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Benefit Cutbacks in Single Employer Plans

Starting in 2008 some underfunded pension plans sponsored by a single employer became subject to restrictions on benefits. These benefit restrictions were implemented by the Pension Protection Act of 2006 (PPA), which Congress passed to shore up the funding of traditional private sector defined benefit pension plans. This fact sheet explains the four basic benefit restrictions under the PPA for single employer plans and the underfunding levels that trigger each restriction.

You can also read about benefit cutbacks for multiemployer plans.

There are four types of benefits cutbacks that can affect employees in certain underfunded single employer plans. These include restrictions on:

  1. Earning future pension benefits under the plan
  2. Payment of lump sums and other "accelerated benefits"
  3. Improvements in benefits
  4. Shutdown benefits

How will you be notified about benefit restrictions?

Plans must provide a notice if a benefit restriction applies to the plan. The notice for the cessation of benefit accruals must be provided no later than 30 days after the date on which the plan was calculated to be less than 60 percent funded. A notice must be provided no later than 30 days after the plan is subject to either the restriction on lump sum payments or shutdown benefits.

There is no notice requirement for plans that are prohibited from increasing costs; however, all plans are required to provide an annual finding notice that will show the plan’s funded percentage. If the plan says in the funding notice that it is less than 80 percent funded, then no changes can be made if it will make the plan more expensive for your employer. Read more about the annual funding notice.

When does the law requiring the benefit restrictions take effect?

The new benefit restrictions took effect for pension plan years beginning on or after January 1, 2008. However the restrictions may not apply to some collectively bargained plans until plan years beginning on or after January 1, 2010.

How can you find out more about your pension plan's funding?

Read our fact sheet on "How Well-Funded is Your Pension Plan?" to learn more about plan funding and how you can find out your plan's funded status.