29 U.S.C. § 1054 : US Code - Section 1054: Benefit accrual requirements

Search 29 U.S.C. § 1054 : US Code - Section 1054: Benefit accrual requirements

(a) Satisfaction of requirements by pension plans
Each pension plan shall satisfy the requirements of subsection
(b)(3) of this section, and -
(1) in the case of a defined benefit plan, shall satisfy the
requirements of subsection (b)(1) of this section; and
(2) in the case of a defined contribution plan, shall satisfy
the requirements of subsection (b)(2) of this section.
(b) Enumeration of plan requirements
(1)(A) A defined benefit plan satisfies the requirements of this
paragraph if the accrued benefit to which each participant is
entitled upon his separation from the service is not less than -
(i) 3 percent of the normal retirement benefit to which he
would be entitled at the normal retirement age if he commenced
participation at the earliest possible entry age under the plan
and served continuously until the earlier of age 65 or the normal
retirement age specified under the plan, multiplied by
(ii) the number of years (not in excess of 33 1/3 ) of his
participation in the plan.
In the case of a plan providing retirement benefits based on
compensation during any period, the normal retirement benefit to
which a participant would be entitled shall be determined as if he
continued to earn annually the average rate of compensation which
he earned during consecutive years of service, not in excess of 10,
for which his compensation was the highest. For purposes of this
subparagraph, social security benefits and all other relevant
factors used to compute benefits shall be treated as remaining
constant as of the current year for all years after such current
year.
(B) A defined benefit plan satisfies the requirements of this
paragraph of a particular plan year if under the plan the accrued
benefit payable at the normal retirement age is equal to the normal
retirement benefit and the annual rate at which any individual who
is or could be a participant can accrue the retirement benefits
payable at normal retirement age under the plan for any later plan
year is not more than 133 1/3 percent of the annual rate at which
he can accrue benefits for any plan year beginning on or after such
particular plan year and before such later plan year. For purposes
of this subparagraph -
(i) any amendment to the plan which is in effect for the
current year shall be treated as in effect for all other plan
years;
(ii) any change in an accrual rate which does not apply to any
individual who is or could be a participant in the current year
shall be disregarded;
(iii) the fact that benefits under the plan may be payable to
certain employees before normal retirement age shall be
disregarded; and
(iv) social security benefits and all other relevant factors
used to compute benefits shall be treated as remaining constant
as of the current year for all years after the current year.
(C) A defined benefit plan satisfies the requirements of this
paragraph if the accrued benefit to which any participant is
entitled upon his separation from the service is not less than a
fraction of the annual benefit commencing at normal retirement age
to which he would be entitled under the plan as in effect on the
date of his separation if he continued to earn annually until
normal retirement age the same rate of compensation upon which his
normal retirement benefit would be computed under the plan,
determined as if he had attained normal retirement age on the date
any such determination is made (but taking into account no more
than the 10 years of service immediately preceding his separation
from service). Such fraction shall be a fraction, not exceeding 1,
the numerator of which is the total number of his years of
participation in the plan (as of the date of his separation from
the service) and the denominator of which is the total number of
years he would have participated in the plan if he separated from
the service at the normal retirement age. For purposes of this
subparagraph, social security benefits and all other relevant
factors used to compute benefits shall be treated as remaining
constant as of the current year for all years after such current
year.
(D) Subparagraphs (A), (B), and (C) shall not apply with respect
to years of participation before the first plan year to which this
section applies but a defined benefit plan satisfies the
requirements of this subparagraph with respect to such years of
participation only if the accrued benefit of any participant with
respect to such years of participation is not less than the greater
of -
(i) his accrued benefit determined under the plan, as in effect
from time to time prior to September 2, 1974, or
(ii) an accrued benefit which is not less than one-half of the
accrued benefit to which such participant would have been
entitled if subparagraph (A), (B), or (C) applied with respect to
such years of participation.
(E) Notwithstanding subparagraphs (A), (B), and (C) of this
paragraph, a plan shall not be treated as not satisfying the
requirements of this paragraph solely because the accrual of
benefits under the plan does not become effective until the
employee has two continuous years of service. For purposes of this
subparagraph, the term "year of service" has the meaning provided
by section 1052(a)(3)(A) of this title.
(F) Notwithstanding subparagraphs (A), (B), and (C), a defined
benefit plan satisfies the requirements of this paragraph if such
plan
(i) is funded exclusively by the purchase of insurance
contracts, and
(ii) satisfies the requirements of paragraphs (2) and (3) of
section 1081(b) of this title (relating to certain insurance
contract plans),
but only if an employee's accrued benefit as of any applicable date
is not less than the cash surrender value his insurance contracts
would have on such applicable date if the requirements of
paragraphs (4), (5), and (6) of section 1081(b) of this title were
satisfied.
(G) Notwithstanding the preceding subparagraphs, a defined
benefit plan shall be treated as not satisfying the requirements of
this paragraph if the participant's accrued benefit is reduced on
account of any increase in his age or service. The preceding
sentence shall not apply to benefits under the plan commencing
before benefits payable under title II of the Social Security Act
[42 U.S.C. 401 et seq.] which benefits under the plan -
(i) do not exceed social security benefits, and
(ii) terminate when such social security benefits commence.
(H)(i) Notwithstanding the preceding subparagraphs, a defined
benefit plan shall be treated as not satisfying the requirements of
this paragraph if, under the plan, an employee's benefit accrual is
ceased, or the rate of an employee's benefit accrual is reduced,
because of the attainment of any age.
(ii) A plan shall not be treated as failing to meet the
requirements of this subparagraph solely because the plan imposes
(without regard to age) a limitation on the amount of benefits that
the plan provides or a limitation on the number of years of service
or years of participation which are taken into account for purposes
of determining benefit accrual under the plan.
(iii) In the case of any employee who, as of the end of any plan
year under a defined benefit plan, has attained normal retirement
age under such plan -
(I) if distribution of benefits under such plan with respect to
such employee has commenced as of the end of such plan year, then
any requirement of this subparagraph for continued accrual of
benefits under such plan with respect to such employee during
such plan year shall be treated as satisfied to the extent of the
actuarial equivalent of in-service distribution of benefits, and
(II) if distribution of benefits under such plan with respect
to such employee has not commenced as of the end of such year in
accordance with section 1056(a)(3) of this title, and the payment
of benefits under such plan with respect to such employee is not
suspended during such plan year pursuant to section 1053(a)(3)(B)
of this title, then any requirement of this subparagraph for
continued accrual of benefits under such plan with respect to
such employee during such plan year shall be treated as satisfied
to the extent of any adjustment in the benefit payable under the
plan during such plan year attributable to the delay in the
distribution of benefits after the attainment of normal
retirement age.
The preceding provisions of this clause shall apply in accordance
with regulations of the Secretary of the Treasury. Such regulations
may provide for the application of the preceding provisions of this
clause, in the case of any such employee, with respect to any
period of time within a plan year.
(iv) Clause (i) shall not apply with respect to any employee who
is a highly compensated employee (within the meaning of section
414(q) of title 26) to the extent provided in regulations
prescribed by the Secretary of the Treasury for purposes of
precluding discrimination in favor of highly compensated employees
within the meaning of subchapter D of chapter 1 of title 26.
(v) A plan shall not be treated as failing to meet the
requirements of clause (i) solely because the subsidized portion of
any early retirement benefit is disregarded in determining benefit
accruals.
(vi) Any regulations prescribed by the Secretary of the Treasury
pursuant to clause (v) of section 411(b)(1)(H) of title 26 shall
apply with respect to the requirements of this subparagraph in the
same manner and to the same extent as such regulations apply with
respect to the requirements of such section 411(b)(1)(H).
(2)(A) A defined contribution plan satisfies the requirements of
this paragraph if, under the plan, allocations to the employee's
account are not ceased, and the rate at which amounts are allocated
to the employee's account is not reduced, because of the attainment
of any age.
(B) A plan shall not be treated as failing to meet the
requirements of subparagraph (A) solely because the subsidized
portion of any early retirement benefit is disregarded in
determining benefit accruals.
(C) Any regulations prescribed by the Secretary of the Treasury
pursuant to subparagraphs (B) and (C) of section 411(b)(2) of title
26 shall apply with respect to the requirements of this paragraph
in the same manner and to the same extent as such regulations apply
with respect to the requirements of such section 411(b)(2).
(3) A plan satisfies the requirements of this paragraph if -
(A) in the case of a defined benefit plan, the plan requires
separate accounting for the portion of each employee's accrued
benefit derived from any voluntary employee contributions
permitted under the plan; and
(B) in the case of any plan which is not a defined benefit
plan, the plan requires separate accounting for each employee's
accrued benefit.
(4)(A) For purposes of determining an employee's accrued benefit,
the term "year of participation" means a period of service
(beginning at the earliest date on which the employee is a
participant in the plan and which is included in a period of
service required to be taken into account under section 1052(b) of
this title, determined without regard to section 1052(b)(5) of this
title) as determined under regulations prescribed by the Secretary
which provide for the calculation of such period on any reasonable
and consistent basis.
(B) For purposes of this paragraph, except as provided in
subparagraph (C), in the case of any employee whose customary
employment is less than full time, the calculation of such
employee's service on any basis which provides less than a ratable
portion of the accrued benefit to which he would be entitled under
the plan if his customary employment were full time shall not be
treated as made on a reasonable and consistent basis.
(C) For purposes of this paragraph, in the case of any employee
whose service is less than 1,000 hours during any calendar year,
plan year or other 12-consecutive-month period designated by the
plan (and not prohibited under regulations prescribed by the
Secretary) the calculation of his period of service shall not be
treated as not made on a reasonable and consistent basis merely
because such service is not taken into account.
(D) In the case of any seasonal industry where the customary
period of employment is less than 1,000 hours during a calendar
year, the term "year of participation" shall be such period as
determined under regulations prescribed by the Secretary.
(E) For purposes of this subsection in the case of any maritime
industry, 125 days of service shall be treated as a year of
participation. The Secretary may prescribe regulations to carry out
the purposes of this subparagraph.
(c) Employee's accrued benefits derived from employer and employee
contributions
(1) For purposes of this section and section 1053 of this title
an employee's accrued benefit derived from employer contributions
as of any applicable date is the excess (if any) of the accrued
benefit for such employee as of such applicable date over the
accrued benefit derived from contributions made by such employee as
of such date.
(2)(A) In the case of a plan other than a defined benefit plan,
the accrued benefit derived from contributions made by an employee
as of any applicable date is -
(i) except as provided in clause (ii), the balance of the
employee's separate account consisting only of his contributions
and the income, expenses, gains, and losses attributable thereto,
or
(ii) if a separate account is not maintained with respect to an
employee's contributions under such a plan, the amount which
bears the same ratio to his total accrued benefit as the total
amount of the employee's contributions (less withdrawals) bears
to the sum of such contributions and the contributions made on
his behalf by the employer (less withdrawals).
(B) Defined benefit plans. - In the case of a defined benefit
plan, the accrued benefit derived from contributions made by an
employee as of any applicable date is the amount equal to the
employee's accumulated contributions expressed as an annual benefit
commencing at normal retirement age, using an interest rate which
would be used under the plan under section 1055(g)(3) of this title
(as of the determination date).
(C) For purposes of this subsection, the term "accumulated
contributions" means the total of -
(i) all mandatory contributions made by the employee,
(ii) interest (if any) under the plan to the end of the last
plan year to which section 1053(a)(2) of this title does not
apply (by reason of the applicable effective date), and
(iii) interest on the sum of the amounts determined under
clauses (i) and (ii) compounded annually -
(I) at the rate of 120 percent of the Federal mid-term rate
(as in effect under section 1274 of title 26 for the 1st month
of a plan year for the period beginning with the 1st plan year
to which subsection (a)(2) of this section applies by reason of
the applicable effective date) and ending with the date on
which the determination is being made, and
(II) at the interest rate which would be used under the plan
under section 1055(g)(3) of this title (as of the determination
date) for the period beginning with the determination date and
ending on the date on which the employee attains normal
retirement age.
For purposes of this subparagraph, the term "mandatory
contributions" means amounts contributed to the plan by the
employee which are required as a condition of employment, as a
condition of participation in such plans, or as a condition of
obtaining benefits under the plan attributable to employer
contributions.
(D) The Secretary of the Treasury is authorized to adjust by
regulation the conversion factor described in subparagraph (B) from
time to time as he may deem necessary. No such adjustment shall be
effective for a plan year beginning before the expiration of 1 year
after such adjustment is determined and published.
(3) For purposes of this section, in the case of any defined
benefit plan, if an employee's accrued benefit is to be determined
as an amount other than an annual benefit commencing at normal
retirement age, or if the accrued benefit derived from
contributions made by an employee is to be determined with respect
to a benefit other than an annual benefit in the form of a single
life annuity (without ancillary benefits) commencing at normal
retirement age, the employee's accrued benefit, or the accrued
benefits derived from contributions made by an employee, as the
case may be, shall be the actuarial equivalent of such benefit or
amount determined under paragraph (1) or (2).
(4) In the case of a defined benefit plan which permits voluntary
employee contributions, the portion of an employee's accrued
benefit derived from such contributions shall be treated as an
accrued benefit derived from employee contributions under a plan
other than a defined benefit plan.
(d) Employee service which may be disregarded in determining
employee's accrued benefits under plan
Notwithstanding section 1053(b)(1) of this title, for purposes of
determining the employee's accrued benefit under the plan, the plan
may disregard service performed by the employee with respect to
which he has received -
(1) a distribution of the present value of his entire
nonforfeitable benefit if such distribution was in an amount (not
more than the dollar limit under section 1053(e)(1) of this
title) permitted under regulations prescribed by the Secretary of
the Treasury, or
(2) a distribution of the present value of his nonforfeitable
benefit attributable to such service which he elected to receive.
Paragraph (1) shall apply only if such distribution was made on
termination of the employee's participation in the plan. Paragraph
(2) shall apply only if such distribution was made on termination
of the employee's participation in the plan or under such other
circumstances as may be provided under regulations prescribed by
the Secretary of the Treasury.
(e) Opportunity to repay full amount of distributions which have
been reduced through disregarded employee service
For purposes of determining the employee's accrued benefit, the
plan shall not disregard service as provided in subsection (d) of
this section unless the plan provides an opportunity for the
participant to repay the full amount of a distribution described in
subsection (d) of this section with, in the case of a defined
benefit plan, interest at the rate determined for purposes of
subsection (c)(2)(C) of this section and provides that upon such
repayment the employee's accrued benefit shall be recomputed by
taking into account service so disregarded. This subsection shall
apply only in the case of a participant who -
(1) received such a distribution in any plan year to which this
section applies which distribution was less than the present
value of his accrued benefit,
(2) resumes employment covered under the plan, and
(3) repays the full amount of such distribution with, in the
case of a defined benefit plan, interest at the rate determined
for purposes of subsection (c)(2)(C) of this section.
The plan provision required under this subsection may provide that
such repayment must be made (A) in the case of a withdrawal on
account of separation from service, before the earlier of 5 years
after the first date on which the participant is subsequently re-
employed by the employer, or the close of the first period of 5
consecutive 1-year breaks in service commencing after the
withdrawal; or (B) in the case of any other withdrawal, 5 years
after the date of the withdrawal.
(f) Employer treated as maintaining a plan
For the purposes of this part, an employer shall be treated as
maintaining a plan if any employee of such employer accrues
benefits under such plan by reason of service with such employer.
(g) Decrease of accrued benefits through amendment of plan
(1) The accrued benefit of a participant under a plan may not be
decreased by an amendment of the plan, other than an amendment
described in section 1082(c)(8) or 1441 of this title.
(2) For purposes of paragraph (1), a plan amendment which has the
effect of -
(A) eliminating or reducing an early retirement benefit or a
retirement-type subsidy (as defined in regulations), or
(B) eliminating an optional form of benefit,
with respect to benefits attributable to service before the
amendment shall be treated as reducing accrued benefits. In the
case of a retirement-type subsidy, the preceding sentence shall
apply only with respect to a participant who satisfies (either
before or after the amendment) the preamendment conditions for the
subsidy. The Secretary of the Treasury shall by regulations provide
that this paragraph shall not apply to any plan amendment which
reduces or eliminates benefits or subsidies which create
significant burdens or complexities for the plan and plan
participants, unless such amendment adversely affects the rights of
any participant in a more than de minimis manner. The Secretary of
the Treasury may by regulations provide that this subparagraph
shall not apply to a plan amendment described in subparagraph (B)
(other than a plan amendment having an effect described in
subparagraph (A)).
(3) For purposes of this subsection, any -
(A) tax credit employee stock ownership plan (as defined in
section 409(a) of title 26, or
(B) employee stock ownership plan (as defined in section
4975(e)(7) of title 26),
shall not be treated as failing to meet the requirements of this
subsection merely because it modifies distribution options in a
nondiscriminatory manner.
(4)(A) A defined contribution plan (in this subparagraph referred
to as the "transferee plan") shall not be treated as failing to
meet the requirements of this subsection merely because the
transferee plan does not provide some or all of the forms of
distribution previously available under another defined
contribution plan (in this subparagraph referred to as the
"transferor plan") to the extent that -
(i) the forms of distribution previously available under the
transferor plan applied to the account of a participant or
beneficiary under the transferor plan that was transferred from
the transferor plan to the transferee plan pursuant to a direct
transfer rather than pursuant to a distribution from the
transferor plan;
(ii) the terms of both the transferor plan and the transferee
plan authorize the transfer described in clause (i);
(iii) the transfer described in clause (i) was made pursuant to
a voluntary election by the participant or beneficiary whose
account was transferred to the transferee plan;
(iv) the election described in clause (iii) was made after the
participant or beneficiary received a notice describing the
consequences of making the election; and
(v) the transferee plan allows the participant or beneficiary
described in clause (iii) to receive any distribution to which
the participant or beneficiary is entitled under the transferee
plan in the form of a single sum distribution.
(B) Subparagraph (A) shall apply to plan mergers and other
transactions having the effect of a direct transfer, including
consolidations of benefits attributable to different employers
within a multiple employer plan.
(5) Except to the extent provided in regulations promulgated by
the Secretary of the Treasury, a defined contribution plan shall
not be treated as failing to meet the requirements of this
subsection merely because of the elimination of a form of
distribution previously available thereunder. This paragraph shall
not apply to the elimination of a form of distribution with respect
to any participant unless -
(A) a single sum payment is available to such participant at
the same time or times as the form of distribution being
eliminated; and
(B) such single sum payment is based on the same or greater
portion of the participant's account as the form of distribution
being eliminated.
(h) Notice of significant reduction in benefit accruals
(1) An applicable pension plan may not be amended so as to
provide for a significant reduction in the rate of future benefit
accrual unless the plan administrator provides the notice described
in paragraph (2) to each applicable individual (and to each
employee organization representing applicable individuals).
(2) The notice required by paragraph (1) shall be written in a
manner calculated to be understood by the average plan participant
and shall provide sufficient information (as determined in
accordance with regulations prescribed by the Secretary of the
Treasury) to allow applicable individuals to understand the effect
of the plan amendment. The Secretary of the Treasury may provide a
simplified form of notice for, or exempt from any notice
requirement, a plan -
(A) which has fewer than 100 participants who have accrued a
benefit under the plan, or
(B) which offers participants the option to choose between the
new benefit formula and the old benefit formula.
(3) Except as provided in regulations prescribed by the Secretary
of the Treasury, the notice required by paragraph (1) shall be
provided within a reasonable time before the effective date of the
plan amendment.
(4) Any notice under paragraph (1) may be provided to a person
designated, in writing, by the person to which it would otherwise
be provided.
(5) A plan shall not be treated as failing to meet the
requirements of paragraph (1) merely because notice is provided
before the adoption of the plan amendment if no material
modification of the amendment occurs before the amendment is
adopted.
(6)(A) In the case of any egregious failure to meet any
requirement of this subsection with respect to any plan amendment,
the provisions of the applicable pension plan shall be applied as
if such plan amendment entitled all applicable individuals to the
greater of -
(i) the benefits to which they would have been entitled without
regard to such amendment, or
(ii) the benefits under the plan with regard to such amendment.
(B) For purposes of subparagraph (A), there is an egregious
failure to meet the requirements of this subsection if such failure
is within the control of the plan sponsor and is -
(i) an intentional failure (including any failure to promptly
provide the required notice or information after the plan
administrator discovers an unintentional failure to meet the
requirements of this subsection),
(ii) a failure to provide most of the individuals with most of
the information they are entitled to receive under this
subsection, or
(iii) a failure which is determined to be egregious under
regulations prescribed by the Secretary of the Treasury.
(7) The Secretary of the Treasury may by regulations allow any
notice under this subsection to be provided by using new
technologies.
(8) For purposes of this subsection -
(A) The term "applicable individual" means, with respect to any
plan amendment -
(i) each participant in the plan; and
(ii) any beneficiary who is an alternate payee (within the
meaning of section 1056(d)(3)(K) of this title) under an
applicable qualified domestic relations order (within the
meaning of section 1056(d)(3)(B)(i) of this title),
whose rate of future benefit accrual under the plan may
reasonably be expected to be significantly reduced by such plan
amendment.
(B) The term "applicable pension plan" means -
(i) any defined benefit plan; or
(ii) an individual account plan which is subject to the
funding standards of section 412 of title 26.
(9) For purposes of this subsection, a plan amendment which
eliminates or reduces any early retirement benefit or retirement-
type subsidy (within the meaning of subsection (g)(2)(A) of this
section) shall be treated as having the effect of reducing the rate
of future benefit accrual.
(i) Prohibition on benefit increases where plan sponsor is in
bankruptcy
(1) In the case of a plan described in paragraph (3) which is
maintained by an employer that is a debtor in a case under title 11
or similar Federal or State law, no amendment of the plan which
increases the liabilities of the plan by reason of -
(A) any increase in benefits,
(B) any change in the accrual of benefits, or
(C) any change in the rate at which benefits become
nonforfeitable under the plan,
with respect to employees of the debtor, shall be effective prior
to the effective date of such employer's plan of reorganization.
(2) Paragraph (1) shall not apply to any plan amendment that -
(A) the Secretary of the Treasury determines to be reasonable
and that provides for only de minimis increases in the
liabilities of the plan with respect to employees of the debtor,
(B) only repeals an amendment described in section 1082(c)(8)
of this title,
(C) is required as a condition of qualification under part I of
subchapter D of chapter 1 of title 26, or
(D) was adopted prior to, or pursuant to a collective
bargaining agreement entered into prior to, the date on which the
employer became a debtor in a case under title 11 or similar
Federal or State law.
(3) This subsection shall apply only to plans (other than
multiemployer plans) covered under section 1321 of this title for
which the funded current liability percentage (within the meaning
of section 1082(d)(8) of this title) is less than 100 percent after
taking into account the effect of the amendment.
(4) For purposes of this subsection, the term "employer" has the
meaning set forth in section 1082(c)(11)(A) of this title, without
regard to section 1082(c)(11)(B) of this title.
(j) Cross reference
For special rules relating to plan provisions adopted to
preclude discrimination, see section 1053(c)(2) of this title.