On November 29, 2011, the Internal Revenue Service issued Notice 2011-96 (pdf), which further extends the deadline for adopting pension plan amendments to reflect the requirements of Internal Revenue Code (“Code”) Section 436. The Notice also further extends the period during which amendments adopted to comply with Code Section 436 are eligible for relief from the anti-cutback rules under Code Section 411(d)(6).
Code Section 436, as added by the Pension Protection Act of 2006, sets forth limitations on benefit payments and accruals for defined benefit plans that are “underfunded” and generally is effective for plan years that began on or after January 1, 2008. The extension of the amendment deadline does not change the effective date, and plans must continue to comply with the Code Section 436 requirements in operation.
Pursuant to Notice 2011-96, the deadline for adopting amendments to comply with Code Section 436 is extended to the latest of the following dates:
- The last day of the first plan year that begins on or after January 1, 2012 (for calendar year plans, this is December 31, 2012);
- The last day of the plan year for which Code Section 436 is first effective for the plan; or
- The due date (including extensions) of the employer’s tax return for the tax year that contains the first day of the plan year for which Code Section 436 is first effective for the plan.
Notice 2011-96 also provides a sample 436 amendment, which is welcome news for plan sponsors. In the Notice, the IRS confirms that a plan sponsor who timely adopts the sample amendment, in form, satisfies the requirements of Code Section 436, and the amendment will not cause the plan to violate the anti-cutback requirements of Code Section 411(d)(6), provided that the sample amendment is adopted as drafted (or as permitted or required to be modified by the Notice). The sample amendment may be adopted by sponsors of individually designed plans, as well as by sponsors of preapproved volume submitter and master and prototype plans.
Now that the IRS has issued a sample 436 amendment, plan sponsors should begin considering when to adopt the required Section 436 amendments. If other plan amendments are being made this year, plan sponsors may wish to adopt the 436 amendments now instead of waiting until next year. In any event, plan sponsors should ensure that they currently are operating their defined benefit plans in compliance with the requirements of Code Section 436.