As sponsors of defined benefit plans are well aware, certain limitations are imposed on a defined benefit plan when a plan’s adjusted funding target attainment percentage (AFTAP) is below 80 percent. Additional limitations are imposed if the AFTAP is below 60 percent. When these limitations become applicable, a notice must be provided to participants and beneficiaries who are subject to the applicable benefit limitations. While the notice requirement has been in effect for several years, the Internal Revenue Service (IRS) recently issued Notice 2012-46 to provide guidance on the contents of the notice, the time and manner in which notices must be delivered, and which participants and beneficiaries are required to receive the notice. Notice 2012-46 also offers model language that can be used to provide the required notice.

Sponsors of defined benefit plans with AFTAPs below 80 percent should review with their advisors the form of notice suggested by the IRS to be certain that the notice that will be given complies with the guidance. Notice 2012-46 goes into effect November 1, 2012, and can be relied upon earlier. (IRS Notice 2012-46)