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Restrictions on Benefit Improvements

The rules prohibit plans from adopting changes that would increase the cost of the plan if it is less than 80 percent funded or if such changes would cause the plan to become less than 80 percent funded.


The following changes are prohibited:


Increases in benefits




Establishing new benefits such as special early retirement benefits or cost of living adjustments (COLAs)




Increasing the rate at which benefits accrue which would allow workers to earn benefits at a faster rate.




Shortening the rate at which benefits vest which would allow workers to earn nonforfeitable rights to benefits more quickly.




There is an exception to these restrictions for plans with a certain kind of benefit formula even if such plans are less than 80 percent funded. A plan falls under the exception if it uses a “flat-benefit” formula which determines monthly pension benefits by multiplying a dollar amount by the number of years the employees worked under the plan. For example a plan that pays a pension benefit equal to 70 percent of an individual’s final average pay would be prohibited from increasing that benefit, but a plan that pays a monthly benefit equal to $50 times every year of work may continue increasing benefits if they coincide with increases in the average wages of the workforce.


Read about the other benefit restrictions:


Earning future pension benefits under the plan


Payment of lump sums and other "accelerated benefits"


Shutdown benefits



Return to the fact sheet on benefit restrictions in single employer plans.