IRS proposes new rules for defined benefit plan minimum funding 

October 9, 2026

Recently proposed IRS regulations would address certain aspects of minimum required contributions (MRCs) for qualified single-employer defined benefit (DB) pension plans. Key provisions include rules on including plan-related expenses in the target normal cost (TNC), updated rules on reflecting certain plan amendments in the actuarial valuation, and timing relief for certain changes in actuarial assumptions and methods when IRS approval is pending. Other provisions would remove outdated language relating to the phase-in of segment rates under the Pension Protection Act of 2006 (PPA). Comments are due October 19.

The proposed regulation would address a long-standing ambiguity related to the treatment of estimated expenses in the TNC component of a plan’s MRC. Under Internal Revenue Code (IRC) Section 430, as added by PPA and later amended by the Worker, Retiree, and Employer Recovery Act of 2008 (WRERA), the TNC consists of the present value of benefits accrued during the plan year, plus plan-related expenses expected to be paid from plan assets during the plan year, minus expected mandatory employee contributions. The statutory language did not define “plan-related expenses,” and the final Section 430 regulations that became effective in 2010 reserved a paragraph on the topic. In the absence of regulatory guidance, plan sponsors and actuaries have had to adopt reasonable interpretations of what comprises plan-related expenses — particularly whether investment expenses are included.

The proposed regulation would resolve this ambiguity by specifying that plan-related expenses exclude investment-related expenses. Plan-related expenses would include fees paid for professional services and plan administration, as well as PBGC premiums, among other items. Investment-related expenses would consist of investment management fees and other expenses directly related to management of the plan’s assets.

Bundled services. The proposed regulation includes a special rule for bundled-service fees that include both investment-related expenses and expenses for other services, such as recordkeeping or custodial fees. When total fees to a bundled service provider are expected to be at least $5,000, only amounts itemized by the service provider as investment-related expenses are treated as investment-related (and therefore are excluded from the expected expenses included in TNC for the upcoming year).

The preamble says this provision means that when fees to a bundled service provider are less than $5,000, all such fees may be treated as investment-related expenses and excluded from the TNC. It’s unclear how IRS reaches this conclusion from the proposed regulatory text, which does not address in any manner the allocation of fees less than $5,000. Read literally, the preamble could even be interpreted to suggest a broader exclusion for fees paid to any service provider — not just a bundled service provider — expected to be less than $5,000. Clarification on this point would be helpful.

The minimum funding rules generally allow sponsors to reflect in the MRC only plan provisions adopted no later than the valuation date for the plan year, that take effect on or before the last day of the plan year. However, existing IRS regulations allow sponsors to reflect certain amendments adopted after the valuation date if the sponsor makes an election under IRC Section 412(d)(2) to treat the amendment as if it had been made as of the first day of the plan year. These elections may be made only for amendments adopted no later than two-and-a-half months after the plan year-end, and generally only for amendments that do not decrease accrued benefits.

The proposed regulation would update the funding rules to coordinate with provisions of the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE 1.0) and the SECURE 2.0 Act of 2022 that extend the deadline for sponsors to retroactively adopt new plans and make certain discretionary amendments to existing plans. (Discretionary amendments aren’t required to satisfy a qualification requirement.) SECURE 1.0 allows plan sponsors to adopt a new plan retroactively to the prior tax year if the plan is adopted no later than the sponsor’s tax filing deadline (including extensions) for that tax year. The SECURE 2.0 Act of 2022 includes a similar provision giving sponsors the same extended deadline to adopt discretionary amendments that increase benefits for the prior plan year. Sponsors must make an election — under IRC Section 401(b)(2) for a new plan or 401(b)(3) for a discretionary amendment — to treat the plan or amendment as if had been adopted as of the last day of the prior tax year or plan year, respectively.

The proposed regulation clarifies that sponsors must also make a 412(d)(2) election to reflect these retroactive changes in the prior year’s MRC (the first plan year for a retroactively adopted plan). For this purpose, these elections are permissible even if the new plan or discretionary amendment is adopted after the two-and-a-half-month window described in Section 412(d)(2).

Coordination with MRC deadline. In the preamble to the proposed regulation, IRS notes that the deadline for adopting a retroactive plan or discretionary amendment under SECURE 1.0 and 2.0 — and for making an election under Section 401(b)(2) or (3) — might in some cases be later than the deadline for making the MRC (which is due eight-and-a-half months after the end of the plan year). In many circumstances, this will effectively impose an adoption deadline no later than the MRC deadline if the sponsor wishes to reflect the amendment in the prior year’s valuation.

Elimination of prior ambiguity on retroactive amendments. Although the current funding rules appear to allow sponsors to reflect amendments adopted after the end of the plan year in the prior year’s valuation, IRS at one time had informally taken a more restrictive position (in the “Gray Book” from the 2011 Enrolled Actuaries Meeting), arguing that such amendments could not be reflected because they did not take effect until they were adopted — that is, in the next plan year. This informal position seemed to contradict the statutory and regulatory language, and many stakeholders continued to believe that amendments made after year-end could be reflected in the prior year’s valuation. The proposed regulation eliminates any lingering ambiguity about the ability to reflect retroactive amendments adopted after the end of the plan year in that year’s MRC.

The proposed regulation would provide that when a plan must be amended to correct a qualification failure, the remedial amendment would be treated as adopted when plan operations change, even if the plan document is amended to reflect the change later in the remedial amendment period. If the final amendment differs from how the plan was operated at any point during the remedial amendment period (as might be the case if the sponsor operates in good faith compliance with a statutory change before published guidance is issued), the amendment would be treated as adopted when operations are changed to match the terms of the amendment. Effectively, this means that remedial amendments are treated for valuation purposes as adopted on the date of the change in plan operations.

The proposed regulation would modify the existing anti-abuse rule in Regulations section 1.430(d)-1(d)(2). This rule requires plans to recognize amendments made after the valuation date (but before year-end) if they increase the plan’s liabilities by improving or increasing benefits and wouldn’t be permitted to take effect — because of Section 436 restrictions that apply to less well-funded plans — if the increase in target normal cost were included in the funding target. This rule is intended to prevent plan sponsors from getting around the Section 436 restrictions by characterizing a significant benefit increase as an accrual during the year. This rule forces the sponsor to immediately fund the amendment in the year it is adopted or, for the portion included in benefit accruals during the year, by no later than eight-and-a-half months after the end of the plan year.

The proposed regulation would apply the anti-abuse rule only if the amendment increases the target normal cost “disproportionately” (all the other conditions would continue to apply). An increase in target normal cost would be disproportionate if the percentage increase is more than twice the percentage increase in the funding target, taking into account only the actively employed participants. For example, if an amendment providing accelerated vesting increased the active participants’ funding target by 2%, the amendment would not be subject to the anti-abuse rule unless it increased the target normal cost by more than 4%. As under the existing regulation, any amendment that increases the rate of accrual prospectively at some point during the year would have to be reflected in the funding valuation for the year if the plan would otherwise be subject to restrictions on plan amendments, or if the increase in the target normal cost — if included in the funding target — would push the plan’s funded level below 80%. For example, an amendment that is adopted in the middle of the plan year and that improves a cash balance plan’s compensation credits prospectively might be subject to the rule — the increase in funding target for such an amendment would be 0%, so the increase in the target normal cost would by definition be more than twice as much.

IRS specifically requests comments on what might be other appropriate methods for measuring an abusive increase in target normal cost.

The proposed regulation would provide needed flexibility for plan sponsors requesting approval from IRS for changes in actuarial assumptions or funding methods. Plan sponsors must request approval for certain changes in actuarial assumptions — including certain changes in the interest rate and mortality table used to value a plan’s liabilities and certain large changes in actuarial assumptions — and for any change in funding method that doesn’t qualify for automatic approval under Rev. Proc. 2017-56. Actuarial assumptions and methods for a given plan year are ordinarily established by filing the Form 5500 Schedule SB, Single-Employer Defined Benefit Plan Actuarial Information, which is due nine-and-a-half months after the end of the plan year (including extensions). Under the current rules in Regulations section 1.430(d)-1(f)(1)(ii), assumptions and methods cannot be subsequently changed for the plan year unless IRS determines the assumptions and methods used were unreasonable or impermissible, even if a timely submitted request for approval was pending. The proposed regulation would permit later changes in actuarial assumptions and methods if the request for approval was submitted before the Schedule SB was filed but the approval wasn’t granted until later. In this case, actuaries would presumably have to file an amended Schedule SB reflecting the updated assumptions and funding method.

In addition, the proposed regulation would eliminate out-of-date language in the regulations related to the phase-in of segment rates that applied in 2008 and 2009, immediately after PPA changed the funding rules. It would also update terminology in the funding rules to match what is used in the hybrid plan regulations.

• Proposed regulations (Federal Register, August 20, 2026)