Final Regulations for Single-Employer Defined Benefit Plans in Bankruptcy

Final regulations (T.D. 9601) offer a limited exception to single-employer defined benefit plans covered under ERISA Section 4021 from the anti-cut back rules under Internal Revenue Code Section 411(d)(6)(B). The regulations allow a plan sponsor who is a debtor in bankruptcy and who meets certain conditions to amend its plan to eliminate:

a lump-sum distribution option, or

another optional form of benefit providing for accelerated payments.



A plan sponsor must satisfy these four conditions by the applicable amendment date (the later of the amendment’s adoption or effective date):

1) The plan’s enrolled actuary has certified that the plan’s adjusted funding target attainment percentage is less than 100% for the plan year that contains the applicable amendment date.

2) The plan can’t make any prohibited payments (generally, one that is in excess of the monthly amounts payable under a single life annuity) because its sponsor is a debtor in a bankruptcy.

3) The sponsor’s bankruptcy court has issued an order, after notice and a hearing, finding that the adoption of the amendment eliminating that optional form of benefit is necessary for the plan to avoid a distress or involuntary termination.

4) The PBGC has determined the:

plan amendment to eliminate that optional form of benefit is necessary for the plan to avoid a distress or involuntary termination before the sponsor emerges from bankruptcy (or before the bankruptcy case is otherwise completed), and

5) plan is not sufficient for guaranteed benefits (ERISA Section 4041(d)(2)).


Effective/Applicability Dates

The final regulations adopt most of the rules in the June 21, 2012, proposed regulations (REG 113738-12) and apply to plan amendments that are adopted and effective after November 8, 2012.