Final Regulations for Single-Employer Defined Benefit Plans in Bankruptcy


Final regulations (T.D. 9601) offer a limited exception to single-employer defined benefit plans covered under ERISA Section 4021 from the anti-cut back rules under Internal Revenue Code Section 411(d)(6)(B). The regulations allow a plan sponsor who is a debtor in bankruptcy and who meets certain conditions to amend its plan to eliminate:

  • A lump-sum distribution option, or

  • Another optional form of benefit providing for accelerated payments.


A plan sponsor must satisfy these four conditions by the applicable amendment date (the later of the amendment’s adoption or effective date):

1)       The plan’s enrolled actuary has certified that the plan’s adjusted funding target attainment percentage is less than 100% for the plan year that contains the applicable amendment date.

2)       The plan can’t make any prohibited payments (generally, one that is in excess of the monthly amounts payable under a single life annuity) because its sponsor is a debtor in a bankruptcy.

3)       The sponsor’s bankruptcy court has issued an order, after notice and a hearing, finding that the adoption of the amendment eliminating that optional form of benefit is necessary for the plan to avoid a distress or involuntary termination.

4)       The PBGC has determined the:

  • Plan amendment to eliminate that optional form of benefit is necessary for the plan to avoid a distress or involuntary termination before the sponsor emerges from bankruptcy (or before the bankruptcy case is otherwise completed), and

  • Plan is not sufficient for guaranteed benefits (ERISA Section 4041(d)(2)).

Effective/Applicability Dates

The final regulations adopt most of the rules in the June 21, 2012, proposed regulations (REG 113738-12) and apply to plan amendments that are adopted and effective after November 8, 2012.