IRS Issues Final Rule on Certain Notice Requirements

November 23, 2009 ( - The Internal Revenue Service has issued a final rule (T.D. 9472) on the Employee Retirement Income Security Act Section 204(h) notice requirements for pension plan amendments that reduce benefits accrued before the plan amendments' applicable amendment dates.

The IRS notes that the elimination or reduction of an early retirement benefit or retirement-type subsidy is treated as having the effect of reducing the rate of future benefit accrual. Section 4980F(e)(3) provides that, except as provided in regulations, the notice must be provided within a “reasonable time” before the effective date of the plan amendment.

In its guidance, the agency said except as otherwise provided, section 204(h) notice must be provided at least 45 days before the effective date of any section 204(h) amendment (15 days for small plans and multiemployer plans). For certain amendments effective not later than December 31, 2008, section 204(h) notice does not fail to be timely if the notice is provided at least 30 days, rather than 45 days, before the date that the amendment is first effective.

The guidance addresses amendments that may be required due to Pension Protection Act special funding rules for plans maintained by an employer that is a commercial passenger airline or the principal business of which is providing catering services to a commercial passenger airline, or rules limiting benefits and benefit accruals for single-employer plans with certain funding shortfalls, in general based on a plan’s adjusted funding target attainment percentage (AFTAP).

These include limits on unpredictable contingent event benefits (where the plan’s AFTAP is or would be below 60%), certain plan amendments which would increase liabilities of the plan by reason of an increase in benefits (where the plan’s AFTAP is or would be below 80%), and prohibited payments (where the plan’s AFTAP is below 60% or is at least 60% but below 80%, or during a period in which the plan sponsor is a debtor in a case under title 11 U.S.C. or similar federal or State law and the plan actuary has not certified that the plan’s AFTAP is at least 100% or the plan year), and a cessation of benefit accruals (where the plan’s AFTAP is below 60%).

The final rule is here.

The IRS also issued Announcement 2009-85, which said the agency will temporarily stop accepting on February 22, 2010, determination letter applications for defined benefit plans that are filed on Form 5307, Application for Determination for Adopters of Master or Prototype or Volume Submitter Plans, for the GUST laws. 

The reason for the program's temporary closing is the need for such pre-approved plans to be restated for more recent law changes, IRS said.

The announcement will be published in the Internal Revenue Bulletin 2009-51, dated December 21, 2009.