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Prepared by the U.S. Department of Labor
Chapter 9: ERISA's Protections Against Inadequate Plan Funding
This chapter is about the rules that require employers to adequately fund their pension plans. The following questions are answered:
What Are The Funding Standards For Plans?
ERISA sets minimum funding rules to provide that sufficient money is
available to pay promised pension benefits to you when you retire. Funding
rules establish the minimum amounts that employers must contribute to
plans in an effort to ensure that plans have enough money to pay benefits
when due. The rules are applicable primarily to defined benefit plans and
also to money purchase plans.
Defined benefit plans generally fund future benefits over time. The
plans consider probable investment gains and losses and make assumptions
about factors such as future interest rates and potential workforce
changes. ERISA provides detailed funding rules to protect you from
financing methods that could provide inadequate to pay the promised
benefits when they are due.
ERISA provides severe sanctions against an employer who fails to meet
the funding obligations. Any employer who fails to comply with the minimum
funding requirements is charged an excise tax on the amount of the
accumulated funding deficiency, unless the employer receives a waiver of
the minimum funding requirements. This tax is imposed whether the
underfunding was accidental or intentional. Certain actions can also be
taken by the Department of Labor and the Pension Benefit Guaranty
Corporation to enforce the minimum funding standards.
In the case of defined benefit plans that are less than 90 percent
funded, you must be notified each year about the plan s funding status and
PBGC's guarantees. This rule is effective for plan years beginning after
December 8, 1994.
THE TEXT ABOVE IS PUBLIC DOMAIN MATERIAL AUTHORED BY AN AGENCY OF
THE UNITED STATES GOVERNMENT AND NOT COPYRIGHTED BY THIS WEBSITE.
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