n-15-58.pdf

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Part III --- Administrative, Miscellaneous, and Procedural

Application of the Cooperative and Small Employer Charity Pension Flexibility
Act

Notice 2015-58

I. PURPOSE

This notice provides guidance on certain issues relating to the application of the
Cooperative and Small Employer Charity Pension Flexibility Act, Pub. L. No. 113-97
(CSEC Act). The CSEC Act, which was enacted on April 7, 2014, specifies minimum
funding requirements and related rules that apply with respect to certain defined benefit
pension plans maintained by groups of cooperatives and related entities and groups of
charities.

II. BACKGROUND

Section 430 of the Internal Revenue Code (Code), which was added by the
Pension Protection Act of 2006, Pub. L. No. 109-280, as amended (PPA ’06), specifies
the minimum funding requirements that generally apply to single-employer defined
benefit pension plans (including multiple-employer plans) pursuant to § 412. Under
§ 430(a)(1), the minimum required contribution for a plan year under § 430 is generally
equal to the sum of the target normal cost and the shortfall amortization charge for the
plan year.
1
Under § 430(c), the shortfall amortization charge for a plan year is the sum
of the shortfall amortization installments with respect to the plan’s shortfall amortization
bases for the current plan year and prior plan years. Each year, a shortfall amortization
base is determined based on the difference between the funding target and the value of
plan assets for the plan year for which it is established. In general, the shortfall
amortization installment with respect to a shortfall amortization base is the amount
needed to amortize that base in level annual installments over 7 years.

Section 436 imposes certain restrictions on the accrual and payment of benefits
under a single-employer defined benefit pension plan that are applied based on the
plan's funded status for the plan year.

As originally enacted, section 104 of PPA ‘06 provided that the effective date for
the application of the minimum funding rules under § 430 and the funding-based benefit
restrictions under § 436 is delayed for certain plans maintained by more than one
employer that are specified types of cooperative organizations and related entities. For
those plans, the minimum funding rules under § 430 and the funding-based benefit
restrictions under § 436 generally do not apply for plan years beginning before January
1, 2017. For plan years before § 430 applies to such a plan, the minimum funding

1
For a plan for which a funding waiver has been obtained, the minimum required contribution also
includes a waiver amortization charge.

2

requirement for the plan is determined under the provisions of § 412 as in effect prior to
amendment by PPA ’06. These provisions are referred to in this notice as “pre-PPA
§ 412” provisions.

Section 202(b) of the Preservation of Access to Care for Medicare Beneficiaries
and Pension Relief Act of 2010, Pub. L. No.111-192 (PRA 2010), amended section 104
of PPA ’06, as originally enacted, to add a new section 104(d). Section 104(d) of PPA
‘06 expands the group of plans covered by the delayed effective date of section 104 of
PPA ’06 to include certain plans (referred to as eligible charity plans) that are
maintained by employers that are described in § 501(c)(3). Under section 104(d) of
PPA ‘06, a plan is an eligible charity plan for a plan year if, for all periods from July 26,
2005 through the end of the plan year, the plan has been maintained by more than one
employer (determined without regard to § 414(c)), provided that all of the employers
maintaining the plan are described in § 501(c)(3).

The CSEC Act provides a number of rules relating to the minimum funding
requirements for certain defined benefit plans maintained by groups of cooperatives and
related entities and groups of charities. Most of the rules under the CSEC Act apply to
CSEC plans, as defined in section 414(y). CSEC plans are generally the same plans
that are covered by the delayed effective date provisions for the PPA ’06 funding rules
under section 104 of PPA ’06 (as amended by PRA 2010). However, certain eligible
charity plans are not CSEC plans, and certain CSEC plans maintained by employers
that are § 501(c)(3) organization employers are not eligible charity plans. In addition, the
CSEC Act includes some rules that apply solely to eligible charity plans and some rules
that apply to all multiple-employer plans.

Section 433, which was added to the Code by the CSEC Act, specifies minimum
funding rules that apply to CSEC plans for plan years beginning on or after January 1,
2014.
2
These minimum funding rules are similar to the rules under pre-PPA § 412.
However, § 433 provides that the amortization period for the amortization base
established for the change in liability resulting from an amendment to a CSEC plan is 15
years (instead of 30 years as provided in pre-PPA § 412) and § 433 does not include a
requirement to make a deficit reduction contribution as required under pre-PPA § 412(l).
In addition, § 433 provides special rules that apply to a CSEC plan with a funded
percentage (as defined in § 433(j)(5)(B)) of less than 80%. Such a plan is in “funding
restoration status.” If a CSEC plan is in funding restoration status, the plan sponsor
must establish a funding restoration plan that is designed to bring the plan’s funded
percentage to 100% over a period of 7 years (or the shortest amount of time practicable
to bring the plan’s funded percentage to 100%, if longer).
3
For the period for which a
CSEC plan is in funding restoration status (as certified by the enrolled actuary for the
plan), an amount no less than the plan’s normal cost must be contributed for each plan
year. If the normal cost is not contributed for the plan year then an accumulated funding

2
The benefit restrictions under § 436 do not apply to CSEC plans.
3
Section 4971(h)(1) imposes an excise tax if the plan sponsor fails to timely satisfy the requirement to
establish a written funding restoration plan.

3

deficiency will exist regardless of the size of the plan’s credit balance. A CSEC plan
that is in funding restoration status generally cannot be amended to increase benefits or
accelerate vesting unless a specified additional contribution is made.

Under the CSEC Act, a number of elections are available to eligible charity plans
and plans that fit within the definition of a CSEC plan.

●Section 414(y)(3)(A) provides that the plan sponsor of a plan that fits within the
definition of a CSEC plan can elect for the plan not to be treated as a CSEC plan,
effective beginning with the first plan year that begins on or after January 1,
2014. The effect of this election for a plan is that § 433 and related provisions
that apply to CSEC plans will not apply to the plan.

●Section 103(b) of the CSEC Act amends section 104(d) of PPA ’06 to provide
three new options for an eligible charity plan:

■Pursuant to section 104(d)(2) of PPA ’06, the plan sponsor of an eligible
charity plan to which § 433 does not apply can elect for the plan to cease
to be treated as an eligible charity plan for plan years beginning after
December 31, 2013, so that § 430 applies to the plan beginning with the
2014 plan year.

■If this election is made, then the plan sponsor can also elect to
apply certain extended amortization rules under section 104(d)(3)
of PPA ’06.

■Pursuant to section 104(d)(4) of PPA ’06, the plan sponsor of an eligible
charity plan can make a one-time irrevocable election for the plan not to
be treated as an eligible charity plan, effective for plan years beginning
after December 31, 2007, so that § 430 applies to the plan beginning with
the 2008 plan year.

●Section 103(c) of the CSEC Act provides that a CSEC plan that was
established before January 1, 2014 is deemed to have made the election under
§ 410(d) (under which the plan is not treated as a church plan for purposes of
certain rules) under certain circumstances.

Section 210(f) of the Employee Retirement Income Security Act of 1974, Pub. L.
No. 93-406, as amended (ERISA), provides a definition of a CSEC plan for purposes of
title I of ERISA that is parallel to the definition in § 414(y) but also requires a CSEC plan
to be an “employee pension benefit plan” within the meaning of section 3(2) of ERISA.
Section 306 of ERISA provides minimum funding rules that are parallel to the rules of
§ 433 for a plan that is a CSEC plan under title I of ERISA.

Under section 101 of Reorganization Plan No. 4 of 1978 (43 FR 47713), the
Secretary of the Treasury has interpretive jurisdiction over the subject matter addressed

4

in § 433 and the other statutory provisions addressed in this notice for purposes of
ERISA as well as the Code. Accordingly, the guidance in this notice applies not only for
purposes of the Code but also for purposes of the parallel provisions of ERISA. Thus,
the guidance in this notice under §§ 414(y) and 433 also applies for purposes of
sections 210(f) and 306 of ERISA in the case of a CSEC plan (within the meaning of
§ 414(y)) that is an employee pension benefit plan within the meaning of section 3(2) of
ERISA. The Secretary of the Treasury does not have interpretive jurisdiction under the
Reorganization Plan to determine whether a CSEC plan within the meaning of § 414(y)
is an employee pension benefit plan within the meaning of section 3(2) of ERISA.

III. QUESTIONS AND ANSWERS

Rules for CSEC plans

Q-1: What is a CSEC plan?

A-1: Under § 414(y)(1) and (2), a plan is a CSEC plan for a plan year if it is a defined
benefit plan (other than a multiemployer plan) that meets one of the following
conditions:

(1) for the plan year, the effective date of the PPA ’06 funding rules has been
delayed for the plan under section 104 of PPA ’06 prior to the change to section 104
made by PRA 2010 (i.e., the plan is maintained by more than one employer and at least
85% of those employers are rural cooperatives or are cooperative organizations or
related entities) and without regard to section 104(a)(2) of PPA ‘06;

(2) for all periods beginning on June 25, 2010 and ending on the last day of the
plan year, the plan has been maintained by more than one employer (determined by
treating all employers that are treated as a single employer under § 414(b) or (c) as a
single employer) and all of those employers were described in § 501(c)(3); or

(3) for all periods beginning on June 25, 2010 and ending on the last day of the
plan year, the plan was maintained by an employer described in § 501(c)(3), chartered
under part B of subtitle II of title 36, United States Code, with employees in at least 40
States, and whose primary exempt purpose is to provide services with respect to
children.

However, in the case of a plan that fits within the definition of a CSEC plan, the plan is
not treated as a CSEC plan if the election described in § 414(y)(3) has been made for
the plan. If this election is made, then § 433 does not apply to the plan.

Q-2: For a plan to which pre-PPA § 412 applies for the 2013 plan year and § 433
applies for the 2014 plan year, how are the funding standard account and related items
established for the 2014 plan year?

5

A-2: If pre-PPA § 412 applies to a plan for the 2013 plan year and § 433 applies for the
2014 plan year, then all items that are part of the funding standard account
determination under pre-PPA § 412 as of the close of the 2013 plan year must be used
to establish the corresponding items established under § 433 as of the beginning of the
2014 plan year. This is because § 433 functions as a continuation of pre-PPA § 412.
Thus, the balance of the funding standard account under § 433 as of the first day of the
2014 plan year is the same as the balance of the funding standard account under pre-
PPA § 412 as of the close of the 2013 plan year. In addition, charge bases under
§ 433(b)(2) and credit bases under § 433(b)(3) must be established for the 2014 plan
year as continuations of the bases that were being amortized under pre-PPA § 412.
Thus, as of the first day of the 2014 plan year, the outstanding balances and
amortization periods with respect to those bases are the same as if pre-PPA § 412 had
continued to apply to the plan.
See § 433(b)(6).

Election to cease to be an eligible charity plan beginning in 2014

Q-3: Can a plan sponsor of an eligible charity plan elect for the plan to cease to be
treated as an eligible charity plan?

A-3: Pursuant to section 104(d)(2) of PPA ’06, as amended by PRA 2010 and the
CSEC Act, a plan sponsor of an eligible charity plan (other than a plan to which § 433
applies) can elect for the plan to cease to be treated as an eligible charity plan
beginning with the 2014 plan year.

If the election is made, then--

• As of the first day of the plan year beginning in 2014, the plan is subject to
the minimum funding requirements of § 430 and the benefit restrictions of
§ 436.

• Pursuant to § 1.430(f)-1(b)(2), the plan’s funding standard carryover
balance as of the beginning of the 2014 plan year is the positive balance
in the plan’s funding standard account under pre-PPA § 412(b) as of the
end of the prior plan year.

A plan sponsor makes the election described in this Q&A-3 by providing written
notification of the election to the plan administrator and the enrolled actuary for the plan.
As a general rule, this election must be made no later than the plan’s § 430(j)(1)
contribution deadline for the 2014 plan year (i.e., 8½ months after the end of the 2014
plan year). Alternatively, a plan sponsor may make the election described in this Q&A-3
by reflecting the election on the Schedule SB filed for the 2014 plan year and providing
written notification of the election to the plan administrator and the enrolled actuary for
the plan by December 31, 2015. This election can be revoked only with the consent of
the Commissioner.

Extended amortization election

6

Q-4: If a plan sponsor of an eligible charity plan makes the election described in Q&A-3
of this notice, can the plan sponsor elect extended amortization?

A-4: Pursuant to section 104(d)(3)(A) of PPA ’06, which was added by the CSEC Act, if
a plan sponsor of an eligible charity plan makes the election for the plan to cease to be
treated as an eligible charity plan beginning with the 2014 plan year (as described in
Q&A-3 of this notice), then the plan sponsor can also make an election to use the
extended amortization rules set forth in section 104(d)(3)(B) through (G) of PPA ’06
(which were also added by the CSEC Act). These amortization rules provide funding
relief for the plan that is generally comparable to the funding relief that would have
applied if (1) § 430 had applied to the plan for all plan years beginning on or after
January 1, 2008, (2) the plan sponsor had made a 15-year amortization election under
§ 430(c)(2)(D)(iii) for the plan years beginning in 2010 and 2011, and (3) there were no
previous installment acceleration amounts described in § 430(c)(7).

A plan sponsor makes the election described in this Q&A-4 by providing written
notification of the election to the plan administrator and the enrolled actuary for the plan.
As a general rule, this election must be made no later than the plan’s § 430(j)(1)
contribution deadline for the 2014 plan year (i.e., 8½ months after the end of the 2014
plan year). Alternatively, a plan sponsor may make the election described in this Q&A-4
by reflecting the election on the Schedule SB filed for the 2014 plan year and providing
written notification of the election to the plan administrator and the enrolled actuary for
the plan by December 31, 2015 The election described in this Q&A-4 can be revoked
only with the consent of the Commissioner.
Reporting Requirements
Q-5: How should the rules described in this notice for plans that are subject to § 433 be
reflected on the Schedule SB for 2014 and 2015?
A-5: For the 2014 and 2015 plan years, the reporting requirements described in this
Q&A-5 apply to plans that are subject to § 433.
Complete only the following on Schedule SB:
● Lines A through F
● Part I (including signature of enrolled actuary), determined as if PPA ’06
provisions were effective for all plan years beginning after December 31,
2007.
● Part III, line 14, determined as if PPA ‘06 provisions were effective for all
plan years beginning after December 31, 2007.
● Part IV, line 18.
● Part V, determined as if PPA ‘06 provisions were effective for all plan
years beginning after December 31, 2007.

7

Also, report other information for the current plan year using a 2007 Schedule B
(Form 5500). Label this attachment “[Insert reporting year] Schedule SB, line 27 –
Actuarial Information for CSEC Plans.” Each attachment must include the plan name,
the plan sponsor’s name and EIN, and the plan number. Complete all items from the
2007 Schedule B, excluding line 9f and Part II, and attach the 2007 Schedule B and all
applicable attachments to the Schedule SB. Note that under PPA ‘06, the third segment
rate determined under § 430(h)(2)(C)(iii) and ERISA section 303(h)(2)(C)(iii) is
substituted for the current liability interest rate under § 412(b)(5)(B) and ERISA section
302(b)(5)(B) (as in effect before PPA ‘06).
If the plan’s funded percentage (as defined in § 433(j)(5)(B)) as of the beginning
of the plan year is less than 80%, then the plan is in funding restoration status. If the
plan’s enrolled actuary certifies that the plan is in funding restoration status for a plan
year, include the following additional information in the attachment “[Insert reporting
year] Schedule SB, line 27 – Actuarial Information for CSEC Plans:” (a) the annual
certification by the enrolled actuary for the plan; and (b) the value of plan assets and the
funding liability, including any adjustments to these amounts as specified in § 433(j)(4)
and ERISA section 306(j)(4).

If a plan in funding restoration status has an accumulated funding deficiency
based on the excess of the employer’s normal cost
4
determined under line 9b, over the
amount actually contributed to the plan for the plan year, as determined under
§ 433(j)(1) and ERISA section 306(j)(1), then the details of this calculation must be
included in the attachment “[Insert reporting year] Schedule SB, line 27 – Actuarial
Information for CSEC Plans.”

Q-6: How should an election for an eligible charity plan to be made subject to the
requirements of § 430 beginning either in 2014 or in 2008 (and the related amortization
extension election for a plan that applies the requirements of § 430 beginning in 2014)
be reflected on Schedule SB for 2014 and later years?

A-6: If a plan sponsor of an eligible charity plan has made an election for the plan not to
be treated as an eligible charity plan, a copy of that election should be included as an
attachment to line 27 of the 2014 Schedule SB. In addition, if this election takes effect
beginning with the 2008 plan year, then
any difference between the amount of the
funding standard carryover balance or the prefunding balance reported on line 7 of the
Schedule SB filed for the 2014 plan year and the corresponding amounts reported on
line 13 of the Schedule SB filed for the 2013 plan year must be explained in the
attachment to line 7 of the Schedule SB filed for the 2014 plan year.

If a plan sponsor of an eligible charity plan has made an election for the plan to
be made subject to the requirements of § 430 beginning in 2014 and has elected
extended amortization as described in Q&A-4 of this notice, then the extended

4
In the case of a plan for which a spread gain funding method is used, the normal cost that is used to
apply this rule is the normal cost determined under the entry age normal cost funding method.

8

amortization election should be reflected on Schedule SB for 2014 by checking the box
on line 41a and including an attachment to line 32 showing the development of the 11-
year, 12-year and 7-year amortization bases. The Schedule SB for any later plan year
to which this information is applicable should include an attachment to line 32 that
provides information consistent with the information required with respect to a
§ 412(c)(7) amortization extension and related installment acceleration amounts.

Q-7: If the guidance provided in this notice affects the computations on the Schedule
SB filed with the Form 5500 or Form 5500-SF for the 2014 plan year, must the plan
sponsor file a revised 2014 Schedule SB?

A-7: No. The filing of an amended Form 5500 or Form 5500-SF for the 2014 plan year
is not required solely to reflect the effect of the guidance provided in this notice on the
computations on the Schedule SB. However, the Schedule SB filed with the Form 5500
or Form 5500-SF for the 2015 plan year must accurately reflect the effect of the
guidance provided in this notice. To the extent that the amounts shown on the
Schedule SB for the 2015 plan year are different than the amounts shown on the
Schedule SB for the 2014 year, this difference should be explained in attachments to
the Schedule SB for the 2015 plan year.

IV. PAPERWORK REDUCTION ACT

The collections of information contained in this notice have been reviewed and
approved by the Office of Management and Budget in accordance with the Paperwork
Reduction Act (44 U.S.C. § 3507) under control number 1545-2095.

An agency may not conduct or sponsor, and a person is not required to respond
to, a collection of information unless the collection of information displays a valid OMB
control number.

The collections of information in this notice are in section III of this notice. The
collections of information are required to provide for the elections permitted under
sections 103 and 203 of the CSEC Act. The collections of information are mandatory
for those plan sponsors making these elections.

The likely respondents are sponsors of fewer than 50 single-employer defined
benefit plans. Currently, it is estimated that any effect on burden as previously reported
to OMB will not be significant. Any potential changes on burden will be reported
through the renewal of the current OMB approval numbers.
Estimates of the annualized cost to respondents are not relevant, because each
collection of information in this notice is a one-time collection.
Books or records relating to a collection of information must be retained as long
as their contents may become material in the administration of any internal revenue law.
Generally, tax returns and tax return information are confidential, as required by § 6103
.

9

V. DRAFTING INFORMATION

The principal authors of this notice are Michael P. Brewer and Linda S. F.
Marshall of the Office of the Associate Chief Counsel (Tax Exempt and Government
Entities). For further information regarding this notice, contact Michael Brewer or Linda
Marshall (202) 317-6700 (not a toll-free number).