Section 436 of the Internal Revenue Code, as added by the Pension Protection Act of 2006, places certain benefit limitations on underfunded single-employer defined benefit plans. Whether, and the extent to which, benefit limitations under Code Section 436 apply is based on the plan’s adjusted funding target attainment percentage, or “AFTAP,” which is essentially a ratio of the plan’s adjusted assets to its adjusted funding target. If a plan’s AFTAP is less than a certain percentage (the exact percentage will depend on the type of limitation at issue), limitations on the ability to pay certain benefits, to earn additional benefits, and to adopt amendments increasing the plan’s benefits, will become effective under Code Section 436.
Sponsors of calendar-year defined benefit plans that are subject to the provisions of Code Section 436 must have in place an actuarial certification of the plan’s 2008 AFTAP by Oct. 1, 2008 (to the extent a 2008 certification is not already in place). If an actuarial certification of the AFTAP is not in place by that date, the plan’s AFTAP is conclusively presumed to be less than 60 percent, thus triggering the full series of Code Section 436 limitations on the accrual and payment of benefits under an underfunded plan for the remainder of the plan year.
Employers sponsoring affected defined benefit pension plans should contact their plan actuary as soon as possible to make sure that they have a 2008 funding certification in place by Oct. 1.