ERISA Section 101(j) Notice

Summary

This template is an ERISA Section 101(j) notice for notifying participants of a defined benefit plan that the plan has become subject to distribution or benefit accrual restrictions due to plan underfunding under I.R.C. § 436. This template is based on model language in I.R.S. Notice 2012-46. It includes practical guidance, drafting notes, and alternate and optional clauses. The funding-based limitation rules of Section 436 apply to single-employer defined benefit plans whose adjusted funding target attainment percentage (AFTAP) fall below 80% or 60% or when the sponsor is in a Chapter 11 bankruptcy (or similar proceeding) at a time when plan funding is less than 100%. The Section 101(j) notice will communicate that one or more of the following limitations has been triggered: • Cessation of benefit accruals, where AFTAP is less than 60% • Limitation on payment of a distribution that exceeds the amount provided under a life annuity (i.e., payments of lump sum, period certain annuity, installment, Social Security leveling, or other forms of distribution), referred to as prohibited payments for purposes of Section 436, fully restricted where AFTAP is less than 60% or the sponsor is in bankruptcy and AFTAP is less than 100% or subject to a partial limitation where AFTAP is less than 80% but at least 60% • Restriction on payment of shutdown benefits or other unpredictable event benefits, where AFTAP is less than 60% (or would be due to the occurrence of an event) (see I.R.C. § 436(b)) See I.R.C. § 436 (and parallel provisions in ERISA § 206(g) (29 U.S. Code § 1056(g))); Treas. Reg. § 1.436-1. The requirements for the notice that must be sent upon the occurrence of a triggering event set forth in ERISA § 101(j) (29 U.S.C. § 1021(j)), with detailed guidance provided in Notice 2012-46. Although each Section 436 trigger results in a separate notice obligation, separate notices are not always necessary due to overlapping limitation rules. For details, see Notice 2012-46, Q&A-4(b). As described further in the drafting notes, a supplemental notice may be required when the restrictions are lifted in some cases. Recipients. A Section 101(j) notice generally must be provided to each participant covered under the plan and each beneficiary who is entitled to benefits as of the date the limitation is imposed, but is not required for individuals for whom the relevant limitations are not expected to apply. Notice 2012-46, Q&A-8(a). As a best practice, also send the notice to alternate payees under I.R.C. § 414(p), such as a qualified domestic relations order payee, with a current employee, and union representatives (if the plan covers union employees). Timing. The notice must be provided within 30 days after the plan becomes subject to a limitation on benefit accruals, prohibited payments, or payment of shutdown or other contingent event benefits. This typically is the date that the plan's enrolled actuary certifies application of the limitation based on the funding status, but may be the occurrence of an event like a plant shutdown that will cause the AFTAP to dip below 60%. See Treas. Reg. § 1.436-1(j)(8). For special timing rules when a WARN Act notice is also required for a plant shutdown or other unpredictable contingent event benefit, see Notice 2012-46, Q&A-6(a). Delivery. The Section 101(j) notice must be in writing and may be furnished in paper or electronic form. Hand delivery or U.S. mail to the recipient's last known address are permitted methods of delivery. For electronic delivery of ERISA documents, see Electronic Disclosure Rules (ERISA Safe Harbors). Penalties. The DOL may assess a civil penalty for each failure to provide a Section 101(j) Notice. ERISA § 502(c)(4) (29 U.S.C. § 1132(c)(4)). The inflation-adjusted maximum penalty amount for 2025 is $2,167. The DOL considers the willfulness of the failure in assessing penalties. This template is designed for a defined benefit plan that allows for a lump sum distribution option and an automatic cash-out of small benefits (up to $7,000). An optional provision also covers a Social Security leveling form of benefit. The notice trigger for the template is the plan's AFTAP falling below 80% (default language) or below 60% (alternate clauses). You will need to modify the notice for plans having different forms of benefit, plans providing unpredictable event benefits, and plans becoming subject to Section 436 limitations due to other triggering conditions. For a discussion of the funding-based limitations rules, see Benefit Limitation Rules for Defined Benefit Plans (IRC § 436) and Minimum Funding Requirements for Defined Benefit Pension Plans. For a full listing of key content that can be used by in-house counsel to develop, revise, and implement a company's employee and third-party-related policies, see In-House Company Policies Resource Kit.