3688. What is the funding requirement for defined benefit plans beginning after 2007?Nuco Employeercline202006-10-06T19:13:00Z2015-07-14T19:56:00Z2015-07-14T19:56:00Z49295300Summit Business Media44126217142006-10-09T00:00:00ZTaxFactsDefaultArticleSite Map/Retirement Plans/Pension And Profit Sharing/Plan Types and Features/Pensions/Minimum Funding Standard129240386-00-tf1.xml388.00;#2245;#0x010100C568DB52D9D0A14D9B2FDCC96666E9F2007948130EC3DB064584E219954237AF3900242457EFB8B24247815D688C526CD44D009C4E67E972694125ABDA91AC61F5E51FTax Facts 1What is the funding requirement for defined benefit plans beginning after 2007?77500.0000000000TaxFactsDefaultArticleSBMEDIA\moss-admin2010-01-14T23:46:14Z3688. What is the funding requirement for defined benefit plans beginning after 2007?The Pension Protection Act of 2006 replaces the minimum funding standard account and the deficit reduction contribution for single-employer defined benefit plans (Q 3687) with a single basic “minimum required contribution.”.IRC Sec. 412(a)(2)(A), 430.The minimum required contribution for a defined benefit plan (other than multiemployer plans) is determined in the following manner:(1)If the value of a plan’s assets (reduced as described below) equals or exceeds the funding target of the plan for the plan year, the minimum required contribution is the target normal cost reduced (but not below zero) by such excess..IRC Sec. 430(a)(2).(2)If the value of the plan’s assets (reduced as described below) is less than the funding target of the plan for the plan year, the minimum required contribution is the sum of: (a) the target normal cost, (b) the shortfall amortization charge (if any) for the plan for the plan year, and (c) the waiver amortization charge (if any) for the plan for the plan year..IRC Sec. 430(a)(1).Target Normal Cost. With the exception of plans in “at-risk” status (Q 3689), a plan’s target normal cost means the present value of all benefits that are expected to accrue or to be earned under the plan during the plan year. If any benefit attributable to services performed in a preceding plan year is increased by reason of any increase in compensation during the current plan year, the benefit increase will be treated as having accrued during the current plan year..IRC Sec. 430(b).Shortfall Amortization Charge. The shortfall amortization charge for a plan for any plan year is the aggregate total (not below zero) of the shortfall amortization installments for the plan year with respect to any shortfall amortization base that has not been fully amortized..IRC Sec. 430(c)(1). The shortfall amortization installments are the amounts necessary to amortize the shortfall amortization base of the plan for any plan year in level annual installments over the seven-plan-year period beginning with such plan year..IRC Sec. 430(c)(2). For this purpose, the use of segmented interest rates derived from a yield curve will be phased in under rules set forth in IRC Section 430(h)(2)(C).The shortfall amortization base for a plan year is the funding shortfall (if any) of the plan for that plan year, minus the present value of the total of the shortfall amortization installments and waiver amortization installments that have been determined for the plan year and any succeeding plan year with respect to the shortfall amortization bases and waiver amortization bases of the plan for any previous plan year..IRC Sec. 430(c)(3).The funding shortfall of a plan for any plan year is the excess (if any) of the funding target for the plan year over the value of the plan assets (reduced as described below) for the plan year that are held by the plan on the valuation date..IRC Sec. 430(c)(5). If the value of a plan’s assets (reduced as described below) is equal to or greater than the funding target of the plan for the plan year, the shortfall amortization base of the plan for the plan year is zero..IRC Sec. 430(c)(5)(A). Under special transition rules, the determination of the funding shortfall for certain plans could be calculated using only an applicable percentage of the funding target, as follows:Plan year beginning in calendar yearThe applicable percentage is200892200994201096This phase-in transition relief was available only to plans for which the shortfall amortization base for each of the plan years beginning after 2007 was zero. The transition relief was unavailable for plans that were not in effect for a plan year beginning in 2007..IRC Sec. 430(c)(5)(B) (transition rule removed by §221(a)(57)(C)(i) of the Tax Increase Protection Act of 2014). Waiver amortization charge. The waiver amortization charge (if any) for the plan year is the total of the plan’s waiver amortization installments for the plan year with respect to the waiver amortization bases for each of the five preceding plan years..IRC Sec. 430(e). The waiver amortization installments are the amounts necessary to amortize the waiver amortization base of the plan for any plan year in level annual installments over a period of five plan years, beginning with the succeeding plan year. The waiver amortization installment for any plan year in this five-year period with respect to any waiver amortization base is the annual installment determined for that year for that base..IRC Sec. 430(e)(2).Reduction of plan asset values. In the case of a plan that maintains a prefunding balance or a funding standard carryover balance, the amount that is treated as the value of plan assets is subject to reduction for purposes of determining the minimum required contribution and any excess assets, funding shortfall, and funding target attainment percentage. The value of plan assets is deemed to be that amount reduced by the amount of the prefunding balance, but only if the employer has elected to apply a portion of the prefunding balance to reduce the minimum required contribution for the plan year. In turn, this affects the availability of transition relief described above..IRC Sec. 430(f)(4); Treas. Reg. § 1.430(i)-1(e). To address the hardship produced by the PPA funding requirements in an economic downturn, the Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010 allows a plan sponsor to elect one of two alternative extensions of the seven-year period otherwise required for amortizing the shortfall amortization base. Special rules also may apply with respect to alternate required installments in cases of excess compensation or extraordinary dividends or stock redemptions..IRC Sec. 430(c)(7); Notice 2011-3, 2011-2 IRB 263. The extension is available until the latest of 1) the last day of the first plan year beginning on or after January 1, 2013, 2) the last day of the plan year for which Section 436 is effective, or 3) 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 Section 436 is first effective for the plan..Notice 2011-96, 2011-52 IRB 915; Notice 2012-70, 2012-51 IRB 712.Plan sponsors that elect the extension must give notice to participants and beneficiaries and must notify the PBGC of the election..Notice 2011-3, 2011-2 IRB 263, at N.