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New Notice Requirements Effective November 1, 2012, for Single Employer Pension Plans with Funding-Related Restrictions

Recently the Internal Revenue Service provided the first set of guidance on the new notice requirements for single employer defined benefit plans subject to funding-related restrictions under Section 436 of the Internal Revenue Code.  This guidance includes information on notice recipients, content, delivery and timing.  Because significant penalties apply to a notice failure, plan sponsors need to carefully review this new guidance.

Internal Revenue Service (IRS) Notice 2012-46 provides guidance on the notice requirements under the Employee Retirement Income Security Act (ERISA) Section 101(j) (101(j) Notice) for a single employer defined benefit plan.  Under ERISA Section 101(j), a single employer defined benefit plan must provide a notice to plan participants, alternate payees and beneficiaries of the applicability of funding-based restrictions under Section 436 of the Internal Revenue Code (Code), generally within 30 days after the defined benefit plan becomes subject to such restrictions.  The new guidance is effective November 1, 2012.

Code Section 436 generally provides a:

  • Prohibition on accelerated benefit payments, such as lump-sum payments, period certain annuities and Social Security level income options, when the plan is less than 80 percent funded (partial restrictions) or when a plan is less than 60 percent funded (full restrictions)
  • Prohibition on an amendment that increases benefits, establishes new benefits, changes the rate of benefit accrual or changes the rate at which a benefit becomes a nonforfeitable when the plan is less than 80 percent funded, or would be less than 80 percent funded taking into account this amendment
  • Prohibition on accelerated benefit payments, such as lump-sum payments, period certain annuities and Social Security level income options, when the plan is less than 100 percent funded and the plan sponsor is in bankruptcy
  • Suspension of future benefit accruals when the plan is less than 60 percent funded
  • Prohibition on payment of unpredictable contingent event benefits, such as plant shutdown benefits, when the plan is less than 60 percent funded

Notice Timing

The 101(j) Notice must be provided to participants within 30 days following the date a funding-based restriction is triggered.  In most cases, a restriction is triggered on either the date of the enrolled actuary’s plan certification of the adjusted funding target attainment percentage (AFTAP) or the date a funding-based presumption applies under Code Section 436.  However, if funding-based restrictions are triggered due to an unpredictable contingent event, the 101(j) Notice must be provided within 30 days of the unpredictable contingent event; however, special notice timing rules apply in the case of a plant shut down or other events that trigger notice under the Worker Adjustment and Retraining Notification Act.  Also, no notice is required for an amendment that does not become effective due to funding restrictions.

If more than one restriction takes effect on a particular date, a single combined notice containing all required information can be provided.  If the restrictions do not take effect on the same date, the notice requirements are applied separately to each funding-based restriction.  In addition, if the restrictions cease to apply and the plan permits participants to elect to receive the remaining portion of their benefits in a form that had been prohibited, notice must be provided to the affected participants within 30 days of the date on which limitations cease to apply.

Notice Recipients, Content and Form

The 101(j) Notice must be provided to those to whom the relevant funding-based restrictions apply or could apply.  Participants, alternate payees and beneficiaries who are not expected to be affected by a restriction do not need to receive the 101(j) Notice. 

The 101(j) Notice should be written in a manner calculated to be understood by the average participant and should contain the following information:

  • The date the restrictions became effective
  • The class of participants or beneficiaries affected by the restrictions
  • An explanation of the applicable restrictions, using sufficient detail to describe the difference between the plan’s benefits with and without the restriction
  • The reason for the restrictions (e.g., funding level or bankruptcy status)
  • The plan’s funding-level or AFTAP, and whether the AFTAP is certified or presumed
  • A description of the conditions under which the restriction will cease to apply, and a description of plan provisions applicable after restrictions cease to apply (such as how benefits will be restored after restriction no longer applies)
  • A statement that a notice will be provided within 30 days after the restrictions no longer apply if the plan allows participants to change distribution elections
  • Identifying information for the plan, including the plan name, EIN and plan number, and contact information for obtaining additional information
  • If the notice relates to the cessation of payment restrictions, then a statement that the payment restriction no longer applies, and a statement that the participant may elect the form of distribution that had constituted a prohibited payment, including any applicable deadlines and application procedures  

The 101(j) Notice must be in writing and may be furnished in any permitted paper or electronic form.  Permitted paper methods include hand delivery or U.S. mail to the last known address.  Permitted electronic methods include e-mail to a participant with a return receipt request, provided that the participant may request a paper copy of the notice and can access electronic information at any location where the participant is expected to perform duties.  More details on electronic notice delivery for other participants, alternate payees or beneficiaries is provided under U.S. Department of Labor (DOL) regulations.

Notice Penalties

The DOL may assess a civil penalty of up to $1,000 per day for each failure to provide a 101(j) Notice.  The DOL can implement the penalty for failure to notify any participant, alternate payee or beneficiary, and will consider the willfulness of the failure in assessing penalties.


The new IRS guidance clarifies the timing, content, manner and intended recipients of a 101(j) Notice.  Plan sponsors of a single employer defined benefit plan should work closely with their actuaries and legal counsel to ensure any 101(j) Notice is timely provided and contains the required information.

© 2020 McDermott Will & EmeryNational Law Review, Volume II, Number 305



About this Author

Diane M. Morgenthaler, Corporate Tax Planning Attorney, Retirement Plans for Companies, McDermott Will Emery, Chicago Law Firm

Diane M. Morgenthaler focuses her practice on employee benefits and executive compensation. She represents clients in matters before the US Internal Revenue Service, the Department of Labor and the Pension Benefit Guaranty Corporation.

Diane serves as employee benefit counsel to Fortune 500 corporations and other global corporations, and represents both public and private clients. She regularly designs and implements a variety of employee benefit plans and programs. Diane has extensive experience in employee benefit issues involved in...