization installments with respect to the 
2016 funding waiver are calculated using the first segment interest 
rate of 5.26% for the first four installments (calculated as of 
January 1, 2017 through January 1, 2020) and the second segment 
interest rate of 5.82% for the final installment payable as of 
January 1, 2021. Accordingly, the waiver amortization installments 
with respect to the 2016 funding waiver are $40,554 each, payable 
beginning January 1, 2017.
    Example 4. (i) The facts are the same as in Example 3. As of 
January 1, 2017, Plan A has a funding target of $2,750,000 and 
assets totaling $1,900,000. For purposes of this example, the first 
segment rate used for the 2017 valuation is assumed to be 5.50%, the 
second segment rate is assumed to be 6.00%, and the third segment 
rate is assumed to be 6.50%.
    (ii) As of January 1, 2017, the present value of the remaining 
three waiver amortization installments with respect to the 2014 
waiver is $199,242, which is determined using the first segment rate 
of 5.50%.
    (iii) As of January 1, 2017, the present value of the remaining 
five waiver amortization installments with respect to the 2016 
waiver is $182,701, which is determined using the first segment rate 
of 5.50%.
    (iv) As of January 1, 2017, the present value of the remaining 
six shortfall amortization installments with respect to the 2016 
shortfall amortization base is $386,052, which is determined using 
the first segment rate of 5.50% for the first five installments and 
the second segment rate of 6.00% for the sixth installment.
    (v) A shortfall amortization base of $82,005 is established for 
2017, which is equal to the $2,750,000 funding target, reduced by 
the sum of $1,900,000 of assets, $199,242 (the present value of the 
remaining waiver amortization installments with respect to the 2014 
waiver), $182,701 (the present value of the remaining waiver 
amortization installments with respect to the 2016 waiver), and 
$386,052 (the present value of the remaining installments with 
respect to the 2016 shortfall amortization base).
    (vi) With respect to this shortfall amortization base of 
$82,005, there is a shortfall amortization installment of $13,766 
(which is the amount necessary to amortize the $82,005 shortfall 
amortization base over 7 years) for each year from 2017 through 
2023.
    Example 5.  (i) As of January 1, 2016, a plan has a funding 
target of $2,500,000, a target normal cost of $175,000, and assets 
totaling $2,450,000. As of January 1, 2016, there are six remaining 
installments of $60,000 each with respect to the only shortfall 
amortization base for the plan, which was established for the 2015 
plan year. Also as of January 1, 2016, there are five remaining 
installments of $25,000 each with respect to the only waiver 
amortization base for the plan, which was established for the 2015 
plan year. For purposes of this example, the segment interest rates 
used for the January 1, 2016, valuation are assumed to be 5.26% for 
the first segment interest rate and 5.82% for the second segment 
interest rate.
    (ii) A shortfall amortization base of -$379,812 is established 
for 2016, which is equal to the $2,500,000 funding target, reduced 
by the sum of $2,450,000 of assets, $316,696 (the present value of 
the remaining installments with respect to the 2015 shortfall 
amortization base) and $113,116 (the present value of the remaining 
installments with respect to the 2015 funding waiver).
    (iii) The shortfall amortization installment for the 2016 
shortfall amortization base is -$63,403, which is the amount 
necessary to amortize the -$379,812 shortfall amortization base over 
seven years. The first five shortfall amortization installments are 
discounted using the first segment rate of 5.26% and the sixth and 
seventh shortfall

[[Page 54387]]

amortization installments are discounted using the second segment 
rate of 5.82%.
    (iv) The sum of the shortfall amortization installments is equal 
to -$3,403 ($60,000 plus -$63,403). However, in accordance with 
paragraph (b)(2)(i)(B) of this section, for purposes of determining 
the minimum required contribution for a plan year, the total of the 
shortfall amortization installments for a plan year is limited so 
that it is not less than zero.
    (v) The minimum required contribution as of January 1, 2016 is 
$200,000. This is equal to the sum of the target normal cost of 
$175,000, the total of the shortfall amortization installments (as 
limited) of $0, and the waiver amortization installment of $25,000.
    (vi) The shortfall amortization bases are not set to zero as of 
January 1, 2016, even though the sum of the shortfall amortization 
installments was set to zero for the 2016 plan year. Therefore, as 
of January 1, 2017 (unless the plan has a funding shortfall of zero 
as of that date), the shortfall amortization base established as of 
January 1, 2015 will have five remaining installments of $60,000 
each and the shortfall amortization base established as of January 
1, 2016 will have six remaining installments of -$ 63,403 each. 
Similarly, the waiver amortization base will have four remaining 
installments of $25,000 each.
    Example 6.  (i) The facts are the same as in Example 5, except 
that Plan A has assets totaling $2,550,000 as of January 1, 2016.
    (ii) Because the assets of $2,550,000 exceed the funding target 
of $2,500,000, no new shortfall amortization base is established 
under paragraph (c)(2) of this section.
    (iii) Furthermore, under paragraph (e) of this section, all 
shortfall amortization bases and waiver amortization bases (and all 
shortfall amortization installments and waiver amortization 
installments associated with those bases) are reduced to zero as of 
January 1, 2016.
    (iv) The minimum required contribution for the 2016 plan year is 
$125,000, which is equal to the $175,000 target normal cost less the 
excess of the assets over the funding target ($2,550,000 minus 
$2,500,000).
    Example 7.  (i) The actuarial valuation for Plan B as of January 
1, 2016, based on a 12-month plan year, results in a target normal 
cost of $110,000 and a shortfall amortization installment for 2016 
of $185,000, attributable to a shortfall amortization base 
established January 1, 2016. There are no other shortfall or waiver 
amortization bases for Plan B as of January 1, 2016. The plan year 
for Plan B is changed to April 1 through March 31, effective April 
1, 2016, resulting in a short plan year beginning January 1, 2016 
and ending March 31, 2016.
    (ii) The target normal cost for the short plan year is 
redetermined in order to reflect the fact that there is a short plan 
year. An actuarial valuation shows that the target normal cost is 
$25,000 for the short plan year based on the accruals for that short 
plan year (determined in accordance with 29 CFR 2530.204-2(e)).
    (iii) In accordance with paragraph (b)(2)(ii)(A) of this 
section, the shortfall amortization base is prorated to reflect the 
three months covered by the short plan year. Accordingly, the 
shortfall amortization installment for the short plan year is 
$46,250 (that is, $185,000 multiplied by 3/12).
    (iv) The total minimum required contribution for the short plan 
year is $71,250 (that is, the sum of the target normal cost of 
$25,000 plus the shortfall amortization installment of $46,250).
    Example 8.  (i) The facts are the same as in Example 7. For 
purposes of this example, assume that the first segment rate for the 
plan year beginning April 1, 2016 is 5.30%, and the second segment 
rate is 5.80%.
    (ii) The present value of the remaining shortfall amortization 
installments with respect to the January 1, 2016 shortfall 
amortization base is equal to $1,074,937. This is determined by 
discounting the remaining installments (6 full-year installments of 
$185,000 each due April 1, 2016 through April 1, 2021, and a final 
9-month installment of $138,750 due April 1, 2022) using the first 
segment rate of 5.30% for the first five installments and the second 
segment rate of 5.80% for the remaining installments.
    Example 9.  (i) As of January 1, 2016, Plan C has a funding 
target of $1,100,000, a target normal cost of $20,000, and an 
actuarial value of assets of $1,150,000. Prior to establishing any 
shortfall amortization base for 2016, the total of the shortfall 
amortization installments for 2016 is $30,000 and the present value 
of the remaining shortfall amortization installments (including 
installments for the 2016 plan year) is $150,000. Based on the 
segment rates used for the 2016 plan year, the 7-year amortization 
factor for any shortfall amortization base established for 2016 is 
5.9887. The funding standard carryover balance as of January 1, 2016 
is $40,000 and the prefunding balance is $60,000. The plan sponsor 
intends to use both balances to offset the minimum required 
contribution for 2016.
    (ii) In accordance with sections 430(c) and 430(f)(4)(A), the 
test to determine whether Plan C is exempt from establishing a new 
shortfall amortization base for 2016 is initially applied based on 
assets reduced by the prefunding balance, because the plan sponsor 
intends to use the prefunding balance to offset the minimum required 
contribution. Therefore, the actuarial value of assets used for this 
purpose is $1,150,000 minus $60,000, or $1,090,000. This is less 
than the funding target of $1,100,000, so a new shortfall 
amortization base is established for 2016.
    (iii) The funding shortfall as of January 1, 2016 is the 
difference between the funding target and the actuarial value of 
assets, where the actuarial value of assets is reduced by both the 
funding standard carryover balance and the prefunding balance. 
Accordingly, the value of assets used for this calculation is 
$1,050,000 (that is, $1,150,000 - $40,000 - $60,000), and the 
funding shortfall is $50,000 (that is, $1,100,000 - $1,050,000).
    (iv) The shortfall amortization base established as of January 
1, 2016 is the difference between the funding shortfall of $50,000 
and the $150,000 present value of remaining shortfall amortization 
installments for bases established in prior years (that is, -
$100,000). The shortfall amortization installment attributable to 
this base is -$100,000 / 5.9887, or -$16,698.
    (v) The preliminary minimum required contribution is the sum of 
the target normal cost, the shortfall amortization installments for 
bases established prior to 2016, and the shortfall amortization 
installment for the new base established for 2016, or $33,302 (that 
is, $20,000 + $30,000-$16,698). However, this amount is less than 
the funding standard carryover balance. Because section 430(f)(3)(B) 
and Sec.  1.430(f)-1(d)(2) require that the funding standard 
carryover balance be used before using the prefunding balance, this 
means that the full minimum required contribution will be offset 
without using the prefunding balance. Accordingly, the plan sponsor 
will not be electing to use any portion of the prefunding balance to 
offset the minimum required contribution for 2016.
    (vi) Because the plan sponsor is not using the prefunding 
balance to offset the minimum required contribution, the test to 
determine whether Plan C is exempt from establishing a new shortfall 
amortization base for 2016 must be applied without subtracting the 
prefunding balance from the actuarial value of plan assets. Because 
the full actuarial value of assets of $1,150,000 is higher than the 
funding target of $1,100,000, the plan is exempt from establishing a 
new shortfall amortization base for 2016. However, the actuarial 
value of plan assets is reduced by both balances when determining 
the funding shortfall, which is used to determine whether the 
shortfall amortization bases established prior to 2016 are reduced 
to zero. Because the funding shortfall is greater than zero as of 
January 1, 2016 (as calculated in paragraph (iii) of this Example 
9), the shortfall amortization bases established before the 2016 
plan year are retained.
    (vii) The minimum required contribution for 2016 is the sum of 
the target normal cost and the shortfall amortization installments, 
or $50,000 ($20,000 + $30,000). Because this is larger than the 
funding standard account carryover balance of $40,000, the plan 
sponsor can only offset $40,000 of the minimum required contribution 
and must contribute $10,000 to meet the minimum funding 
requirements. The prefunding balance cannot be used to offset the 
remaining $10,000 minimum funding requirement because doing so would 
require recalculating the minimum required contribution as 
illustrated in paragraphs (ii) through (v) of this Example 9 and the 
minimum required contribution would be too small to use the 
prefunding balance.
    Example 10.  (i) The facts are the same as in Example 9, except 
that, in lieu of making the cash contribution required in Example 9, 
the plan sponsor elects to reduce the funding standard carryover 
balance by $9,000.
    (ii) Because the plan sponsor intends to use the prefunding 
balance to offset the minimum required contribution, the test to 
determine whether Plan C is exempt from establishing a shortfall 
amortization base for 2016 is based on the actuarial value of assets 
reduced by the prefunding balance. The actuarial value of assets 
reduced for the prefunding balance ($1,090,000) is less than

[[Page 54388]]

the funding target ($1,100,000), so a new shortfall amortization 
base is established for 2016.
    (iii) The remaining funding standard carryover balance is 
$31,000 (that is, $40,000 minus the elected reduction of $9,000). 
The funding shortfall as of January 1, 2016 is the difference 
between the funding target and the actuarial value of assets, where 
the actuarial value of assets is reduced by both the remaining 
funding standard carryover balance and the prefunding balance. 
Accordingly, the value of assets used for this calculation is 
$1,059,000 (that is, $1,150,000-$31,000-$60,000), and the funding 
shortfall is $41,000 (that is, $1,100,000-$1,059,000).
    (iv) The shortfall amortization base established as of January 
1, 2016 is the difference between the funding shortfall of $41,000 
and the $150,000 present value of remaining shortfall amortization 
installments for bases established in prior years (that is, -
$109,000). The shortfall amortization installment attributable to 
this base is -$109,000 / 5.9887, or -$18,201.
    (v) The minimum required contribution is the sum of the target 
normal cost, the shortfall amortization installments for bases 
established prior to 2016, and the shortfall amortization 
installment for the new base established for 2016, or $31,799 (that 
is, $20,000 + $30,000-$18,201). This amount is larger than the 
remaining funding standard carryover balance of $31,000. Therefore, 
the plan sponsor can offset the full minimum required contribution 
using the remaining $31,000 of the funding standard carryover 
balance and $799 of the prefunding balance. Because a portion of the 
prefunding balance is used to offset the minimum required 
contribution, the test under section 430(c)(5) is applied by 
subtracting the prefunding balance from the actuarial value of 
assets as illustrated in paragraph (ii) of this Example 10, and no 
further adjustments are required to the minimum required 
contribution.
    Example 11.  (i) An amendment to Plan D was adopted during 2015, 
scheduled to be effective February 1, 2016. The actuary determines 
that, as of January 1, 2016, the amendment would increase Plan D's 
funding target by $300,000, if the amendment is permitted to take 
effect. As of February 1, 2016, prior to taking into account the 
amendment, the presumed adjusted funding target attainment 
percentage (AFTAP) for Plan D is less than 80% but not less than 
60%. Plan D's sponsor makes a section 436 contribution (under 
section 436(c)(2)(A)) of $300,000, adjusted for interest as required 
under Sec.  1.436-1(f)(2)(i)(A)(2), to allow the amendment to take 
effect.
    (ii) Because the plan amendment was adopted prior to the 
valuation date for 2016 and becomes effective during the 2016 plan 
year, under Sec.  1.430(d)-1(d)(1)(i), the plan amendment must be 
taken into account in the funding target as of January 1, 2016. 
However, because the section 436 contribution is made for the 2016 
plan year, it is not included in Plan D's actuarial value of assets 
as of January 1, 2016.
    (iii) The funding shortfall as of January 1, 2016 is calculated 
as the amount of the funding target (taking into account the plan 
amendment) minus the actuarial value of assets, where the value of 
assets is reduced by any funding standard carryover balance and 
prefunding balance as of that date. Because the funding target takes 
into account the increase of $300,000 attributable to the plan 
amendment but the actuarial value of assets does not include the 
section 436 contribution, the funding shortfall is $300,000 higher 
than it would have been had the plan amendment not been allowed to 
take effect.
    (iv) The funding shortfall as of January 1, 2017 will reflect 
both the cost of the plan amendment and the value of the section 436 
contribution made during 2016. Therefore, in the absence of any 
other factors affecting the shortfall amortization base, it is 
expected that a negative shortfall amortization base will be 
established as of January 1, 2017 as a result of the section 436 
contribution made during 2016.
    Example 12.  (i) Plan E has a calendar year plan year and in 
2015 had 97 participants. Plan E has a valuation date of July 1. A 
shortfall amortization base of $300,000 was established with the 
July 1, 2016 valuation. The plan had no other shortfall or waiver 
amortization bases. For purposes of this example, assume that the 
first segment rate for the 2016 plan year is 5.50% and the second 
segment rate is 6.00%. Accordingly, the shortfall amortization 
installments are determined as seven annual installments of $50,358 
each, payable as of each July 1 beginning July 1, 2016.
    (ii) Sometime after January 1, 2016, the number of participants 
in Plan E increased to over 100 during 2016, and therefore the 
valuation date was changed to January 1 effective with the 2017 plan 
year. As of January 1, 2017, Plan E has a funding target of 
$2,000,000, plan assets of $1,600,000, and a zero funding standard 
carryover balance and prefunding balance. For purposes of this 
example, assume that as of January 1, 2017, the first segment rate 
is 5.75% and the second segment rate is 6.25%.
    (iii) In accordance with paragraph (c)(1) of this section, the 
amount of the shortfall amortization installments for the base 
established July 1, 2016 is not adjusted for the change in valuation 
date. As of January 1, 2017, the outstanding balance of the 
shortfall amortization base established as of July 1, 2016 is 
$263,047, determined as the present value of the remaining shortfall 
amortization installments, calculated as if the shortfall 
amortization installments of $50,358 are payable annually on January 
1 instead of July 1.
    (iv) A new shortfall amortization base of $136,953 is 
established effective January 1, 2017 equal to the difference 
between the funding shortfall of $400,000 and the outstanding 
balance of the shortfall amortization base established as of July 1, 
2016 ($263,047). The shortfall amortization installment for this 
base is calculated as $23,139.
    (v) The total shortfall amortization installment for the 2017 
plan year is $73,497, equal to the sum of the installments for the 
shortfall amortization base established July 1, 2016 ($50,358) and 
the base established January 1, 2017 ($23,139). The total 
amortization installment is determined as an amount payable as of 
January 1 regardless of the fact that the installment for the first 
base was initially calculated as an amount payable on July 1.
    Example 13.  (i) A funding waiver of $300,000 was granted for 
Plan F for the 2006 plan year. The valuation interest rate for the 
January 1, 2007 actuarial valuation is 8.50% (which exceeds 150% of 
the applicable federal mid-term rate). The first segment rate for 
the January 1, 2008 valuation of Plan F is 5.26%.
    (ii) The waiver amortization charge for the plan year beginning 
January 1, 2007 is $70,166, which is equal to the $300,000 funding 
waiver base amortized over 5 years at the valuation interest rate of 
8.50%.
    (iii) The annual waiver amortization installment for 2008 and 
later years is equal to the amortization charge for the 2007 plan 
year, or $70,166. As of January 1, 2008, the present value of the 
remaining waiver amortization installments is $260,318, which is 
determined by discounting the remaining four waiver amortization 
installments of $70,166 to January 1, 2008, using the first segment 
rate of 5.26%.
    Example 14.  (i) As of January 1, 2008, Plan G has a funding 
target of $2,500,000, plan assets of $1,800,000 and a funding 
standard carryover balance of $100,000. Plan G has not received a 
funding waiver for any past plan year. Plan G was in existence 
during 2007, and in the 2007 plan year was not subject to the 
deficit reduction contribution in section 412(l) of the Code as it 
existed prior to PPA '06.
    (ii) Plan G qualifies for the transition rule in section 
430(c)(5) of the Code (as in effect prior to amendments made by the 
Tax Increase Prevention Act of 2014, Public Law 113-295, 128 Stat. 
4010) and paragraph (h)(4) of this section. Because Plan G's assets 
are less than 92% of its funding target, a shortfall amortization 
base must be established as of January 1, 2008.
    (iii) Under the transition rule in paragraph (h)(4) of this 
section, the shortfall amortization base for 2008 is determined 
using only 92% of Plan G's funding target, or $2,300,000. For 
purposes of this calculation, the value of assets is reduced by the 
funding standard carryover balance for a net asset figure of 
$1,700,000 (that is, $1,800,000 minus $100,000). Accordingly, the 
shortfall amortization base as of January 1, 2008 is equal to 
$600,000.

    (h) Effective/applicability dates and transition rules--(1) 
Statutory effective date/applicability date. Section 430 generally 
applies to plan years beginning on or after January 1, 2008. The 
applicability of section 430 for purposes of determining the minimum 
required contribution is delayed for certain plans in accordance with 
sections 104 through 106 of PPA '06.
    (2) Effective date/applicability date of regulations. This section 
applies to plan years beginning on or after January 1, 2016. For plan 
years beginning before January 1, 2016, plans are permitted to rely on 
the provisions set forth in this

[[Page 54389]]

section for purposes of satisfying the requirements of section 430(a).
    (3) Treatment of pre-PPA '06 funding waivers. In the case of a plan 
that has received a funding waiver under section 412 for a plan year 
for which section 430 was not yet effective with respect to the plan 
for purposes of determining the minimum required contribution, the 
waiver is treated as giving rise to a waiver amortization base and the 
amortization charges with respect to that funding waiver are treated as 
waiver amortization installments as described in paragraph (d) of this 
section. With respect to such a pre-existing funding waiver, the amount 
of the waiver amortization installment is equal to the amortization 
charge with respect to that waiver determined using the interest rate 
or rates that applied for the pre-effective plan year.
    (4) Transition rule for determining shortfall amortization base--
(i) In general. Except as provided in paragraph (h)(4)(ii) of this 
section, in the case of plan years beginning after December 31, 2007 
and before January 1, 2011, for purposes of applying the rules of 
paragraph (c)(2) of this section--
    (A) The applicable percentage (as described in paragraph (f)(6)(ii) 
of this section) of the funding target is substituted for the funding 
target; and
    (B) The transition funding shortfall is substituted for the funding 
shortfall.
    (ii) Transition rule not available for new plans or deficit 
reduction plans. The transition rule of paragraph (h)(4)(i) of this 
section does not apply to a plan--
    (A) That was not in effect for a plan year beginning in 2007; or
    (B) That was subject to section 412(l) for the last plan year 
beginning during 2007, determined after the application of sections 
412(l)(6) and (9) (regardless of whether the deficit reduction 
contribution for that plan year was equal to zero).
    (5) Pre-effective plan year--(i) In general. For purposes of this 
section, the pre-effective plan year for a plan is the last plan year 
beginning before section 430 applies to the plan to determine the 
minimum required contribution. Thus, except for plans with a delayed 
effective date as described in paragraph (h)(1) of this section, the 
pre-effective plan year for a plan is the last plan year beginning 
before January 1, 2008.
    (ii) Eligible charity plans. An eligible charity plan (as described 
in section 104(d) of PPA '06, which reflects amendments made by section 
202(b)(2) of PRA 2010, Public Law 111-192, 124 Stat. 1280 (June 25, 
2010)) that applies section 430 to the first plan year beginning on or 
after January 1, 2008 has a pre-effective plan year that is the last 
plan year beginning before January 1, 2008 and a second pre-effective 
plan year that is the last plan year that precedes the plan year for 
which section 430 again applies to the plan. (Section 430 does not 
apply to such a plan for plan years beginning on or after January 1, 
2009 and before January 1, 2017, unless the plan ceases to be an 
eligible charity plan, or an election under section 104(d)(2) or 
104(d)(4) of PPA '06 is made for the plan not to be treated as an 
eligible charity plan, as of an earlier date.)
0
Par. 3. Section 1.430(f)-1 is amended as follows:
0
1. The paragraph heading for paragraph (b)(5) is removed.
0
2. Paragraph (b)(5)(i) is redesignated as paragraph (b)(5).
0
3. The paragraph heading of newly redesignated paragraph (b)(5) is 
revised to read ``Special rule for quarterly contributions''.
0
4. The text of the newly redesignated paragraph (b)(5) is amended by 
removing the words ``that are due on or after the valuation date for 
the plan year for which they are due'' from the first sentence.
0
5. Paragraph (b)(5)(ii) is removed.
0
6. The paragraph heading for paragraph (d)(1)(i)(B) is removed.
0
7. Paragraph (d)(1)(i)(B)(1) is redesignated as paragraph (d)(1)(i)(B).
0
8. The paragraph heading of the newly redesignated paragraph 
(d)(1)(i)(B) is revised to read ``Special rule for late election with 
respect to quarterly contributions.''
0
9. The text of the newly redesignated paragraph (d)(1)(i)(B) is amended 
by removing the words ``that is due on or after the valuation date'' 
from the first sentence; removing the word ``discounted'' and adding in 
its place ``adjusted'' in the first sentence; and removing the phrase 
``further discounted'' and adding in its place ``further adjusted'' in 
the second sentence.
0
10. Paragraph (d)(1)(i)(B)(2) is removed.
0
11. Paragraph (f)(1)(i) is amended by removing the phrase ``as provided 
in paragraph (f)(1)(ii) of this section'' and adding in its place ``as 
provided in this paragraph (f)(1)'' in two places.
0
12. Paragraph (f)(1)(iii) is added.
0
13. Paragraph (f)(2)(i) is amended by removing the phrase ``as 
described in section 430(j)(1)'' and adding in its place ``as described 
in section 430(j)(1), or such later date as prescribed in guidance 
published in the Internal Revenue Bulletin''.
0
14. Paragraph (f)(3)(i) is amended by removing the words ``Except as 
otherwise provided in this paragraph (f)(3)'' and adding in their place 
the words ``Except as otherwise provided in this paragraph (f)(3) or in 
guidance published in the Internal Revenue Bulletin''.
    The revisions and additions read as follows:


Sec.  1.430(f)-1  Effect of prefunding balance and funding standard 
carryover balance.

* * * * *
    (f) * * * (1) * * *
    (iii) Standing election to satisfy installments through use of 
funding balances--(A) In general. A plan sponsor may provide a standing 
election in writing to the plan's enrolled actuary to use (to the 
extent available) the funding standard carryover balance and the 
prefunding balance to satisfy any otherwise unpaid portion of a 
required installment under section 430(j)(3). Any use pursuant to a 
standing election under this paragraph (f)(1)(iii) is deemed to occur 
on the later of the last date for making the required installment and 
the date the standing election is provided to the enrolled actuary.
    (B) Otherwise unpaid portion of a required installment. For 
purposes of paragraph (f)(1)(iii)(A) of this section, the otherwise 
unpaid portion of a required installment equals the amount necessary to 
satisfy the required installment rules under section 430(j) based on 
the installment amounts determined as if the required annual payment 
were the amount described in Sec.  1.430(j)-1(c)(5)(ii)(B). Thus, the 
amount of the prefunding and funding standard carryover balances used 
under a standing election is the amount that is needed to satisfy an 
installment in the amount of 25 percent of the minimum required 
contribution for the prior plan year, plus installments in that amount 
with respect to all earlier required installment due dates for the plan 
year, taking into account prior contributions for the plan year and 
prior elections to use the funding standard carryover balance and 
prefunding balance for the plan year.
    (C) Duration of standing election. Generally, any standing election 
under this paragraph (f)(1)(iii) remains in effect for the plan with 
respect to the enrolled actuary named in the election, unless either of 
the events described in paragraph (f)(1)(ii)(A) or (B) of this section 
occurs with respect to the standing election. However, a plan sponsor 
may suspend application of a standing election for the remaining 
installments with respect to a plan year by providing, in writing to 
the plan's

[[Page 54390]]

enrolled actuary, notice that the standing election is not to apply for 
the remainder of the plan year. In addition, once the current year's 
minimum required contribution has been determined, a plan sponsor may 
modify application of a standing election for the remaining 
installments with respect to a plan year by providing, in writing to 
the plan's enrolled actuary, a replacement formula election to use the 
funding standard carryover balance and prefunding balance (to the 
extent available) so that the otherwise unpaid portions of the 
remaining required installments satisfy the required installment rules 
under section 430(j), taking into account the determination of the 
current year's minimum required contribution pursuant to Sec.  
1.430(j)-1(c)(5)(ii)(A), prior contributions for the plan year and 
prior elections to use the prefunding and funding standard carryover 
balances.
* * * * *

0
Par. 4. Section 1.430(h)(2)-1(b)(2) is revised to read as follows:


Sec.  1.430(h)(2)-1  Interest rates used to determine present value.

* * * * *
    (b) * * *
    (2) Benefits payable within 5 years--(i) In general. In the case of 
benefits expected to be payable during the 5-year period beginning on 
the valuation date for the plan year, the interest rate used in 
determining the present value of the benefits that are included in the 
target normal cost and the funding target for the plan is the first 
segment rate with respect to the applicable month, as described in 
paragraph (c)(2)(i) of this section.
    (ii) Special rule for plan years beginning before January 1, 2014. 
With respect to a plan year beginning before January 1, 2014, for a 
plan with a valuation date other than the first day of the plan year, 
the 5-year period beginning on the first day of the plan year is 
permitted to be used in lieu of the 5-year period beginning on the 
valuation date for the plan year under paragraph (b)(2)(i) of this 
section.
* * * * *

0
Par. 5. Section 1.430(j)-1 is added to read as follows:


Sec.  1.430(j)-1  Payment of minimum required contributions.

    (a) In general--(1) Overview. This section provides rules related 
to the payment of minimum required contributions, including the payment 
of required installments. Section 430(j) and this section apply to 
single-employer defined benefit plans (including multiple employer 
plans as defined in section 413(c)) but do not apply to multiemployer 
plans (as defined in section 414(f)). Paragraph (b) of this section 
describes the general timing requirement for minimum required 
contributions. Paragraph (c) of this section describes the accelerated 
required installment schedule for plans with a funding shortfall in the 
preceding plan year. Paragraph (d) of this section provides rules 
regarding liquidity requirements. Paragraph (e) of this section 
provides definitions. Paragraph (f) of this section provides examples 
that illustrate the rules of this section. Paragraph (g) of this 
section sets forth effective/applicability dates and transition rules.
    (2) Special rules for multiple employer plans--(i) In general. In 
the case of a multiple employer plan to which section 413(c)(4)(A) 
applies, the rules of section 430 and this section are applied 
separately for each employer under the plan, as if each employer 
maintained a separate plan. Thus, for example, required installments 
are determined separately for each employer under such a multiple 
employer plan. In the case of a multiple employer plan to which section 
413(c)(4)(A) does not apply (that is, a plan described in section 
413(c)(4)(B) that has not made the election for section 413(c)(4)(A) to 
apply), the rules of section 430 and this section are applied as if all 
participants in the plan were employed by a single employer.
    (ii) CSEC plans. A CSEC plan (that is, a plan that fits within the 
definition of a CSEC plan in section 414(y) for plan years beginning on 
or after January 1, 2014 and for which the election under section 
414(y)(3)(A) has not been made) is not subject to the rules of section 
430. See section 433 for the minimum funding rules that apply to CSEC 
plans.
    (3) Applicability of section 430(j) to plans of commercial 
passenger airlines--(i) In general. Except as otherwise provided in 
this section, the rules of section 430(j) and this section apply to a 
plan for which an election described in section 402 of the Pension 
Protection Act of 2006, Public Law 109-280 (120 Stat. 780 (2006)), as 
amended (PPA '06), has been made in the same manner as those rules 
apply to any other plan subject to section 430.
    (ii) Special rules for plans for which election was made pursuant 
to section 402(a)(1) of PPA '06. For purposes of applying the rules of 
section 430(j) and this section to a plan with respect to which the 
election under section 402(a)(1) of PPA '06 has been made, the 
effective interest rate for the plan is deemed to be 8.85 percent 
during the period for which the election applies. In addition, see 
paragraph (e)(4)(ii) of this section for a special determination of the 
funding shortfall for a plan for which the election in section 
402(a)(1) of PPA '06 has been made.
    (b) General timing requirement for minimum required contributions--
(1) Earliest date for contributions. A payment made before the first 
day of the plan year cannot be applied toward the minimum required 
contribution under section 430 for that plan year.
    (2) Deadline for contributions. The deadline for any payment of any 
minimum required contribution for a plan year is 8\1/2\ months after 
the close of the plan year. See section 4971 and the regulations 
thereunder regarding an excise tax that applies with respect to minimum 
required contributions not paid by this deadline. For additional rules 
that may apply in the case of a failure to pay minimum required 
contributions by this deadline, see also section 430(k) of the Code and 
sections 101(d) and 4043 of the Employee Retirement Income Security Act 
of 1974, as amended (ERISA).
    (3) Allocation of contribution to a plan year--(i) Plans with 
unpaid minimum required contributions that have not been corrected. If 
a plan has unpaid minimum required contributions within the meaning of 
Sec.  54.4971(c)-1(c) of this chapter that have not yet been corrected 
within the meaning of Sec.  54.4971(c)-1(d)(2) of this chapter at the 
time a contribution is made, then the contribution is treated as a late 
contribution for the earliest plan year for which there is an unpaid 
minimum required contribution (to the extent necessary to correct that 
unpaid minimum required contribution). To the extent the contribution 
exceeds the amount necessary to correct the earlier unpaid minimum 
required contribution, the excess is treated as a late contribution for 
the next earliest plan year for which there is an unpaid minimum 
required contribution (to the extent necessary to correct that next 
earliest unpaid minimum required contribution). The allocation of the 
contribution under the preceding sentence is repeated until all unpaid 
minimum required contributions have been corrected, or until the entire 
contribution is allocated, whichever comes first.
    (ii) Plans without unpaid minimum required contributions. If a 
contribution is made during the current plan year but before the 
deadline under paragraph (b)(2) of this section for contributions for a 
prior plan year, and the plan has no unpaid minimum required 
contribution for any plan year at the

[[Page 54391]]

time the contribution is made, then the contribution may be designated 
as a contribution for either that prior plan year or the current plan 
year. Similarly, if a contribution made during the current plan year 
but before the deadline under paragraph (b)(2) of this section for 
contributions for a prior plan year is more than enough to correct a 
plan's unpaid minimum required contributions for all plan years, the 
portion of a contribution that was not used to correct unpaid minimum 
required contributions may be designated as a contribution for either 
that prior plan year or the current plan year.
    (iii) Method of allocating contributions--(A) Reporting for 
contributions to correct unpaid minimum required contributions. The 
allocation of a contribution under the rules of paragraph (b)(3)(i) of 
this section to correct unpaid minimum required contributions is 
automatic and must be shown on the actuarial report (Schedule SB, 
``Single-Employer Defined Benefit Plan Actuarial Information'' of Form 
5500, ``Annual Return/Report of Employee Benefit Plan'') for the 
earliest plan year with respect to which, as of the date of the 
contribution, the deadline for making contributions under paragraph 
(b)(2) of this section has not passed. See Sec.  1.430(g)-1(d)(1) for 
the rules for determining the plan year for which these contributions 
are taken into account in determining the value of plan assets.
    (B) Designation of plan year if no unpaid minimum contribution. In 
the case of a contribution described in paragraph (b)(3)(ii) of this 
section, the designation is established by the completion (and filing, 
if required) of the actuarial report (Schedule SB, ``Single-Employer 
Defined Benefit Plan Actuarial Information'' of Form 5500, ``Annual 
Return/Report of Employee Benefit Plan'') for the plan year for which 
the contribution is designated and cannot be changed after the 
actuarial report that reflects the contribution is completed (and 
filed, if required) except as provided in guidance published in the 
Internal Revenue Bulletin. Thus, a contribution that has been 
designated for a plan year on an actuarial report pursuant to this 
paragraph (b)(3)(iii)(B) generally cannot be redesignated as a 
contribution for either an earlier or later plan year.
    (4) Adjustment for interest--(i) In general. Except as provided in 
this paragraph (b)(4), any payment toward the minimum required 
contribution under section 430 for a plan year that is paid on a date 
other than the valuation date for that plan year is adjusted for 
interest for the period between the valuation date and the payment 
date, at the plan's effective interest rate for that plan year 
determined pursuant to Sec.  1.430(h)(2)-1(f)(1). The direction of the 
adjustment depends on whether the contribution is paid before or after 
the valuation date for the plan year. If the contribution is paid after 
the valuation date for the plan year, the contribution is discounted to 
the valuation date using the plan's effective interest rate. By 
contrast, if the contribution is paid before the valuation date for the 
plan year (which could only occur in the case of a small plan described 
in section 430(g)(2)(B)), the contribution is increased for interest 
using the plan's effective interest rate.
    (ii) Interest adjustment for late quarterly installments. In the 
case of a plan that must make required installments under the rules of 
paragraph (c) of this section, to the extent a contribution for a plan 
year constitutes a late required installment, the adjustment for 
interest for the period between the valuation date and the payment date 
is made in two steps. In the first step, the portion of the 
contribution that constitutes a late required installment is adjusted 
for interest from the date of the contribution to the due date for the 
installment by discounting it using the plan's effective interest rate 
for that plan year determined pursuant to Sec.  1.430(h)(2)-1(f)(1) 
plus 5 percentage points. In the second step, this discounted amount is 
treated as if it were contributed on the installment due date for 
purposes of the interest adjustment under paragraph (b)(4)(i) of this 
section. However, a contribution made toward the unpaid liquidity 
amount (as defined in paragraph (d)(3) of this section) that is made 
before the close of the quarter in which it is due is adjusted under 
paragraph (b)(4)(iii) of this section.
    (iii) Interest adjustment for unpaid liquidity amounts. In the case 
of a plan that is subject to the liquidity requirement rules of 
paragraph (d) of this section, to the extent a contribution made during 
a quarter constitutes a payment of the unpaid liquidity amount for that 
quarter as described in paragraph (d)(3) of this section, the 
adjustment for interest for the period between the valuation date and 
the payment date is made in two steps. In the first step, the portion 
of the contribution that constitutes a payment of the unpaid liquidity 
amount is increased for interest from the date of the contribution to 
the last day of the quarter, at the plan's effective interest rate for 
that plan year determined pursuant to Sec.  1.430(h)(2)-1(f)(1). In the 
second step, this adjusted amount is treated as if it were contributed 
on the last day of that quarter for purposes of the interest adjustment 
for late required installments under the rules of paragraph (b)(4)(ii) 
of this section. See paragraph (d)(3)(iv)(B) of this section for an 
increase to the minimum required contribution that gives effect to this 
interest adjustment for unpaid liquidity amounts in the event a portion 
of the required installment is no longer treated as unpaid after the 
close of the quarter under paragraph (d)(3)(iv)(A) of this section.
    (c) Accelerated quarterly installments required for underfunded 
plans--(1) Plans subject to quarterly installment requirement. The plan 
sponsor of a plan that has a funding shortfall for the preceding plan 
year is required to pay the installments described in paragraph (c)(5) 
of this section by the due dates described in paragraph (c)(6) of this 
section. See paragraph (b)(4)(ii) of this section, section 430(k) of 
the Internal Revenue Code (Code) (regarding the imposition of a lien), 
and sections 101(d) and 4043 of ERISA (regarding notice to participants 
and beneficiaries and to the Pension Benefit Guaranty Corporation) for 
examples of consequences that generally apply following a failure to 
make required installments.
    (2) Satisfaction of quarterly installment requirement. A plan 
sponsor may satisfy the requirement to pay an installment under 
paragraph (c)(1) of this section by one or a combination of the 
following--
    (i) Making a contribution for the plan year which is allocated 
among the required installments under the rules of paragraph (c)(3) of 
this section; and
    (ii) Making an election to use some or all of the plan's prefunding 
balance or funding standard carryover balance in accordance with the 
rules of paragraph (c)(4) of this section.
    (3) Satisfaction of quarterly installment requirement with 
contributions--(i) Contributions allocated to earliest quarterly 
installments. For purposes of this section, a contribution for a plan 
year is allocated among the required installments for the plan year 
under the rules of paragraph (c)(3)(ii) or (iii) of this section, 
whichever is applicable. Which rule applies depends on whether, at the 
time the contribution is made, the plan sponsor has unpaid required 
installments (that is, the plan sponsor has not fully satisfied all 
required installments for which the due date has passed, taking into 
account the special

[[Page 54392]]

rule with respect to the unpaid liquidity amounts in paragraph 
(d)(3)(iv)(A) of this section).
    (ii) Early contributions increased with interest. If a plan has no 
unpaid required installments for a plan year at the time a contribution 
for the plan year is made, then the contribution is allocated to the 
required installments (if any) for the plan year due on or after the 
date of the contribution under the rules of this paragraph (c)(3)(ii). 
The contribution is allocated in the order in which those installments 
occur, and the amount allocated to each required installment is limited 
to the amount necessary to satisfy the required installment (including 
satisfaction of the liquidity requirement under paragraph (d)(1) of 
this section, taking into account the special rule with respect to the 
unpaid liquidity amounts in paragraph (d)(3)(iv)(A) of this section) 
taking into account any interest as described in the next sentence. If 
the contribution is made before the due date of the installment to 
which it is allocated, then the amount credited toward the installment 
includes interest on the contribution from the date of the contribution 
to the due date of the required installment (except as provided in 
paragraph (d)(2) of this section). This interest adjustment is made 
using an interest rate equal to the plan's effective interest rate 
under Sec.  1.430(h)(2)-1(f)(1) for the plan year.
    (iii) Allocation of contributions to late required installments 
without interest--(A) In general. If a plan has any unpaid required 
installments for a plan year at the time a contribution for the plan 
year is made, then the contribution is allocated to those unpaid 
required installments under the rules of this paragraph (c)(3)(iii). 
The contribution is allocated in the order in which those unpaid 
required installments occur, and the amount allocated to each required 
installment is limited to the amount that satisfies the required 
installment without any adjustment for interest. If a contribution is 
allocated to an unpaid required installment under this paragraph 
(c)(3)(iii), then that contribution is adjusted for interest under the 
rules of paragraph (b)(4) of this section (regarding interest 
adjustments for late quarterly installments) for purposes of 
determining the extent to which that contribution satisfies the minimum 
required contribution for the plan year.
    (B) Bifurcation of contributions that exceed unpaid required 
installments. Any amount of a contribution described in paragraph 
(c)(3)(iii)(A) of this section that is not used to satisfy the unpaid 
required installments for the plan year is allocated toward any 
remaining required installments for the plan year under the rules of 
paragraph (c)(3)(ii) of this section.
    (4) Satisfaction of quarterly installment requirements through use 
of funding balances. A plan sponsor may satisfy the requirement to pay 
an installment under paragraph (c)(1) of this section by making an 
election to use some or all of the plan's prefunding balance or funding 
standard carryover balance under section 430(f). Such an election is 
subject to the rules of Sec.  1.430(f)-1 and cannot exceed the 
available amount of the plan's prefunding balance and funding standard 
carryover balance determined under Sec.  1.430(f)-1(d)(1)(ii) as of the 
date of the election. The amount elected is allocated toward 
satisfaction of the required installments in the same manner as a 
contribution made on the date of the election. Thus, the amount of an 
election to use the plan's prefunding balance or funding standard 
carryover balance is increased with interest under the rules of 
paragraph (c)(3)(ii) of this section or is credited against the 
earliest unpaid required installment under the rules of paragraph 
(c)(3)(iii) of this section. See Sec.  1.430(f)-1(f)(1)(iii) for rules 
permitting the use of a standing election for purposes of satisfying 
required installments through use of funding balances. See Sec.  
1.430(f)-1(d)(1)(i)(B) for rules relating to late elections to use the 
funding standard carryover balance or prefunding balance to satisfy the 
required installment rules.
    (5) Amount of required installment--(i) In general. For purposes of 
this section, the amount of any required installment due for a plan 
year is equal to 25 percent of the required annual payment for the plan 
year as described in paragraph (c)(5)(ii) of this section.
    (ii) Required annual payment. The required annual payment for a 
plan year is equal to the lesser of--
    (A) 90 percent of the minimum required contribution under section 
430 for the plan year; or
    (B) 100 percent of the minimum required contribution under section 
430 (determined without regard to any funding waiver under section 412) 
for the preceding plan year.
    (iii) Treatment of funding balances. For purposes of paragraph 
(c)(5)(ii) of this section, the minimum required contribution for a 
plan year is determined without regard to the use of the prefunding 
balance or funding standard carryover balance for the current year or 
the prior year. However, see paragraph (c)(4) of this section regarding 
a plan sponsor's election to use the plan's prefunding balance or 
funding standard carryover balance for the current year in order to 
satisfy the requirement to pay an installment.
    (iv) Disregard of certain amounts. For purposes of paragraph 
(c)(5)(ii) of this section, the minimum required contribution for a 
plan year is determined without regard to the installment acceleration 
amount for the plan year determined under section 430(c)(7) or any 
increase to the minimum required contribution under paragraph 
(d)(3)(iv)(B) of this section (relating to an unpaid liquidity amount).
    (6) Due dates for installments. For purposes of this section, there 
is a required installment for each quarter of the plan year, and the 
due dates for the required installments with respect to a full plan 
year are set forth in the following table:

------------------------------------------------------------------------
                Installment                           Due date
------------------------------------------------------------------------
First required installment................  15th day of 4th plan month.
Second required installment...............  15th day of 7th plan month.
Third required installment................  15th day of 10th plan month.
Fourth required installment...............  15th day after the end of
                                             the plan year.
------------------------------------------------------------------------

    (7) Special rules for short plan years--(i) In general. In the case 
of a short plan year, the rules of this paragraph (c) are modified as 
provided in this paragraph (c)(7).
    (ii) Current plan year is short plan year--(A) Amount of required 
annual payment. In determining the required annual payment pursuant to 
paragraph (c)(5)(ii) of this section for a short plan year, the amount 
otherwise determined under paragraph (c)(5)(ii)(B) of this section 
(based on the prior year's minimum required contribution) is multiplied 
by a fraction, the numerator of which is the duration of the short plan 
year and the denominator of which is 1 year. This rule applies to the 
year that contains the plan's termination date if that date is before 
the date that would otherwise be the end of the plan year (because the 
plan is treated as having a short plan year for purposes of section 430 
pursuant to Sec.  1.430(a)-1(b)(5)).
    (B) Number and due dates of installments. If the plan has a short 
plan year, then an installment is due 15 days after the end of that 
short plan year. In addition, an installment is required for each due 
date determined under paragraph (c)(6) of this section that falls 
within the short plan year. Thus, for example, if the short plan year 
ends before the 15th day of the 4th plan month of the plan year, there 
will be only one installment for that short plan

[[Page 54393]]

year, and that installment will be due on the 15th day after the end of 
the short plan year.
    (C) Amount of installments. The amount of each installment required 
to be paid for the short plan year is equal to the required annual 
payment determined pursuant to paragraph (c)(5)(ii) of this section (as 
modified by paragraph (c)(7)(ii)(A) of this section) divided by the 
number of installments determined pursuant to paragraph (c)(7)(ii)(B) 
of this section.
    (D) No increase in prior required installments. If a plan is 
amended to have a short plan year (including as a result of plan 
termination) and the required installments determined under paragraph 
(c)(7)(ii)(C) of this section are greater than the required 
installments determined without regard to the amendment, then--
    (1) The required installments for which the due dates occur before 
the end of the short plan year are determined without regard to the 
amendment, and
    (2) The required installment due on the 15th day after the end of 
the short plan year is increased to the extent necessary so that the 
total of the required installments for the year is the required annual 
payment determined under paragraph (c)(5)(ii) of this section, 
determined taking into account the rules of paragraph (c)(7)(ii)(A) of 
this section.
    (iii) Prior plan year is short plan year. If the prior plan year is 
a short plan year, the amount otherwise determined under paragraph 
(c)(5)(ii)(B) of this section (based on the prior year's minimum 
required contribution) is multiplied by a fraction, the numerator of 
which is 1 year and the denominator of which is the duration of the 
short plan year.
    (d) Liquidity requirement in connection with quarterly 
installments--(1) In general--(i) Additional requirement with respect 
to quarterly installments. Except as provided in this paragraph (d)(1), 
if a plan sponsor is required to pay the installments described in 
paragraph (c) of this section, then the plan sponsor is treated as 
failing to pay the full amount of the required installment for a 
quarter to the extent that the value of the liquid assets paid in the 
required installment after the end of that quarter and on or before the 
due date for the installment is less than the liquidity shortfall for 
that quarter. If the amount of any required installment is increased by 
reason of this paragraph (d)(1)(i), in no event shall this increase 
exceed the amount which, when added to the current required installment 
(determined without regard to the increase) and prior required 
installments for the plan year (not including any portion of a required 
installment that is no longer treated as unpaid under paragraph 
(d)(3)(iv)(A) of this section), is necessary to increase the funding 
target attainment percentage for the plan year to 100 percent (taking 
into account the expected increase in the funding target due to 
benefits accruing or earned during the plan year).
    (ii) Small plan exception. The liquidity requirement of this 
paragraph (d) does not apply to a plan for any plan year for which the 
plan is a small plan described in Sec.  1.430(g)-1(b)(2).
    (2) Satisfaction of liquidity requirement. The additional 
requirement with respect to a required installment under paragraph 
(d)(1) of this section can be satisfied only with an actual 
contribution of liquid assets that, after application of paragraph 
(c)(3) of this section, is allocated to satisfy the required 
installment for the quarter. The liquidity requirement cannot be 
satisfied through the use of funding balances, and satisfaction of this 
requirement is determined without taking into account the increase for 
interest for early contributions set forth in paragraph (c)(3)(ii) of 
this section. Any contribution of liquid assets that is allocated to 
satisfy the required installment for a quarter applies for purposes of 
determining whether the requirements of paragraph (d)(1) of this 
section are satisfied, even if the contribution is less than the total 
amount needed to satisfy the requirements of paragraph (c) of this 
section for the quarter (taking into account any increase in the 
required installment under this paragraph (d)).
    (3) Failure to satisfy liquidity requirement--(i) Treatment as 
failure to satisfy quarterly installment. If an employer fails to 
satisfy the additional requirement with respect to a required 
installment for a quarter under paragraph (d)(1) of this section, the 
portion of that required installment that is treated as not paid by 
reason of paragraph (d)(1) of this section (the unpaid liquidity amount 
for that quarter) is treated as an underpayment of the required 
installment. See paragraph (c)(1) of this section for examples of 
consequences of underpayment of a required installment.
    (ii) Late satisfaction of liquidity requirement. The rules of 
paragraph (d)(2) of this section apply to determine whether a 
contribution made after the deadline for a required installment 
satisfies the liquidity requirement of paragraph (d)(1) of this 
section. However, pursuant to section 430(j)(4)(C), the unpaid 
liquidity amount is treated as unpaid until the end of the quarter in 
which the due date for that installment occurs, even if liquid assets 
in that amount are contributed during that quarter (but after the due 
date for the installment). See paragraph (b)(4)(iii) of this section 
for the application of this rule for purposes of applying the 
additional interest for late required installments.
    (iii) Additional consequences of failure to pay liquidity 
shortfall. See section 206(e) of ERISA and section 401(a)(32) of the 
Code (regarding suspension of accelerated distributions for a plan with 
an unpaid liquidity amount). See also section 4971(f) regarding an 
excise tax imposed in the event of a failure to pay a liquidity 
shortfall.
    (iv) Treatment in subsequent quarter--(A) Adjustment to required 
installment. After the close of the quarter in which the due date of a 
required installment occurs, any portion of the installment that was 
treated as unpaid solely by reason of paragraph (d)(1) of this section, 
and that was not satisfied with a contribution of liquid assets during 
that quarter, is no longer treated as unpaid (but any portion of the 
installment that would be treated as unpaid without regard to paragraph 
(d)(1) of this section must be satisfied in accordance with the rules 
of paragraph (c) of this section).
    (B) Increase to minimum required contribution for additional 
interest. If a portion of the required installment is no longer treated 
as unpaid by reason of paragraph (d)(3)(iv)(A) of this section, then 
the minimum required contribution for the plan year for which the 
installment was due is increased by an amount equal to--
    (1) The portion of the required installment that is no longer 
treated as unpaid by reason of paragraph (d)(3)(iv)(A) of this section, 
discounted for interest for the period from the last day of the quarter 
that includes the due date of the required installment to the valuation 
date, using the plan's effective interest rate for the plan year 
(determined pursuant to Sec.  1.430(h)(2)-1(f)(1)); minus
    (2) The portion of the required installment that is no longer 
treated as unpaid by reason of paragraph (d)(3)(iv)(A) of this section, 
discounted for interest for the period from the last day of the quarter 
that includes the due date of the required installment to the due date 
of the installment, using the plan's effective interest rate for the 
plan year plus 5 percentage points, and further discounted for interest 
for the period from the due date of the required installment to the 
valuation date using

[[Page 54394]]

the plan's effective interest rate for the plan year.
    (e) Definitions--(1) In general. The definitions set forth in this 
paragraph (e) apply for purposes of this section.
    (2) Adjusted disbursements--(i) In general. The term adjusted 
disbursements means, with respect to a time period, the amount 
described in paragraph (e)(2)(ii) of this section if the time period is 
within a single plan year, or the amount described in paragraph 
(e)(2)(iii) of this section if the time period spans more than one plan 
year.
    (ii) Period within a single plan year. With respect to a period 
within a plan year, the adjusted disbursements are the disbursements 
from the plan during that period reduced by the product of--
    (A) The plan's funding target attainment percentage determined 
under section 430(d)(2) for the plan year that contains that period; 
and
    (B) The sum of the purchases of annuities and payments of single 
sums for that period.
    (iii) Period spanning more than one plan year. With respect to a 
period of time that spans more than one plan year, the adjusted 
disbursements are the sum of the adjusted disbursements determined 
separately under paragraph (e)(2)(ii) of this section for each portion 
of a plan year that is included in the time period for which adjusted 
disbursements are determined.
    (3) Disbursements from the plan. The term disbursements from the 
plan means all disbursements from the plan's trust, including purchases 
of annuities, payments of single sums and other benefits, and payments 
of administrative expenses.
    (4) Funding shortfall--(i) In general. Except as otherwise provided 
in this paragraph (e)(4), the term funding shortfall has the same 
meaning as under Sec.  1.430(a)-1(f)(2).
    (ii) Special rule for plans of commercial passenger airlines. In 
the case of a plan year for which an election described in section 
402(a)(1) of PPA '06 is in effect, the term funding shortfall means the 
unfunded liability for that plan year determined under Sec.  1.430(a)-
1(b)(4)(ii).
    (iii) Special rule for first effective plan year. See paragraph 
(g)(5)(ii) of this section for a calculation of the funding shortfall 
for the plan's pre-effective plan year.
    (iv) Special rule for plan spinoffs and mergers. [Reserved]
    (5) Liquid assets--(i) In general. The term liquid assets means 
cash, marketable securities, and other assets described in this 
paragraph (e)(5)(i). For this purpose, marketable securities include 
financial instruments such as stocks and other equity interests, 
evidences of indebtedness (including certificates of deposit), options, 
futures contracts, and other derivatives, for which there is a liquid 
financial market, and other interests in entities (such as 
partnerships, trusts, or regulated investment companies) for which 
there is a liquid financial market. For purposes of the preceding 
sentence, a liquid financial market is an established financial market 
described in Sec.  1.1092(d)-1(b) (other than an interbank market or an 
interdealer market described in Sec.  1.1092(d)-1(b)(1)(v) and (vi), 
respectively). Any security that is issued or guaranteed by the 
government of the United States or an agency or instrumentality thereof 
for which there is an established financial market described in Sec.  
1.1092(d)-1(b) is a marketable security. Finally, any financial 
instrument or other interest in an entity that, under its terms, 
contains a right by which the instrument or other interest may 
immediately be redeemed, exchanged, or converted into cash or a 
marketable security, is a marketable security, provided there are no 
restrictions on the exercise of that right.
    (ii) Insurance and annuity contracts. Other assets that are treated 
as liquid assets of a plan are insurance, annuity, or other contracts 
issued by an insurance company that is licensed to do business under 
the laws of any State, but only if the insurance, annuity, or other 
contract--
    (A) Contains an unrestricted right by which the insurance, annuity 
or other contract may immediately be redeemed, exchanged, or converted 
into cash or a marketable security;
    (B) Provides for substantially equal monthly disbursements to the 
extent provided in paragraph (e)(5)(iii) of this section; or
    (C) Is benefit responsive within the meaning of paragraph 
(e)(5)(iv) of this section.
    (iii) Insurance and annuity contracts providing for substantially 
equal periodic payments. If the contract provides for substantially 
equal monthly disbursements (for example, an annuity contract in pay 
status), the only portion of the contract that may be treated as liquid 
assets for a quarter is the amount equal to 36 times the monthly 
disbursement (in the month containing the last day of the quarter) 
which is available under the terms of the contract, provided there are 
no restrictions on the right to disbursements.
    (iv) Benefit responsive insurance and annuity contracts. A contract 
is considered benefit responsive if, under applicable law and 
contractual provisions, the plan has the right to receive disbursements 
from the contract in order to pay plan benefits for any participant in 
the plan, without restrictions on that right.
    (v) Restrictions. For purposes of this paragraph (e)(5), a 
restriction on a redemption, exchange, or conversion right, or a 
restriction on a right to receive a disbursement, may result not only 
from applicable law or contractual provisions, but also from 
rehabilitation, conservatorship, receivership, insolvency, bankruptcy, 
or similar proceedings.
    (6) Liquidity shortfall--(i) In general. Except as modified in 
paragraph (e)(6)(iii) of this section with respect to multiple employer 
plans, the term liquidity shortfall means, with respect to any required 
installment, an amount equal to the excess (as of the last day of the 
quarter for which that installment is due) of--
    (A) The base amount with respect to the quarter, over
    (B) The value (as of the last day of the quarter) of the plan's 
liquid assets.
    (ii) Base amount--(A) In general. For purposes of this paragraph 
(e)(6), the term base amount means, with respect to any quarter, an 
amount equal to 3 times the sum of the adjusted disbursements from the 
plan for the 12 months ending on the last day of that quarter.
    (B) Special rule. If the generally applicable base amount for a 
quarter (as determined under paragraph (e)(6)(ii)(A) of this section) 
exceeds an amount equal to 2 times the sum of the adjusted 
disbursements from the plan for the 36 months ending on the last day of 
the quarter and the enrolled actuary for the plan certifies to the 
satisfaction of the Commissioner that such excess is the result of 
nonrecurring circumstances, then the base amount with respect to that 
quarter is determined without regard to amounts related to those 
nonrecurring circumstances.
    (iii) Multiple employer plans--(A) Satisfaction of liquidity 
requirement as if plan were not a multiple employer plan. For a 
multiple employer plan to which section 413(c)(4)(A) applies, the 
liquidity requirement of paragraph (d)(1)(i) of this section is 
satisfied if the liquidity requirement would be satisfied if the plan 
were a single-employer plan that is not a multiple employer plan to 
which section 413(c)(4)(A) applies.
    (B) Failure to satisfy the liquidity requirement on a plan-wide 
basis. For a multiple employer plan to which section 413(c)(4)(A) 
applies, if the plan does not satisfy the liquidity requirement in 
accordance with paragraph (e)(6)(iii)(A) of this section,

[[Page 54395]]

then the liquidity requirement must be applied separately for each 
employer under the plan, as if each employer maintained a separate 
plan. Thus, the value of plan assets as of the end of each quarter 
under such a multiple employer plan must be allocated among the 
employers sponsoring the plan, and the liquidity shortfall must be 
determined for each employer based on that allocation. See section 
413(c)(7)(B) and paragraph (a)(2) of this section.
    (7) Plan month--(i) Plan year begins on the first day of a calendar 
month. For a plan year that begins with the first day of a calendar 
month, the term plan month means any calendar month that begins during 
the plan year.
    (ii) Plan year begins on a date other than the first day of a 
calendar month. For a plan year that begins on a date other than the 
first day of a calendar month, the first day of each plan month is the 
day of the calendar month that corresponds to the day of the calendar 
month that is the first day of the plan year. Thus, for example, if the 
first day of a plan year is January 15, then a plan month starts on the 
15th of each calendar month. However, if a calendar month does not 
contain a day that corresponds to the day of the calendar month that is 
the first day of the plan year (for example, if a calendar month has 
only 30 days and the first day of the plan year is the 31st day of a 
calendar month), then the first day of the plan month that begins 
during that calendar month is the last day of that calendar month.
    (8) Quarter. The term quarter means, with respect to any required 
installment, the 3-plan-month period preceding the plan month in which 
the due date for that installment occurs.
    (9) Short plan year. The term short plan year means a plan year 
that is shorter than 12 months (and is not a 52-week plan year of a 
plan that uses a 52-53 week plan year).
    (f) Examples. The following examples illustrate the rules of this 
section. Unless otherwise indicated, these examples are based on the 
following assumptions: section 430 applies to determine the minimum 
required contribution for plan years beginning on or after January 1, 
2008; the plan year is the calendar year; the valuation date is January 
1; the plan sponsor is required to pay the installments described in 
paragraph (c) of this section; the plan does not have a liquidity 
shortfall; and the plan sponsor has not elected any funding relief 
under section 430(c)(2)(D) for any plan year. In addition, these 
examples assume that, under the funding method used for the plan, 
interest adjustments are calculated to the nearest half month (rather 
than days) for transactions that occur on the 1st and 15th of a 
calendar month.
    Example 1. (i) Plan A has a funding standard carryover balance 
of $15,000 and a prefunding balance of zero as of January 1, 2016, 
and the plan's funding ratio for 2015 (determined under Sec.  
1.430(f)-1(d)(3)) was over 80%. The minimum required contribution 
for Plan A (determined prior to any offset for the funding standard 
carryover balance) is $100,000 for 2016 and is $125,000 for 2017. 
The effective interest rate for the 2017 plan year is 5.90%.
    (ii) The required annual payment for 2017 is equal to the lesser 
of (a) 100% of the 2016 minimum required contribution ($100,000) or 
(b) 90% of the 2017 minimum required contribution (90% of $125,000, 
or $112,500). Therefore, each required installment for 2017 is 25% 
of $100,000, or $25,000.
    (iii) Installments of $25,000 each are due by April 15, 2017, 
July 15, 2017, October 15, 2017, and January 15, 2018. The final 
contribution for the 2017 plan year is due by September 15, 2018. 
The amount of this final contribution is equal to $125,000, less the 
contributions made prior to that date, with all contributions 
adjusted to the valuation date using the effective interest rate for 
the 2017 plan year. If the plan sponsor makes each required 
installment on the date due, the remaining amount due is determined 
as follows:
    (A) The contribution paid April 15, 2017 is adjusted by 
discounting the contribution amount for 3\1/2\ months at the 
effective interest rate ($25,000 / 1.0590(3.5/12) = 
$24,585).
    (B) The contribution paid July 15, 2017 is discounted for 6\1/2\ 
months at the effective interest rate ($25,000 / 
1.0590(6.5/12) = $24,236).
    (C) The contribution paid October 15, 2017 is discounted for 
9\1/2\ months at the effective interest rate ($25,000 / 
1.0590(9.5/12) = $23,891).
    (D) The contribution paid January 15, 2018 is discounted for 
12\1/2\ months at the effective interest rate ($25,000 / 
1.0590(12.5/12) = $23,551).
    (E) The sum of the above contributions for the 2017 plan year 
paid through January 15, 2018, adjusted for interest to the 
valuation date, is $96,263. The remaining amount due for the 2017 
plan year is $125,000 minus $96,263, or $28,737, as of January 1, 
2017.
    (iv) If the final contribution is made on September 15, 2018, 
the remaining amount due must be increased for interest at the 
plan's effective interest rate for the 20\1/2\ months between 
January 1, 2017 and September 15, 2018 (so that, when it is 
discounted with interest for those 20\1/2\ months, the resulting 
amount will equal $28,737). Therefore, the remaining contribution 
due on September 15, 2018 is $28,737 x 1.0590(20.5/12) = 
$31,694.
    Example 2. (i) The facts are the same as in Example 1, except 
that the plan sponsor elects to use the $15,000 funding standard 
carryover balance as of January 1, 2016, to offset the minimum 
required contribution for the 2016 plan year. The plan sponsor makes 
a contribution on January 1, 2016 of $85,000, which satisfies the 
minimum contribution requirement for 2016.
    (ii) The required installments for 2017 are unaffected by the 
plan sponsor's election to offset the minimum required contribution 
by the funding standard carryover balance for 2016. Therefore, the 
required annual payment for 2017 is $100,000 (determined as the 
lesser of (a) 100% of $100,000 or (b) 90% of $125,000) and the 
amount of each required installment for the 2017 plan year is 25% of 
the required annual payment, or $25,000.
    Example 3.  (i) The facts are the same as in Example 1. Plan A's 
funding standard carryover balance has increased to $17,000 as of 
January 1, 2017, based on the actual rate of return of plan assets 
during the 2016 plan year. Plan A's funding ratio for 2016 
(determined under Sec.  1.430(f)-1(d)(3)) is over 80%. On March 15, 
2017, the plan sponsor elects to use the entire amount of the 
funding standard carryover balance to offset the minimum required 
contribution for 2017.
    (ii) The plan sponsor's election to use the funding standard 
carryover balance to offset the minimum required contribution is 
treated as satisfying the requirement to make a required installment 
to the extent of the amount elected, adjusted with interest for the 
period from the beginning of the plan year to the due date of the 
installment using the plan's effective interest rate for the 2017 
plan year. This adjustment is made for the 2.5-month period from the 
beginning of the plan year to the date of the election as provided 
in Sec.  1.430(f)-1(b)(5), and for the one-month period from the 
date of the election to the due date for the installment, as 
provided in paragraphs (c)(3)(ii) and (c)(4) of this section. 
Therefore, the $17,000 funding standard carryover balance as of 
January 1, 2017 offsets $17,000 x 1.0590(2.5/12) x 
1.0590(1/12) or $17,287 of the $25,000 required 
installment due April 15, 2017, and the remaining contribution due 
on April 15, 2017 is $25,000 minus $17,287, or $7,713.
    (iii) The interest adjustments in paragraph (ii) of this Example 
3 are based on the effective interest rate even if that rate is not 
determined by the time that the required installment is due. If the 
plan's effective interest rate for the plan year has not been 
determined at the time that the required installment is due, the 
actual amount of the required installment satisfied by the use of 
the funding standard carryover balance is determined after the 
effective interest rate is determined. If the extent to which the 
funding standard carryover balance satisfies the required 
installment is overestimated and the result is that the full amount 
of the required installment is not paid by the due date, the plan is 
subject to the consequences for late or unpaid required installments 
as described in paragraph (c)(1) of this section.
    Example 4.  (i) The facts are the same as in Example 3. The plan 
sponsor makes a contribution of $7,713 (which is equal to the 
remaining portion of the first required installment) on April 15, 
2017. For the 2017 plan year, the plan sponsor makes another 
contribution of $200,000 on June 30, 2017. No further contributions 
are made for the 2017 plan year.
    (ii) The contributions made for the 2017 plan year are adjusted 
to the valuation date using the plan's effective interest rate for 
the 2017 plan year. The contribution paid April

[[Page 54396]]

15, 2017 is discounted for the 3\1/2\ months between January 1, 2017 
and the date of payment, using the effective interest rate of 5.90% 
($7,713 / 1.0590(3.5/12) = $7,585). The contribution paid 
June 30, 2017 is discounted for 6 months using the effective 
interest rate ($200,000 / 1.0590(6/12) = $194,349), for a 
total interest-adjusted contribution of $201,934.
    (iii) The present value of the excess contribution for 2017 is 
based on the net contribution required for that year, which is the 
minimum required contribution minus the offset for the funding 
standard carryover balance, or $108,000 (that is, $125,000 minus 
$17,000). Accordingly, the present value of the excess contribution 
for 2017 is $201,934 minus $108,000, or $93,934. All or a portion of 
this amount may be credited to the prefunding balance at the 
election of the plan sponsor.
    Example 5.  (i) The facts are the same as in Example 3. The plan 
sponsor pays the required installment of $7,713 on April 15, 2017 
and installments of $25,000 each on July 15, 2017 and October 15, 
2017. However, only $10,000 of the installment due on January 15, 
2018 is paid. No additional contributions are made until the final 
contribution for the plan year of $55,000 is paid on September 15, 
2018.
    (ii) The 2017 Schedule SB shows that the contributions for the 
plan year exceed the minimum required contribution. This is 
determined by comparing the net contribution requirement of $108,000 
(equal to the minimum required contribution of $125,000 offset by 
$17,000 for the amount of funding standard carryover balance used) 
and the interest-adjusted contributions made for the 2017 plan year, 
developed as shown:
    (A) The contribution paid April 15, 2017 is adjusted by 
discounting the contribution amount for 3\1/2\ months at the 
effective interest rate ($7,713 / 1.0590(3.5/12) = 
$7,585).
    (B) The contribution paid July 15, 2017 is discounted for 6\1/2\ 
months at the effective interest rate ($25,000 / 
1.0590(6.5/12) = $24,236).
    (C) The contribution paid October 15, 2017 is discounted for 
9\1/2\ months at the effective interest rate ($25,000 / 
1.0590(9.5/12) = $23,891).
    (D) The contribution paid January 15, 2018 is discounted for 
12\1/2\ months at the effective interest rate ($10,000 / 
1.0590(12.5/12) = $9,420).
    (E) Pursuant to paragraph (b)(4)(ii) of this section, the 
interest rate used to adjust the $15,000 underpayment of the 
required installment due January 15, 2018 is increased by 5 
percentage points for the 8-month period of underpayment (January 
15, 2018 through September 15, 2018). Accordingly, $15,000 of the 
contribution paid on September 15, 2018 is discounted using a rate 
of 10.90% for 8 months to the due date of January 15, 2018, and is 
then further adjusted using the 5.90% effective interest rate for 
the 12\1/2\ months between the required installment due date of 
January 15, 2018 and the valuation date of January 1, 2017. This 
portion of the September 15, 2018 contribution results in an 
adjusted amount of $13,189 as of January 1, 2017 ($15,000 / 
1.1090(8/12) / 1.0590(12.5/12)).
    (F) The remaining $40,000 of the contribution paid on September 
15, 2018 is discounted using the effective interest rate of 5.90% 
for the 20\1/2\-month period between the date of payment and the 
valuation date. This portion of the payment is therefore adjusted to 
$36,268 as of the valuation date (that is, $40,000 / 
1.0590(20.5/12)).
    (G) The sum of the contributions (as calculated in paragraphs 
(ii)(A) through (F) of this Example 5) for the 2017 plan year paid 
through September 15, 2018, adjusted for interest to the valuation 
date, is $114,589. This is greater than the net contribution 
required for the 2017 plan year of $108,000.
    Example 6.  (i) The facts are the same as in Example 5, except 
that the plan sponsor does not make the contribution on September 
15, 2018.
    (ii) The 2017 Schedule SB shows an unpaid minimum required 
contribution of $42,868 as of January 1, 2017. This is equal to the 
difference between the net contribution required for 2017 of 
$108,000 (the minimum required contribution of $125,000, offset by 
$17,000 for the amount of the funding standard carryover balance 
used) and $65,132 (the interest-adjusted contributions made for the 
2017 plan year before the 8\1/2\ month deadline, as illustrated in 
paragraphs (ii)(A) through (ii)(D) of Example 5).
    Example 7.  (i) The facts are the same as in Example 1, except 
that the plan year is changed to an August 1-July 31 plan year 
effective August 1, 2017. This results in a short plan year 
beginning January 1, 2017 and ending July 31, 2017. The minimum 
required contribution for the 7-month period covered by the plan 
year is calculated as $72,917 in accordance with Sec.  1.430(a)-
1(b)(2)(ii).
    (ii) As provided in paragraph (c)(7) of this section, a required 
installment is due 15 days after the end of the short plan year 
(August 15, 2017), and required installments are also due on the 
regularly scheduled due dates for required installments that occur 
within the short plan year (April 15, 2017 and July 15, 2017).
    (iii) The required installments are determined based on the 
lesser of (a) 90% of the minimum required contribution for the short 
plan year ending July 31, 2017 (90% of $72,917, or $65,625) or (b) 
7/12 of 100% of the 2016 minimum required contribution ($100,000 x 
7/12, or $58,333). The required installments are thus based on 
$58,333 because that is the smaller amount.
    (iv) The amount of each required installment is determined by 
dividing the amount determined in paragraph (iii) of this Example 7 
by the number of required installments for the short plan year. This 
calculation results in required installments of $19,444 each (that 
is, $58,333 divided by 3 installments).
    (v) The deadline for the remaining payment is 8\1/2\ months 
after the end of the short plan year, or April 15, 2018. If the plan 
sponsor pays the minimum required amount at each installment date, 
does not elect to offset any amounts by any funding standard 
carryover or prefunding balance, and makes a final payment on April 
15, 2018, then the remaining payment is $17,429, determined as 
follows:
    (A) The contribution paid April 15, 2017 is adjusted by 
discounting the contribution amount for 3\1/2\ months at the 
effective interest rate ($19,444 / 1.0590(3.5/12) = 
$19,122).
    (B) The contribution paid July 15, 2017 is discounted for 6\1/2\ 
months at the effective interest rate ($19,444 / 
1.0590(6.5/12) = $18,850).
    (C) The contribution paid August 15, 2017 is discounted for 7\1/
2\ months at the effective interest rate ($19,444 / 
1.0590(7.5/12) = $18,760).
    (D) The sum of the contributions for the 2017 plan year paid 
through August 15, 2017, adjusted for interest to the valuation 
date, is $56,732. The remaining amount paid April 15, 2018 for the 
2017 plan year is ($72,917-$56,732) x 1.059(15.5/12) = 
$17,429.
    Example 8.  (i) Plan B has an August 10 to August 9 plan year.
    (ii) For the plan year that begins on August 10, 2017, a plan 
month begins on the 10th day of each calendar month. Accordingly, 
the due dates for the required installments for that plan year are 
November 24, 2017, February 24, 2018, May 24, 2018 and August 24, 
2018. The deadline for the final contribution for the plan year is 
April 24, 2019.
    Example 9.  (i) Plan C has a funding standard carryover balance 
of $0 and a prefunding balance of $65,000 as of January 1, 2017. 
Plan C's funding ratio for 2016 (determined under Sec.  1.430(f)-
1(d)(3)) was over 80%. The minimum required contribution for Plan C 
(determined prior to any offset for the funding standard carryover 
balance) is $120,000 for 2016. Required installments for the 2016 
plan year were made timely, and the final installment of the minimum 
required contribution for the 2016 plan year is due on September 15, 
2017 in the amount of $40,000.
    (ii) Prior to April 15, 2017, the plan sponsor makes a standing 
election to use Plan C's funding balances to offset any otherwise 
unpaid required installments and any otherwise unpaid minimum 
required contribution. On June 1, 2017, the actuary completes the 
2017 valuation and notifies the plan sponsor that the minimum 
required contribution for the 2017 plan year is $100,000. The 
effective interest rate for the 2017 plan year is 5.90%. No 
contributions are made for the 2017 plan year until September 15, 
2018.
    (iii) The first required installment for the 2017 plan year is 
due on April 15, 2017. Under Sec.  1.430(f)-1(f)(1)(iii)(B), the 
amount of the prefunding balance used as of April 15, 2017 pursuant 
to the standing election is 25% of the $120,000 required annual 
payment for the 2016 plan year ($30,000). The prefunding balance is 
reduced by this amount, adjusted for the 3\1/2\-month period between 
the January 1, 2017 valuation date and the April 15, 2017 due date, 
using the effective rate for Plan C for 2017 ($30,000 / 
1.0590(3.5/12), or $29,503). The prefunding balance is 
available to offset the April 15, 2017 required installment even 
though the minimum required contribution for the 2016 plan year has 
not yet been made, because the standing election to use Plan C's 
balances to offset the minimum required contribution for

[[Page 54397]]

the 2016 plan year does not take effect until the due date for that 
contribution, or September 15, 2017. Therefore, as of April 15, 
2017, the prefunding balance still exists and may be used to offset 
the required installment due as of that date.
    (iv) The second required installment for the 2017 plan year is 
due on July 15, 2017, after the actuary determined the minimum 
required contribution for the 2017 plan year. The required annual 
payment for 2017 is equal to the lesser of (a) 100% of the 2017 
minimum required contribution ($120,000) or (b) 90% of the 2017 
minimum required contribution (90% of $100,000, or $90,000). 
Therefore, each required installment for 2017 is 25% of $90,000, or 
$22,500.
    (v) Although the amount of the required installments for 2017 
($22,500) is smaller than the amount based on the 2016 minimum 
required contribution ($30,000), under Sec.  1.430(f)-
1(f)(1)(iii)(B), the amount of the prefunding balance used under the 
standing election continues to be the $30,000 based on the minimum 
required contribution for the 2016 plan year. Alternatively, the 
plan sponsor can make a replacement formula election to use the 
prefunding balance to cover the remaining required installments for 
the 2017 plan year as described in Sec.  1.430(f)-1(f)(1)(iii)(C), 
based on required installments of $22,500 each.
    (vi) The use of $30,000 of the prefunding balance as of April 
15, 2017 pursuant to the standing election is irrevocable, and 
therefore the prefunding balance is not adjusted to reflect the fact 
that the first required installment for the 2017 plan year (based on 
the actual 2017 minimum required contribution) is lower than 
$30,000.
    (vii) However, the excess of the $30,000 of prefunding balance 
used on April 15, 2017 over the first required installment is 
allocated toward the second required installment. In addition, if 
the plan sponsor makes a replacement formula election in accordance 
with Sec.  1.430(f)-1(f)(1)(iii)(C), the amount of prefunding 
balance used pursuant to that election takes into account the actual 
required installment. In this case, the amount of the prefunding 
balance used to satisfy the July 15, 2017 required installment is 
$14,437. This amount is determined by (1) calculating the excess of 
the amount of the prefunding balance used on April 15, 2017 over the 
amount of the required installment due on that date ($30,000 - 
$22,500 = $7,500), and adjusting it for the 3 months from April 15, 
2017 to July 15, 2017, using the effective interest rate ($7,500 x 
1.0590(3/12) = $7,608), (2) deducting that amount from 
the required installment due July 15, 2017, to determine the net 
amount due as of that date ($22,500 - $7,608 = $14,892), and (3) 
adjusting the net amount to the valuation date of January 1, 2017 
for the 6\1/2\-month period between the valuation date and the due 
date for the required installment, using the effective interest rate 
for Plan C for 2017 ($14,892 / 1.0590(6.5/12) = $14,437).
    Example 10. (i) The facts are the same as in Example 9, except 
that Plan C's prefunding balance as of January 1, 2017 is only 
$20,000, and Plan C's sponsor makes a contribution larger than the 
minimum required contribution for the 2016 plan year on March 1, 
2017.
    (ii) The amount of the April 15, 2017 required installment that 
is satisfied by the plan sponsor's election to offset the prefunding 
balance is calculated by increasing the January 1, 2017 prefunding 
balance with interest for 3\1/2\ months to April 15, 2017, using the 
effective interest rate for Plan C for 2017. This results in an 
offset of $20,337 ($20,000 x 1.0590(3.5/12)). A cash 
contribution of $2,163 ($22,500 - $20,337) is needed to satisfy the 
required installment on that date.
    (iii) The excess contribution made for the 2016 plan year cannot 
be used to offset the remainder of the April 15, 2017 required 
installment even though it was contributed prior to the date the 
installment is due, because the sponsor had not yet elected to 
credit the excess contribution to the prefunding balance. If the 
plan sponsor elects at a later date to credit the excess 
contribution to the prefunding balance, the amount can be used to 
offset required installments due on or after the date of that 
election. However, note that if Plan C's actuary reflected the 
excess contribution for 2016 in certifying the 2017 adjusted funding 
target attainment percentage (AFTAP) used to apply benefit 
restrictions under section 436, a later election to credit the 
excess contribution to the prefunding balance would reduce the AFTAP 
and could cause Plan C to violate section 436.
    Example 11.  (i) Plan D is not a small plan described in Sec.  
1.430(g)-1(b)(2). The valuation date for Plan D is January 1, and 
Plan D's funding target attainment percentage (FTAP) was 82% as of 
January 1, 2016 and is 90% as of January 1, 2017. The amount needed 
to increase the plan's FTAP for the 2017 plan year to 100% 
(including the expected increase in the funding target due to 
benefits accruing or earned during the plan year) is $500,000. 
Before taking the liquidity requirement of paragraph (d) of this 
section into account, the plan sponsor of Plan D is required to pay 
installments for the 2017 plan year in the amount of $50,000 each. 
During the 12-month period ending March 31, 2017, periodic annuity 
payments of $425,000 and single sum payments of $200,000 were made 
by Plan D. Of the single sum payments, $125,000 were made during the 
2016 plan year and $75,000 were made during the 2017 plan year. None 
of these payments were due to nonrecurring circumstances. In 
addition, administrative expenses of $25,000 were paid from the plan 
trust during the 12-month period ending March 31, 2017. As of March 
31, 2017, the reported value of Plan D's assets is $1,500,000, and 
the fair market value of Plan D's liquid assets is $1,300,000.
    (ii) The amount of the adjusted disbursements from Plan D for 
the 12-month period ending March 31, 2017 is calculated as the sum 
of the annuity benefits, single sum payments, and administrative 
expenses paid during the 12-month period, reduced by the product of 
the plan's FTAP and the sum of the single sum payments and any 
payments for annuities purchased during the plan year. This results 
in adjusted disbursements for the period of $480,000 (that is, 
$425,000 plus $200,000 plus $25,000, reduced by 82% of $125,000 in 
single sum payments during 2016 and 90% of $75,000 in single sum 
payments during 2017).
    (iii) The base amount is calculated in accordance with paragraph 
(e)(6)(ii) of this section as three times the adjusted disbursements 
determined in paragraph (ii) of this Example 11, or $1,440,000.
    (iv) The liquidity shortfall is the difference between the base 
amount of $1,440,000 determined in paragraph (iii) of this Example 
11 and the $1,300,000 in liquid assets as of March 31, 2017, or 
$140,000. The required installment due on April 15, 2017 is 
therefore $140,000, since this amount is larger than the $50,000 
installment otherwise required, but less than the $500,000 needed to 
increase the plan's FTAP (including the expected increase in the 
funding target due to benefits accruing or earned during the plan 
year) to 100%.
    (v) Note that any contributions of liquid assets made through 
March 31, 2017 are reflected for purposes of determining the fair 
market value of Plan D's liquid assets as of March 31, 2017 and are 
not applied toward satisfying the liquidity requirement as of April 
15, 2017. Similarly, any funding standard carryover balance or 
prefunding balance as of January 1, 2017 cannot be applied to offset 
the liquidity requirement. Only contributions made in cash or other 
liquid assets made after March 31, 2017 and by April 15, 2017 can be 
used to timely satisfy this requirement.
    Example 12.  (i) The facts are the same as in Example 11. The 
plan sponsor makes a cash contribution for the 2017 plan year of 
$30,000 on April 15, 2017, and makes an additional cash contribution 
for the 2017 plan year of $110,000 on April 30, 2017. The effective 
interest rate for Plan D for the 2017 plan year is 5.90%.
    (ii) Under paragraph (d)(3)(i) of this section, the underpayment 
of the required installment due April 15, 2017 is $110,000 (that is, 
$140,000 minus $30,000).
    (iii) Because the $110,000 contribution was made after the due 
date for the required installment (which reflects an unpaid 
liquidity amount) but during the quarter in which the installment 
was due, and because that contribution does not exceed the unpaid 
liquidity amount for the quarter, the special interest adjustment 
under paragraph (b)(4)(iii) of this section applies to the entire 
amount of the contribution. Accordingly, the contribution is 
adjusted for interest in two steps for the purpose of determining 
the portion of the minimum required contribution that is satisfied 
by the contribution. In the first step, the contribution is adjusted 
using the effective interest rate for the 2-month period from the 
payment date of April 30, 2017 to June 30, 2017, the last day of the 
quarter during which the liquidity requirement was due ($110,000 x 
1.0590(2/12) = $111,056). In the second step, this amount 
is adjusted as if that amount had been paid on June 30, 2017. 
Accordingly, this amount ($111,056) is discounted for interest at a 
rate of 10.90% (the effective interest rate for the 2017 plan year 
of 5.90%, increased by 5 percentage points) for the 2\1/2\-month 
period from June 30, 2017 to the April 15, 2017 due date for the 
installment, and is further discounted using the effective interest 
rate of 5.90% for the 3\1/2\-month period

[[Page 54398]]

between April 15, 2017 and the valuation date of January 1, 2017. 
Therefore, the April 30, 2017 contribution is adjusted to $106,886 
as of January 1, 2017 ($111,056 / 1.1090(2.5/12) / 
1.0590(3.5/12)).
    (iv) The $140,000 contributed during April 2017 is needed to 
satisfy the required installment due April 15, 2017 (determined 
taking into account the liquidity shortfall as of March 31, 2017), 
and so the full amount is applied to satisfy that installment. No 
portion of those contributions is applied to the required 
installments for subsequent quarters, and no additional payments are 
needed to satisfy the required installment due April 15, 2017 
(because the $110,000 payment satisfies both the unpaid liquidity 
amount and the remaining amount of the required installment 
described under paragraph (c)(5) of this section).
    Example 13.  (i) The facts are the same as in Example 12, except 
that the plan sponsor does not make the second cash contribution of 
$110,000 on April 30, 2017, but instead makes a second cash 
contribution of $75,000 for the 2017 plan year on July 15, 2017. The 
base amount as of June 30, 2017 calculated in accordance with 
paragraph (e)(6)(ii) of this section is $1,500,000, and the fair 
market value of liquid assets as of that date is $1,400,000.
    (ii) Under paragraph (d)(3)(i) of this section, the underpayment 
of the required installment due April 15, 2017 is $110,000 (that is, 
$140,000 minus $30,000).
    (iii) As of June 30, 2017, no portion of the $110,000 
underpayment of the required installment due April 15, 2017 has been 
satisfied. Under paragraph (d)(3)(iv)(A) of this section, to the 
extent that the amount due April 15, 2017 solely because of the 
liquidity requirement under paragraph (d)(1) of this section is not 
satisfied with a contribution of liquid assets during the quarter, 
this amount is no longer considered unpaid. Of the $110,000 
underpayment of the required installment that was due on April 15, 
2017, $20,000 would have been due without regard to the liquidity 
requirement under paragraph (d)(1) of this section and $90,000 was 
due solely because of that liquidity requirement. Accordingly, as of 
July 1, 2017, $90,000 of the required installment due on April 15, 
2017 is no longer treated as unpaid and $20,000 of that required 
installment continues to be treated as unpaid.
    (iv) Under paragraph (d)(3)(iv)(B) of this section, the interest 
adjustment in paragraph (b)(4)(iii) of this section for the $90,000 
portion of the installment due April 15, 2017 that is no longer 
treated as unpaid is given effect through an increase in the minimum 
required contribution. This increase to the minimum required 
contribution is $837, which is determined as the difference between:
    (A) The $90,000 portion of the required installment that is no 
longer treated as unpaid by reason of paragraph (d)(3)(iv)(A) of 
this section, discounted for the 6-month period between June 30, 
2017 (the last day of the quarter in which the liquidity amount was 
due) to January 1, 2017 (the valuation date) using the plan's 
effective interest rate for 2017 (5.90%), resulting in $87,457 (that 
is, $90,000 / 1.0590(6/12)), and
    (B) The $90,000 portion of the required installment that is no 
longer treated as unpaid by reason of paragraph (d)(3)(iv)(A) of 
this section, discounted for the 2\1/2\-month period between June 
30, 2017 and the April 15, 2017 due date using the plan's effective 
interest rate increased by 5 percentage points (10.90%), and further 
discounted for the 3\1/2\-month period between April 15, 2017 and 
January 1, 2017 valuation date using the plan's effective interest 
rate, for a result of $86,620 (that is, $90,000 / 
1.1090(2.5/12) / 1.0590(3.5/12)).
    (v) The remainder of the required installment that was due on 
April 15, 2017 without regard to the liquidity requirement ($20,000) 
remains unpaid until the July 15, 2017 contribution is made. Under 
paragraph (c) of this section, $20,000 of the July 15, 2017 
contribution must be allocated to the required installment due on 
April 15, 2017. The interest adjustment under paragraph (b)(4)(ii) 
of this section applies to that $20,000 portion of the contribution 
because it is a late payment of a required installment. Accordingly, 
$20,000 of the July 15, 2017 contribution is adjusted to April 15, 
2017, using an interest rate of 10.90% for the 3-month period 
between July 15, 2017 and the April 15, 2017 due date, and further 
adjusted using the effective interest rate of 5.90% for 3\1/2\ 
months between April 15, 2017 and the January 1, 2017 valuation 
date. Therefore, the portion of the July 15, 2017 contribution 
attributable to the April 15, 2017 required installment is adjusted 
to $19,166 as of January 1, 2017 ($20,000 / 1.1090(3/12) 
/ 1.0590(3.5/12)).
    (vi) The liquidity shortfall is recalculated as of June 30, 2017 
as $100,000 (that is, the base amount of $1,500,000 minus the value 
of liquid assets of $1,400,000). This amount is larger than the 
$50,000 required installment otherwise applicable, and so the amount 
of the required installment due on July 15, 2017 is $100,000. Of the 
$75,000 contribution made on July 15, 2017, $20,000 is applied to 
satisfy the remainder of the required installment due April 15, 
2017, and the remaining $55,000 is applied toward the required 
installment due July 15, 2017. An additional contribution of $45,000 
in liquid assets is needed to satisfy the required installment due 
July 15, 2017.
    (vii) If instead there were no liquidity shortfall as of June 
30, 2017, the required installment due July 15, 2017 would be 
$50,000. Of the $75,000 contribution made on July 15, 2017, $20,000 
would be applied to satisfy the remainder of the required 
installment due April 15, 2017, $50,000 would be applied to satisfy 
the required installment due on July 15, 2017, and the remaining 
$5,000 would be applied toward the next required installment.
    Example 14.  (i) Plan E, which is a small plan described in 
section 430(g)(2)(B), has a calendar year plan year and a valuation 
date of December 31. The required installments for the 2017 plan 
year are $30,000 each and each of the required installments is paid 
on the due date. The effective interest rate for Plan E for the 2017 
plan year is 5.90%.
    (ii) The total contributions made for the plan year and before 
the valuation date, adjusted with interest to the valuation date, 
equal $92,402. This is developed as shown below:
    (A) The contribution paid April 15, 2017 is adjusted by 
increasing the contribution amount for 8\1/2\ months at the 
effective interest rate ($30,000 x 1.0590(8.5/12) = 
$31,243).
    (B) The contribution paid July 15, 2017 is increased for 5\1/2\ 
months at the effective interest rate ($30,000 x 1.0590 
(5.5/12) = $30,799).
    (C) The contribution paid October 15, 2017 is increased for 2\1/
2\ months at the effective interest rate ($30,000 x 
1.0590(2.5/12) = $30,360).
    (iii) Pursuant to Sec.  1.430(g)-1(d)(2), the interest-adjusted 
value of the contributions for the 2017 plan year that are made 
before the valuation date is subtracted from the December 31, 2017 
plan assets in determining the value of plan assets for the December 
31, 2017 actuarial valuation.
    Example 15.  (i) The facts are the same as in Example 14, except 
that the first contribution for the 2017 plan year is made on May 
15, 2017 in the amount of $40,000. The remaining amount of each 
required installment is paid on the date it is due.
    (ii) In accordance with paragraph (c)(3)(iii) of this section, 
the amount of the required installment due on April 15, 2017 remains 
at $30,000, even though the associated contribution was not paid 
until May 15, 2017. Therefore, $30,000 of the payment is allocated 
to the April 15, 2017 required installment and the remaining $10,000 
is allocated to the installment due on July 15, 2017.
    (iii) Under paragraph (c)(3)(ii) of this section, the portion of 
the May 15, 2017 contribution allocated to the July 15, 2017 
required installment is increased for interest for the 2 months 
between the date of the contribution and the due date, using the 
effective interest rate for 2017. Therefore, the amount allocated to 
the July 15, 2017 installment is $10,096 (that is, $10,000 x 
1.0590(2/12)). The remaining installment due July 15, 
2017 is $30,000 minus $10,096, or $19,904.
    (iv) The total amount credited against the minimum required 
contribution is $122,062 as of December 31, 2017. This amount is 
calculated as shown below:
    (A) The portion of the May 15, 2017 contribution allocated to 
the April 15, 2017 required installment is first adjusted for the 1 
month between the due date and the payment date using the effective 
interest rate plus 5% ($30,000 / 1.1090(1/12) = $29,742). 
This amount is then adjusted using the effective interest rate, for 
the 8\1/2\ months between the due date of April 15, 2017 and the 
valuation date of December 31, 2017 ($29,742 x 
1.0590(8.5/12) = $30,975).
    (B) The remaining portion of the May 15, 2017 contribution 
($10,000) is increased for the 7\1/2\ months between the date of the 
contribution and the valuation date at the effective interest rate 
($10,000 x 1.0590(7.5/12) = $10,365).
    (C) The contribution paid July 15, 2017 is increased for 5\1/2\ 
months at the effective interest rate ($19,904 x 
1.0590(5.5/12) = $20,434).
    (D) The contribution paid October 15, 2017 is increased for 2\1/
2\ months at the effective

[[Page 54399]]

interest rate ($30,000 x 1.0590(2.5/12) = $30,360).
    (E) The contribution paid January 15, 2018 is discounted for \1/
2\ month at the effective interest rate ($30,000 / 
1.0590(0.5/12) = $29,928).
    (v) The amount deducted from valuation assets as of December 31, 
2017 for contributions made before the valuation date is determined 
without regard to the special interest adjustment for late payment 
of the required installment due April 15, 2017 (and without regard 
to the contribution paid on January 15, 2018).
    Example 16.  (i) Plan F has a required installment of $10,000 
per quarter for the 2016 plan year. The plan sponsor makes a 
contribution of $9,993 on April 10, 2016. The effective interest 
rate for Plan F for the 2016 plan year is 5.90%.
    (ii) In accordance with paragraph (c)(3)(ii) of this section, 
the contribution is increased for interest at the effective interest 
rate, for the 5 days between the contribution date and the due date 
for the required installment. Therefore, the amount credited against 
the required installment due April 15, 2016 is $10,001 ($9,993 x 
1.0590(5/365)), and the required installment is 
satisfied.
    Example 17.  (i) The facts are the same as in Example 16, except 
that a contribution of $8,000 is made on April 20, 2016.
    (ii) In accordance with paragraph (c)(3)(iii) of this section, 
the amount of the required installment due on April 15, 2016 remains 
at $10,000, even though the associated contribution was not paid 
until after the due date, and so $2,000 ($10,000 - $8,000) of the 
required installment remains unpaid as of April 20, 2016.
    (iii) The amount of the April 20, 2016 contribution credited 
against the minimum required contribution for 2016 is $7,858. This 
amount is determined by first adjusting the contribution for the 5 
days between the due date for the required installment and the date 
of the contribution using the effective interest rate for Plan F for 
the 2016 plan year, plus 5% ($8,000 / 1.1090(5/365) = 
$7,989). The result is further adjusted for the 105 days from the 
due date for the required installment to the valuation date of 
January 1, 2016 using the effective interest rate of 5.90% ($7,989 / 
1.0590(105/365) = $7,858).
    (iv) Alternatively, the amount of the April 20, 2016 
contribution credited against the minimum required contribution for 
2016 could be determined using 3\1/2\ months between the due date 
for the required installment and the January 1, 2016 valuation date, 
as long as the calculation is done consistently for each 
contribution and for each plan year. Using this approach, the amount 
adjusted to the April 15, 2016 due date (using the effective 
interest rate for Plan F for the 2016 plan year plus 5%) is adjusted 
to January 1, 2016 for 3\1/2\ months at the effective interest rate 
for Plan F for the 2016 plan year. Under this approach, the amount 
credited against the minimum required contribution is $7,856 ($8,000 
/ 1.1090(5/365) / 1.0590(3.5/12)).
    Example 18.  (i) Plan G has a funding standard carryover balance 
of $15,000 and a prefunding balance of $50,000 as of January 1, 
2016. Plan G's required installments are $25,000 each for the 2017 
plan year, and the final installment of the minimum required 
contribution for the 2016 plan year is due on September 15, 2017, in 
the amount of $40,000. Plan G's funding ratios for both 2015 and 
2016 (determined under Sec.  1.430(f)-1(d)(3)) were over 80%. No 
elections were made to reduce or use Plan G's funding balances 
during 2016. The effective interest rate for Plan G for the 2016 and 
2017 plan years are 5.40% and 5.90%, respectively.
    (ii) On April 15, 2017, Plan G's sponsor elected to use the 
balances to offset the required installment due on that date. The 
amount of the required installment is adjusted to January 1, 2017, 
using the effective interest rate for 2017 to determine the amount 
by which the balances are reduced. Accordingly, this election 
results in a reduction of $24,585 ($25,000 / 
1.0590(3.5/12) in the funding balances as of January 1, 
2017.
    (iii) On September 15, 2017, Plan G's sponsor elected to use the 
balances to offset the remaining minimum required contribution for 
the 2016 plan year due on that date. This amount is adjusted to 
January 1, 2016, using the effective interest rate for 2016 to 
determine the amount by which the balances are reduced. Accordingly, 
this election results in a reduction of $36,563 ($40,000 / 
1.0540(20.5/12) in Plan G's funding balances as of 
January 1, 2016.
    (iv) Section 430(f)(3)(B) and Sec.  1.430(f)-1(d)(2) require 
that the funding standard carryover balance be exhausted before the 
prefunding balance is used to offset required contribution amounts. 
Although the due date for the April 15, 2017 required installment 
occurs earlier than the due date for the 2016 minimum required 
contribution, for this purpose contributions for the 2016 plan year 
are deemed to occur before those for the 2017 plan year. Therefore, 
the election to offset the 2016 minimum required contribution will 
eliminate Plan G's funding standard carryover balance, and the 2017 
required installment due April 15, 2017 will be offset by the 
prefunding balance.

    (g) Effective/applicability dates and transition rules--(1) 
Statutory effective date/applicability date. Section 430 generally 
applies to plan years beginning on or after January 1, 2008. The 
applicability of section 430 for purposes of determining the minimum 
required contribution is delayed for certain plans in accordance with 
sections 104 through 106 of PPA '06.
    (2) Effective date/applicability date of regulations. This section 
applies to plan years beginning on or after January 1, 2016. For plan 
years beginning before January 1, 2016, plans are permitted to rely on 
the provisions set forth in this section for purposes of satisfying the 
requirements of section 430(j).
    (3) First effective plan year. For purposes of this section, the 
first effective plan year for a plan is the first plan year after the 
pre-effective plan year.
    (4) Pre-effective plan year. For purposes of this section, the pre-
effective plan year is the plan year described in Sec.  1.430(a)-
1(h)(5).
    (5) Special rules relating to first effective plan year--(i) 
Determination of minimum required contribution for pre-effective plan 
year. In the case of the plan's first effective plan year, the minimum 
required contribution for the preceding plan year for purposes of 
paragraph (c)(5)(ii)(B) of this section is equal to the minimum 
required contribution under section 412 for the pre-effective plan year 
(determined without regard to any funding waiver under section 412), 
determined as of the last day of the pre-effective plan year and 
without regard to the plan's credit balance.
    (ii) Determination of funding shortfall for pre-effective plan 
year--(A) First effective plan year that begins during 2008. In 
general, in the case of a plan with a first effective plan year that 
begins during 2008, the funding shortfall for the pre-effective plan 
year that precedes it is determined pursuant to paragraph (e)(4) of 
this section. However, for this purpose, the plan's current liability 
for the pre-effective plan year under section 412(l)(7) (as in effect 
for the pre-effective plan year) is permitted to be used in place of 
the plan's funding target for the pre-effective plan year. In addition, 
for this purpose, the value of plan assets that was used for the pre-
effective plan year is permitted to be used in place of the value of 
plan assets computed pursuant to Sec.  1.430(g)-1(c) for the pre-
effective plan year, provided that the value of plan assets that was 
used for the pre-effective plan year was not less than 90 percent nor 
more than 110 percent of the value of plan assets computed pursuant to 
Sec.  1.430(g)-1(c). If the value of plan assets that was used for the 
pre-effective plan year was less than 90 percent of the value of plan 
assets computed pursuant to Sec.  1.430(g)-1(c), then 90 percent of the 
value of plan assets computed pursuant to Sec.  1.430(g)-1(c) is 
permitted to be used as the value of plan assets for the pre-effective 
plan year. If the value of plan assets that was used for the pre-
effective plan year was more than 110 percent of the value of plan 
assets computed pursuant to Sec.  1.430(g)-1(c), then 110 percent of 
the value of plan assets computed pursuant to Sec.  1.430(g)-1(c) is 
permitted to be used as the value of plan assets for the pre-effective 
plan year. Finally, for this purpose, the value of plan assets is 
permitted to be determined without subtraction for the plan's credit 
balance for the pre-effective plan year.
    (B) First effective plan year begins after 2008. In the case of a 
plan with a first effective plan year that begins after

[[Page 54400]]

December 31, 2008, the determination of the funding shortfall for the 
pre-effective plan year that immediately precedes it is made in 
accordance with paragraph (e)(4)(i) of this section. Thus, the funding 
shortfall for the pre-effective plan year is based on the funding 
target for the pre-effective plan year and the value of plan assets is 
determined under Sec.  1.430(g)-1(c) for the pre-effective plan year, 
even though section 430(g) did not apply to the plan for purposes of 
determining the minimum required contribution for the pre-effective 
plan year.

0
Par. 6. Section 1.436-1 is amended as follows:
0
1. Paragraph (h)(4)(iii)(C)(7) is amended by removing the word ``or''.
0
2. Paragraph (h)(4)(iii)(C)(8) is amended by removing the word 
``percentage.'' and adding the words ``percentage; or'' in its place.
0
3. Paragraph (h)(4)(iii)(C)(9) is added.
    The additions read as follows:


Sec.  1.436-1  Limits on benefits and benefit accruals under single 
employer defined benefit plans.

* * * * *
    (h) * * *
    (4) * * *
    (iii) * * *
    (C) * * *
    (9) Any other event prescribed in guidance published in the 
Internal Revenue Bulletin.
* * * * *

PART 54--PENSION EXCISE TAXES

0
Par. 7. The authority citation for part 54 continues to read in part as 
follows:

    Authority:  26 U.S.C. 7805 * * *


0
Par. 8. Section 54.4971(c)-1 is added to read as follows:


Sec.  54.4971(c)-1  Taxes on failure to meet minimum funding standards; 
definitions.

    (a) In general. This section sets forth definitions that apply for 
purposes of applying the rules of section 4971.
    (b) Accumulated funding deficiency--(1) Multiemployer plans. With 
respect to a multiemployer plan defined in section 414(f), the term 
accumulated funding deficiency has the meaning given to that term by 
section 431. A plan's accumulated funding deficiency for a plan year 
takes into account all charges and credits to the funding standard 
account under section 412 for plan years before the first plan year for 
which section 431 applies to the plan.
    (2) CSEC plans. With respect to a CSEC plan (that is, a plan that 
fits within the definition of a CSEC plan in section 414(y) for plan 
years beginning on or after January 1, 2014 and for which the election 
under section 414(y)(3)(A) has not been made), the term accumulated 
funding deficiency means the CSEC accumulated funding deficiency 
determined under section 433. A plan's CSEC accumulated funding 
deficiency for a plan year takes into account all charges and credits 
to the funding standard account under section 412 for plan years before 
the first plan year for which section 433 applies to the plan.
    (c) Unpaid minimum required contribution--(1) In general. The term 
unpaid minimum required contribution means, with respect to any plan 
year, the portion of the minimum required contribution under section 
430 for the plan year for which contributions have not been made on or 
before the due date for the plan year under section 430(j)(1). The 
unpaid minimum required contribution is determined after taking into 
account the interest adjustment to contributions under Sec.  1.430(j)-
1(b)(4) and any offsets from use of the funding balances under Sec.  
1.430(f)-1(d).
    (2) Accumulated funding deficiency for pre-effective plan year. For 
purposes of this section, a plan's accumulated funding deficiency under 
section 412 for the pre-effective plan year is treated as an unpaid 
minimum required contribution for that plan year until correction is 
made under the rules of paragraph (d)(2) of this section.
    (d) Correct--(1) Accumulated funding deficiency. With respect to an 
accumulated funding deficiency for a plan year that is described in 
paragraph (b) of this section, the term correct means to contribute, to 
or under the plan, the amount necessary to reduce the accumulated 
funding deficiency as of the end of that plan year to zero. To reduce 
the deficiency to zero, the contribution must include interest at the 
plan's valuation interest rate for the period between the end of that 
plan year and the date of the contribution (determined taking into 
account the rules of section 431(c)(8) or section 433(c)(9), as 
applicable).
    (2) Unpaid minimum required contribution--(i) In general. With 
respect to an unpaid minimum required contribution for a plan year, the 
term correct means to contribute, to or under the plan, an amount that, 
when discounted to the valuation date for the plan year for which the 
unpaid minimum required contribution is due at the appropriate rate of 
interest, equals or exceeds the unpaid minimum required contribution. 
For this purpose, the appropriate rate of interest is the plan's 
effective interest rate for the plan year for which the unpaid minimum 
required contribution is due except to the extent that the payments are 
subject to additional interest as provided under section 430(j)(3) or 
(4).
    (ii) Pre-PPA accumulated funding deficiency. With respect to the 
accumulated funding deficiency under section 412 for the pre-effective 
plan year that is described in paragraph (c)(2) of this section, the 
term correct means to contribute, to or under the plan, the amount of 
that accumulated funding deficiency increased with interest from the 
end of the pre-effective plan year to the date of the contribution at 
the plan's valuation interest rate for the pre-effective plan year.
    (iii) Ordering rule. For purposes of section 4971 and this section, 
a contribution is attributable first to the earliest plan year of any 
unpaid minimum required contribution for which correction has not yet 
been made.
    (3) Corrective action of certain retroactive plan amendments. 
Certain retroactive plan amendments that meet the requirements of 
section 412(d)(2) may reduce the minimum required contribution for a 
plan year, which would reduce the accumulated funding deficiency or the 
amount of the unpaid minimum required contribution for a plan year.
    (e) Taxable period--(1) In general. The term taxable period means 
the period beginning with the end of the plan year in which there is an 
accumulated funding deficiency or unpaid minimum required contribution, 
whichever is applicable, and ending on the earlier of:
    (i) The date of mailing of a notice of deficiency under section 
6212 with respect to the tax imposed by section 4971(a); or
    (ii) The date on which the tax imposed by section 4971(a) is 
assessed.
    (2) Special rule. Where a notice of deficiency referred to in 
paragraph (e)(1)(i) of this section is not mailed because a waiver of 
the restrictions on assessment and collection of a deficiency has been 
accepted or because the deficiency is paid, the date of filing of the 
waiver or the date of such payment, respectively, is treated as the end 
of the taxable period.
    (f) Single-employer plan. The term single-employer plan means a 
plan to which the minimum funding requirements of section 412 apply 
that is not a multiemployer plan as described in section 414(f). The 
term single-employer plan includes a multiple employer plan to which 
section 413(c) applies, other than a CSEC plan as described in 
paragraph (b)(2) of this section.

[[Page 54401]]

    (g) Examples. The following examples illustrate the rules of this 
section.

    Example 1. (i) Plan A, a single-employer defined benefit plan, 
has a calendar year plan year and a January 1 valuation date. The 
sponsor of Plan A has a calendar taxable year. Plan A has no funding 
shortfall as of January 1, 2008, and Plan A has no unpaid minimum 
required contributions for 2008 or any earlier plan year. The 
minimum required contribution for the 2009 plan year is $250,000. 
The plan sponsor makes one contribution for 2009 on July 1, 2009 in 
the amount of $200,000, and the sponsor does not make an election to 
use the prefunding balance or funding standard carryover balance to 
offset the minimum required contribution for 2009. The effective 
interest rate for Plan A for the 2009 plan year is 5.90%.
    (ii) The contribution paid July 1, 2009 is discounted for 6 
months (to the valuation date) at the effective interest rate 
($200,000 / 1.0590(6/12) = $194,349). The unpaid minimum 
required contribution for the 2009 plan year is $250,000 minus 
$194,349, or $55,651. The excise tax due under section 4971(a) is 
10% of the unpaid minimum required contribution, or $5,565.
    Example 2. (i) The facts are the same as in Example 1. The plan 
sponsor makes an additional contribution of $175,000 on December 31, 
2010.
    (ii) Under the ordering rule in paragraph (d)(2)(iii) of this 
section, the contribution made on December 31, 2010 is applied first 
to correct the unpaid minimum required contribution for 2009. The 
portion of the contribution paid December 31, 2010 that is required 
to eliminate the unpaid minimum required contribution for 2009 
(taking into account the 2009 effective interest rate for the 24 
months between January 1, 2009 and the payment date of December 31, 
2010), is $55,651 multiplied by 1.059(24/12) or $62,412. 
The remaining payment of $112,588 ($175,000 minus $62,412) is 
applied to the contribution required for the 2010 plan year.
    Example 3. (i) Plan B, a single-employer defined benefit plan, 
has a calendar year plan year. The sponsor of Plan B has a calendar 
taxable year. Plan B has an accumulated funding deficiency of 
$100,000 as of December 31, 2007, including additional interest due 
to late required installments during 2007. The valuation interest 
rate for the 2007 plan year is 7.5%.
    (ii) In accordance with paragraph (c)(2) of this section, the 
accumulated funding deficiency under section 412 as of December 31, 
2007 is considered an unpaid minimum required contribution until it 
is corrected. Pursuant to paragraph (d)(2)(ii) of this section, the 
amount needed to correct that accumulated funding deficiency is 
$100,000 plus interest at the valuation interest rate of 7.5% for 
the period between December 31, 2007 and the date of payment of the 
contribution.
    (iii) The funding shortfall as of January 1, 2008 is calculated 
as the difference between the funding target and the value of assets 
as of that date. The assets are not adjusted by the amount of the 
accumulated funding deficiency. The fact that the contribution was 
not made for the 2007 plan year means that the January 1, 2008 
funding shortfall is larger than it would have been otherwise.
    Example 4. (i) The facts are the same as in Example 3. The 
minimum required contribution for the 2008 plan year is $125,000, 
but the plan sponsor does not make any required contributions for 
2008.
    (ii) The total unpaid minimum required contribution as of 
December 31, 2008 is the sum of the $100,000 accumulated funding 
deficiency under section 412 from 2007 and the $125,000 unpaid 
minimum required contribution for 2008, or $225,000. The section 
4971(a) excise tax applies to the aggregate unpaid minimum required 
contributions for all plan years that remain unpaid as of the end of 
2008. In this case, there is an unpaid minimum required contribution 
of $100,000 for the 2007 plan year and an unpaid minimum required 
contribution of $125,000 for the 2008 plan year. The section 4971(a) 
excise tax is 10% of the aggregate of those unpaid amounts, $22,500.
    Example 5. (i) The facts are the same as in Example 4, except 
that the plan sponsor makes a contribution of $150,000 on December 
31, 2008. No additional contributions are paid through September 15, 
2009. Required installments of $25,000 each are due April 15, 2008, 
July 15, 2008, October 15, 2008, and January 15, 2009. Plan B's 
effective interest rate for the 2008 plan year is 5.75%.
    (ii) In accordance with paragraph (c)(2) of this section, the 
accumulated funding deficiency under section 412 as of December 31, 
2007 is treated as an unpaid minimum required contribution until it 
is corrected.
    (iii) The December 31, 2008 contribution is first applied to the 
2007 accumulated funding deficiency under section 412 that is 
treated as an unpaid minimum required contribution. Accordingly, the 
amount needed to correct the 2007 unpaid required minimum 
contribution ($100,000 multiplied by 1.075, or $107,500) is applied 
to eliminate this unpaid minimum required contribution for the 2007 
plan year.
    (iv) The remaining $42,500 December 31, 2008 contribution 
($150,000 minus $107,500) is then applied to the 2008 minimum 
required contribution. This amount is first allocated to the 
required installment due April 15, 2008. In accordance with Sec.  
1.430(j)-1(b)(4)(ii) of this chapter, the adjustment for interest on 
late required installments is increased by 5 percentage points for 
the period of underpayment. Therefore, $25,000 of the remaining 
December 31, 2008 contribution is discounted using an interest rate 
of 10.75% for the 8\1/2\-month period between the payment date of 
December 31, 2008 and the required installment due date of April 15, 
2008, and at the 5.75% effective interest rate for the 3\1/2\ months 
between April 15, 2008 and January 1, 2008. This portion of the 
December 31, 2008 contribution results in an adjusted amount of 
$22,880 (that is, $25,000 / 1.1075(8.5/12) / 
1.0575(3.5/12)) as of January 1, 2008.
    (v) The remaining December 31, 2008 contribution is then applied 
to the required installment due July 15, 2008. The $17,500 balance 
of the December 31, 2008 contribution ($150,000 minus $107,500 minus 
$25,000) is paid after the due date for the second required 
installment. Accordingly, the remaining $17,500 contribution is 
adjusted using an interest rate of 10.75% for the 5\1/2\-month 
period between the payment date of December 31, 2008 and the 
required installment due date of July 15, 2008, and at the 5.75% 
effective interest rate for the 6\1/2\ months between July 15, 2008 
and January 1, 2008. This portion of the December 31, 2008 
contribution results in an adjusted amount of $16,202 (that is, 
$17,500 / 1.1075(5.5/12) / 1.0575(6.5/12)) as 
of January 1, 2008.
    (vi) The remaining unpaid minimum required contribution for 2008 
is $125,000 minus the interest-adjusted amounts of $22,880 and 
$16,202 applied towards the 2008 minimum required contribution as 
determined in paragraphs (iv) and (v) of this Example 5. This 
results in an unpaid minimum required contribution of $85,918 for 
2008. The section 4971(a) excise tax is 10% of the unpaid minimum 
required contribution, or $8,592.
    Example 6. (i) Plan C, a single-employer defined benefit plan, 
has a calendar year plan year and a January 1 valuation date, and 
has no funding standard carryover balance or prefunding balance as 
of January 1, 2008. Plan C's sponsor has a calendar taxable year. 
The minimum required contributions for Plan C are $100,000 for the 
2008 plan year, $110,000 for the 2009 plan year, $125,000 for the 
2010 plan year, and $135,000 for the 2011 plan year. No 
contributions for these plan years are made until September 15, 
2012, at which time the plan sponsor contributes $273,000 (which is 
exactly enough to correct the unpaid minimum required contributions 
for the 2008 and 2009 plan years).
    (ii) The excise tax under section 4971(a) for the 2008 taxable 
year is 10% of the aggregate unpaid minimum required contributions 
for all plan years remaining unpaid as of the end of any plan year 
ending within the 2008 taxable year. Accordingly, the excise tax for 
the 2008 taxable year is $10,000 (that is, 10% of $100,000). The 
excise tax for the 2009 taxable year is $21,000 (that is, 10% of the 
sum of $100,000 and $110,000) and the excise tax for the 2010 
taxable year is $33,500 (that is, 10% of the sum of $100,000, 
$110,000, and $125,000).
    (iii) The contribution made on September 15, 2012 is applied to 
correct the unpaid minimum required contributions for the 2008 and 
2009 plan years by the deadline for making contributions for the 
2011 plan year. Therefore, the excise tax under section 4971(a) for 
the 2011 taxable year is based only on the remaining unpaid minimum 
required contributions for the 2010 and 2011 plan years, or $26,000 
(that is, 10% of the sum of $125,000 and $135,000).
    (iv) The plan sponsor may also be required to pay an excise tax 
of 100% under section 4971(b), if the unpaid minimum required 
contributions are not corrected by the end of the taxable period.

    (h) Effective/applicability dates and transition rules--(1) 
Statutory effective date--(i) In general. In general, the amendments 
made to section 4971 by section 114 of the Pension Protection

[[Page 54402]]

Act of 2006, Public Law 109-280, 120 Stat. 780 (2006), as amended (PPA 
'06), apply to taxable years beginning on or after January 1, 2008, but 
only with respect to a plan year that--
    (A) Begins on or after January 1, 2008; and
    (B) Ends with or within any such taxable year.
    (ii) Plans with delayed PPA '06 effective dates. In the case of a 
plan for which the effective date of section 430 for purposes of 
determining the minimum required contribution is delayed in accordance 
with sections 104 through 106 of PPA '06, the amendments made to 
section 4971 by section 114 of PPA '06 apply to taxable years beginning 
on or after January 1, 2008, but only with respect to a plan year--
    (A) To which section 430 applies to determine the minimum required 
contribution of the plan; and
    (B) That ends with or within any such taxable year.
    (2) Effective date of regulations. This section is effective for 
taxable years beginning on or after the statutory effective date 
described in paragraph (h)(1) of this section, but in no event does 
this section apply to taxable years ending before April 15, 2008.
    (3) Pre-effective plan year. For purposes of this section, the pre-
effective plan year for a plan is the plan year described in Sec.  
1.430(a)-1(h)(5) of this chapter. Thus, except for plans with a delayed 
effective date under paragraph (h)(1)(ii) of this section, the pre-
effective plan year for a plan is the last plan year beginning before 
January 1, 2008.

John Dalrymple,
Deputy Commissioner for Services and Enforcement.
    Approved: July 17, 2015.
Mark J. Mazur,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2015-20914 Filed 9-8-15; 8:45 am]
 BILLING CODE 4830-01-P