The Treasury Department and the Internal Revenue Service (“IRS”) recently issued proposed regulations updating the minimum funding rules for single-employer defined benefit pension plans under Internal Revenue Code section 430 (“Section 430”). 91 Fed. Reg. 53803 (Aug. 20, 2026). The proposed rule would implement several statutory changes made by the Worker, Retiree, and Employer Recovery Act of 2008 (“WRERA”), the SECURE Act, and SECURE 2.0 that have not yet been incorporated into the existing regulations, while also addressing several technical issues that have since arisen.
As a reminder, the minimum funding rules under Section 430 establish how much an employer must contribute to a defined benefit pension plan each year to avoid excise tax penalties and satisfy related funding requirements. More broadly, Section 430 provides the framework for determining the minimum required annual contributions needed to help ensure that plans maintain sufficient assets to meet their benefit obligations to participants and beneficiaries. In practice, a plan’s actuary applies these rules and advises the plan sponsor regarding its funding obligations and available options, including applicable deduction limits.
Comments are due October 19, 2026.
Key Takeaways
The proposed regulations would:
- Permit certain retroactive plan amendments and new plan adoptions after the end of the plan year to be reflected in that year’s funding target and target normal cost.
- Exclude investment-related expenses from target normal cost calculations.
- Clarify when a remedial amendment is treated as adopted.
- Narrow the anti-abuse rule to apply only to mid-year amendments that disproportionately increase target normal cost.
- Allow actuarial assumptions and funding methods to be changed for a plan year if IRS approval was requested before they became fixed.
Treatment of Retroactive Amendments & New Plan Adoptions
The SECURE Act and SECURE 2.0 let employers adopt a new plan or adopt a retroactive amendment increasing accrued benefits after the close of a plan year, but no later than the employer’s tax filing deadline (with extensions).
The proposed regulations would permit those retroactive plan provisions to be taken into account for the plan year when determining a plan’s funding target and target normal cost, provided certain statutory elections are made and the amendment is effective no later than the date it is adopted. The IRS notes that doing so would facilitate benefit increases and could increase the sponsor’s deductible contribution limit for the applicable year.
For example, where an employer adopts a retroactive amendment increasing benefits under Code section 401(b)(3) after the close of a plan year, the proposed regulations would generally allow the amendment to be reflected in the funding calculations for the plan year if the applicable election requirements are satisfied. One plus is that by reflecting the increased benefits in the year in which they are effective, the deduction limit for that year is increased. This option may be particularly attractive to smaller employers.
Groom Insight: Plan sponsors should also be aware that including the retroactive benefit increase in funding calculations for a plan year also can increase that year’s minimum funding obligation. The final minimum funding contribution deadline is 8½ months after the end of the plan year, which may be earlier than the tax filing deadline, with extensions (10½ months). If the minimum funding contribution deadline has passed, a plan sponsor who wishes to include the retroactive benefit increase in funding calculations for a plan year should be careful to confirm that the retroactive application would not trigger a failure to meet the minimum funding requirements.
Clarification of Plan-Related Expenses
The proposed rules answer a longstanding open question: which plan expenses are included in target normal cost? Under the proposed rules, “plan-related expenses” generally include amounts expected to be paid from plan assets other than benefit payments and investment-related expenses, such as actuarial, legal, audit, administrative, and PBGC premium expenses.
The proposed rules exclude investment management fees and other investment-related fees from target normal cost. Where a service provider receives $5,000 or more and performs both investment and non-investment services, only amounts specifically itemized as investment-related would qualify for exclusion.
This gives actuaries and plan sponsors helpful guidance in determining which expenses increase funding obligations and which do not.
New Rules for Remedial Amendments
Under the proposed rules, if a plan begins operating in accordance with a future remedial amendment before the amendment is formally adopted, the amendment is treated as adopted when plan operations change. The rule is intended to accommodate situations in which plans must begin operating in accordance with anticipated qualification changes before formal amendments are finalized.
Narrowed Anti-Abuse Rule
Generally, an amendment is reflected in funding calculations for a plan year only if it is adopted by the valuation date and the amendment takes effect on or before the last day of the plan year. The existing regulations provide an anti-abuse exception: if an amendment increasing benefits is adopted after the valuation date for a plan year but would have been prohibited from taking effect under the Code section 436 benefit restrictions for the prior year, it must be reflected in the funding calculations, regardless of when it was adopted.
The proposed regulations would limit the anti-abuse rule to apply only in cases where the amendment “disproportionately” increases target normal cost. An amendment would be viewed as disproportionately increasing target normal cost only if the percentage increase in target normal cost exceeds twice the percentage increase in the funding target attributable to the amendment. The IRS specifically requests comments on whether alternative measures should be used to evaluate whether a benefits increase is “disproportionate.”
Mid-Year Changes to Actuarial Assumptions
The proposed rules also would provide greater flexibility where a plan sponsor has requested IRS approval to change actuarial assumptions or funding methods.
Current regulations generally prohibit changes once assumptions or a funding method have been established for a plan year, unless the IRS determines that the original assumptions were unreasonable or the method was impermissible. Under the proposed rules, a change also would be permitted if the sponsor submitted a request for approval before the assumptions or method became established and the IRS subsequently approves that request.
Looking Ahead
Many of these changes are technical, but several changes carry real financial consequences for plan sponsors. Plan sponsors considering retroactive benefit increases may welcome the IRS’s effort to align the funding regulations with the new SECURE 2.0 amendment timing rules.
The proposed regulations would apply to plan years beginning on or after the date that is six months following publication of final regulations. For earlier years, taxpayers generally may choose to apply either the current or proposed rules.
Copyright © 2026 Groom Law Group, Chartered. Unauthorized use and/or duplication of this material without express and written permission from this site’s author and/or owner is strictly prohibited. With permission, excerpts and links may be used, provided that full and clear credit is given to Groom Law Group, Chartered and www.groom.com with appropriate and specific direction to the original content. For assistance, you may contact us.
