Treasury and IRS Propose New Anti-Abuse Rule for Single-Employer Defined Benefit Plans
On August 20, 2026, the Department of the Treasury and the Internal Revenue Service published a Notice of Proposed Rulemaking (REG-107855-25, RIN 1545-BR50) that would significantly modify the minimum funding rules for single-employer defined benefit pension plans under Internal Revenue Code § 430. Among the most notable changes is a narrowed and refined anti-abuse rule governing mid-year plan amendments. Plan sponsors, actuaries, and benefits counsel should carefully evaluate this change.
Background
The current funding regulations under 26 C.F.R. § 1.430(d)-1 were finalized in 2009 and have applied to plan years beginning on or after January 1, 2010. Since then, several major legislative enactments — the Worker, Retiree, and Employer Recovery Act of 2008 (WRERA '08), the SECURE Act of 2019, and the SECURE 2.0 Act of 2022 — have altered the single-employer defined benefit landscape without corresponding regulatory updates. The proposed regulations aim to close that gap.
The Modified Anti-Abuse Rule: What's Changing
Under the existing regulations, certain mid-year plan amendments that increase liabilities and are adopted after the valuation date must be taken into account in the current plan year if they would not be permitted to take effect under the benefit restriction rules of I.R.C. § 436(c). This broad rule was designed to prevent plan sponsors from "gaming" the timing of amendments to manipulate funding obligations.
The proposed regulations narrow this anti-abuse rule significantly. Under proposed § 1.430(d)-1(d)(2)(i), the rule would apply only when a plan amendment "disproportionately increases target normal cost." What constitutes “disproportionate” is explained in § 1.430(d)-1(d)(2)(iii), which states that a plan amendment triggers the anti-abuse rule if:
The percentage increase in target normal cost as the result of the amendment is more than twice the percentage increase in the funding target as a result of the amendment (taking into account only the benefits of participants currently employed in the service of the employer).
In other words, if an amendment causes target normal cost to spike by a much larger proportion than the corresponding increase in the overall funding target, it is treated as disproportionate and must still be recognized in the current plan year. This test is focused on whether the amendment front-loads benefit costs in a manner inconsistent with normal accrual patterns.
The IRS has specifically requested public comment on alternative metrics for this test, such as comparing the present value of current-year accruals with the present value of accruals in succeeding plan years.
Other Key Provisions in the Proposed Regulations
Beyond the anti-abuse rule, the proposed regulations address several other important areas:
Facilitating retroactive benefit increases. Amendments adopted after the end of a plan year (but before the tax filing due date) can now be taken into account in determining actuarial results for that preceding plan year, increasing the deductible limit for the plan sponsor.
Distinguishing plan-related expenses from investment-related expenses. Proposed § 1.430(d)-1(b)(1)(iii)(B) defines "plan-related expenses" includable in target normal cost (e.g., legal, actuarial, audit, and PBGC premium costs) and distinguishes them from excluded "investment-related expenses" (e.g., investment management fees). A $5,000 reporting threshold simplifies the allocation.
New plan adoption rules. The regulations implement SECURE Act § 201 and SECURE 2.0 § 317, allowing plans adopted after year-end (but before the tax filing due date, including extensions) to be treated as adopted on the last day of the preceding taxable year for funding purposes.
Retroactive benefit increases under SECURE 2.0 § 316. Plan sponsors may increase accrued benefits retroactively for the preceding plan year if the amendment is adopted before the tax filing due date.
Pending actuarial assumption changes. Where a plan sponsor has submitted an application to change actuarial assumptions or funding methods but the application remains pending when the Schedule SB is filed, the proposed regulations allow the change to be reflected once the Secretary approves it.
Housekeeping. The regulations eliminate obsolete references to segment rate phase-in rules from 2008–2009 under I.R.C. § 430(h)(2)(G) and conform hybrid plan terminology to existing regulations under I.R.C. § 411(a)(13).
Effective Date and Immediate Reliance
The proposed regulations would apply to plan years beginning on or after six months after the date final regulations are published. However, taxpayers may rely on these proposed rules immediately for earlier plan years, creating planning opportunities for plan sponsors and their advisors right now.
What This Means for Plan Sponsors
The narrowing of the anti-abuse rule is a welcome development for plan sponsors that adopt legitimate mid-year benefit improvements. Under the current broad rule, even ordinary amendments could trigger forced recognition if they happened to increase liabilities after the valuation date. The new "disproportionate increase" test provides a clearer, more targeted standard. This standard addresses genuine manipulation without chilling routine plan amendments.
Plan sponsors, actuaries, and tax professionals should consider submitting comments on the proposed metrics for the disproportionality test and evaluate whether immediate reliance on the proposed rules creates beneficial planning opportunities for current open plan years.
For guidance on how these proposed changes may affect your plan, contact FRB’s Employee Benefits & Executive Compensation Practice Group by completing the form below.
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