For a U.S. single-employer defined benefit plan generally subject to Internal Revenue Code section 430, the statutory framework is target normal cost + applicable shortfall-amortization charge + applicable waiver-amortization charge. The comparison first uses plan assets after the required treatment of the funding standard carryover balance and prefunding balance. If those adjusted assets are below the funding target, the applicable amortization charges are added. If adjusted assets meet or exceed the funding target, the excess reduces target normal cost, but never below zero.
That formula does not produce a reliable dollar amount by itself. The result depends on the plan’s year, valuation date, provisions, participant data, actuarial assumptions, asset records, funding balances, prior amortization schedules and any legally available elections. A qualified pension actuary normally prepares and documents the calculation.
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First confirm which funding rules apply
Section 430 is the usual minimum-funding framework for a U.S. single-employer defined benefit plan, but it is not a universal pension formula. Before collecting numbers, identify the plan type and plan year.
Single-employer plans under section 430
The procedure in this article addresses the single-employer regime in Internal Revenue Code section 430. It applies the target-normal-cost and funding-target concepts, prescribed interest-rate and mortality assumptions, and statutory amortization rules described below.
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Plans with different regimes
Multiemployer plans and cash-balance or other arrangements that qualify as collectively bargained single-employer plans (CSEC plans) can have different statutory funding rules. Do not substitute the section 430 sequence for those regimes. Confirm the plan’s legal classification and the plan year before doing any calculation.
Records to assemble
- Plan document and amendments effective under the applicable amendment rules.
- Plan year and valuation date.
- Participant census, compensation and service data, benefit forms and accrued-benefit records.
- Prior actuarial valuations and amortization schedules.
- Beginning and expected year-end asset information.
- Funding standard carryover balance and prefunding balance records.
- Mandatory employee-contribution information and expected plan expenses paid from assets.
- Any prior elections affecting interest rates, asset valuation or funding balances.
Without these records, you can describe the method but cannot responsibly state the plan’s required contribution in dollars.
The statutory calculation in one view
For an underfunded section 430 plan, the core expression is:
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Minimum required contribution = target normal cost + applicable shortfall amortization charge + applicable waiver amortization charge.
The word “applicable” matters. Amortization charges come from statutory current- and prior-year funding records; they cannot be inferred from the funding target alone.
The funding-status branch is determined after valuing assets and applying the required treatment of funding balances:
- Adjusted assets below funding target: add the applicable shortfall and waiver amortization charges to target normal cost.
- Adjusted assets equal to or above funding target: reduce target normal cost by the excess of adjusted assets over the funding target. The result cannot be less than zero.
This is a framework, not a plug-in spreadsheet formula. Each component must be calculated using the plan’s terms, data, valuation date and legally applicable assumptions.
Step 1: Identify the plan year, valuation date and elections
Start by writing down the plan year for which the contribution is being determined and the valuation date required for that year. The year and month affect the interest-rate tables and other prescribed assumptions. The plan document and amendments determine which benefits are included and when they take effect.
Check whether the sponsor has made an election that changes the interest-rate method, asset treatment or use of a funding balance. Elections can alter the inputs even when the plan’s benefit formula has not changed. A prior valuation’s assumptions should not be carried forward automatically.
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Step 2: Calculate target normal cost
Target normal cost is generally the present value of benefits expected to accrue or be earned during the plan year under the section 430 funding method.
Benefits accruing during the year
The actuary projects the benefits that participants are expected to earn in the year and discounts those payments to the valuation date using the applicable section 430 assumptions. The projection follows the plan’s benefit formula, eligibility rules, retirement provisions, benefit forms and expected decrements.
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The statutory treatment can regard compensation-related increases attributable to prior service as accruing in the current year. This is one reason the normal cost cannot be determined merely by multiplying a current benefit amount by a percentage; the plan’s compensation and accrual provisions must be modeled under the applicable rules.
Expenses paid from plan assets
Include expected plan-related expenses that will be paid from plan assets when determining target normal cost, as required by the applicable rules. Keep those expenses separate from unrelated employer costs that are not chargeable to the trust.
Mandatory employee contributions
Subtract expected mandatory employee contributions that are credited toward the plan’s funding. Voluntary contributions or amounts that do not meet the statutory definition should not be treated as an automatic reduction.
In shorthand, target normal cost is the present value of current-year benefit accruals, plus eligible plan expenses, less expected mandatory employee contributions. The actuarial calculation supplies the actual amount.
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The funding target is generally the present value of benefits accrued or earned as of the beginning of the plan year. It measures the value of benefits already earned, rather than only the benefits expected to accrue during the year.
Apply the plan’s benefit provisions
Use the plan terms and all amendments that are effective under the applicable rules. Benefit forms, retirement eligibility, optional forms, subsidies, early-retirement terms, accrued-service data and participant status can all affect the present value.
Use the required actuarial assumptions
Discount the accrued benefits using the section 430 interest-rate method selected and permitted for the plan. Apply the mortality approach and any other assumptions required for the valuation. A funding target from a prior year is not a current target unless it has been recalculated with the current year’s required inputs.
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Step 4: Value assets and adjust funding balances
Determine the plan’s asset value under the applicable asset-valuation rules, then account for the funding standard carryover balance and prefunding balance in the statutory comparison. The balance records come from prior funding certifications and sponsor elections; they are not amounts an actuary can safely reconstruct from a current brokerage statement alone.
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The comparison is not simply “market value of assets versus funding target.” A funding balance can change the amount of assets recognized for the minimum-funding test. The resulting adjusted assets determine whether the underfunded or excess-assets branch applies.
Keep current assets separate from balance history
Maintain a reconciliation showing the asset value used, each funding balance at the beginning of the year, any permitted reductions or elections, and the adjusted amount used in the section 430 test. Missing a prior-year balance entry can change the branch and therefore the required contribution.
Step 5: Determine amortization charges
If adjusted assets are below the funding target, the calculation may include one or both of two statutory charges.
Shortfall amortization charge
The shortfall amortization charge reflects applicable funding shortfalls established for the current and prior years and amortized under the statutory schedule. It is based on the plan’s documented funding history, not merely on the current difference between liabilities and assets.
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Waiver amortization charge
A waiver amortization charge applies when a funding waiver and its statutory amortization are part of the plan’s records. Determine whether a waiver exists, the year it was granted, the remaining amortization schedule and any rules governing its treatment.
Do not derive charges from one ratio
A plan can have the same current funding target and asset value as another plan but a different minimum contribution because its prior shortfall bases, waiver history, funding balances or elections differ. Reconcile every amortization base to prior actuarial reports.
Step 6: Apply the funding-status branch
When adjusted assets are below the funding target
Add target normal cost to every applicable shortfall-amortization and waiver-amortization charge. This is the ordinary underfunded case described by the section 430 framework.
When adjusted assets meet or exceed the funding target
Calculate the excess of adjusted assets over the funding target and use that excess to reduce target normal cost. If the excess is larger than target normal cost, the minimum required contribution under this branch is zero; it cannot become negative.
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Document the result
Record the target normal cost, funding target, asset value, funding-balance adjustments, each amortization charge, the branch used and the final minimum. The actuary should reconcile the result to the plan’s required annual actuarial reporting and contribution records.
Interest-rate assumptions can materially change the result
Section 430 present values generally use three segment rates based on 24-month averages, adjusted within corridors tied to 25-year averages. A plan may be eligible to elect a monthly yield-curve method instead. The applicable tables depend on the plan year, valuation month and elections.
September 2026 example
IRS Notice 2026-57 gives the adjusted September 2026 24-month averages for plan years beginning in 2026 as follows:
| Segment | Adjusted 24-month rate | What it generally discounts |
|---|---|---|
| First | 4.75% | Earlier benefit-payment periods |
| Second | 5.25% | Intermediate benefit-payment periods |
| Third | 5.99% | Later benefit-payment periods |
These are date-specific IRS rates for the September 2026 notice and plan years beginning in 2026. They are not universal inputs for every 2026 valuation, and they do not replace checking the plan’s valuation month, election and applicable table.
Corridor percentages are not segment rates
For plan years beginning in 2025, 2026 and 2027, the relevant post-ARP/IIJA corridor percentages are 95% and 105%. Those percentages define the permitted adjustment corridor around the 25-year averages; they are not themselves the first-, second- or third-segment discount rates.
The IRS funding-rate reference materials distinguish post-ARP/IIJA tables from pre-ARP tables and describe a limited pre-ARP election context. For plan years 2020–2030, the published post-ARP/IIJA applicable minimum and maximum percentages are 95% and 105%; later plan years use different corridor parameters. Confirm which statutory table applies before inserting a rate into the valuation.
Monthly yield-curve election
An eligible plan may elect a monthly yield curve rather than the standard segment-rate method. This is a technical statutory election, not a preference that can be changed casually from one valuation to the next. Verify eligibility, election timing and the effect on all present-value calculations.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.Mortality assumptions for 2026 valuation dates
IRS Notice 2025-40 provides static mortality tables applicable to valuation dates in calendar 2026. The section 430 framework also permits generational or static approaches under applicable rules, with eligibility limits for static tables.
Use the table and method permitted for the particular plan and valuation date. Do not carry a 2025 mortality table into a 2026 valuation without checking the notice, the plan’s eligibility and any applicable transition or projection rules.
Plan provisions and data that change the answer
- Benefit formula: accrual rates, final-average-pay definitions, career-pay provisions and flat-dollar benefits affect both accrued benefits and current-year accruals.
- Participant census: ages, service, compensation, employment status, retirements, terminations and deaths drive expected payment timing.
- Benefit forms: annuity options, lump sums, survivor benefits and subsidies alter present values.
- Valuation date: the date controls which rate and mortality publications are applicable.
- Expenses: expected plan expenses paid from assets can enter target normal cost.
- Mandatory contributions: required employee contributions can reduce target normal cost.
- Amendments: provisions adopted by the valuation date and effective by year-end generally inform the calculation, subject to amendment rules.
- Funding history: prior shortfall and waiver amortization bases, carryover balances and prefunding balances can determine the final branch and charge.
How to organize a practical calculation file
- Cover sheet: identify the employer, plan, plan year, valuation date, plan type and responsible actuary.
- Legal and election checklist: list applicable section 430 rules, plan amendments, interest-rate elections, asset elections and funding-balance elections.
- Data schedule: reconcile participant census, compensation, service, accrued benefits and benefit forms to payroll and plan-administration records.
- Assumption schedule: state segment rates or elected yield curve, mortality table and method, and any other prescribed assumptions, with the applicable IRS notice or table year.
- Liability schedule: show target normal cost and funding target separately, including expenses and mandatory employee contributions in the normal-cost calculation.
- Asset schedule: show the asset value, funding standard carryover balance, prefunding balance and adjusted assets used in the comparison.
- Amortization schedule: list each current and prior shortfall base, each waiver base and the remaining charge for the year.
- Branch calculation: show whether adjusted assets are below, equal to or above the funding target and apply the corresponding rule.
- Certification reconciliation: tie the final minimum to the annual actuarial report and the sponsor’s contribution records.
Common mistakes and how to correct them
Using a prior-year rate
Symptom: the spreadsheet carries last year’s three segment rates forward. Correction: retrieve the table for the plan year and valuation month, then check whether a yield-curve election applies.
Treating corridor percentages as discount rates
Symptom: 95% or 105% is entered as an interest rate. Correction: use those figures only as the applicable corridor parameters; obtain the actual segment rates from the correct IRS table.
Comparing unadjusted assets with the funding target
Symptom: market value is compared directly with liabilities while balances are ignored. Correction: reconstruct the funding standard carryover and prefunding balances and calculate adjusted assets under the governing rules.
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Calling the funding target the normal cost
Symptom: the present value of all accrued benefits is treated as the annual contribution. Correction: keep the beginning-of-year funding target separate from the present value of benefits expected to accrue during the year.
Ignoring expenses or mandatory employee contributions
Symptom: normal cost includes only benefit accruals. Correction: add eligible plan expenses paid from assets and subtract expected mandatory employee contributions as required.
Reconstructing amortization from the current deficit
Symptom: one current funding gap is divided by an assumed period. Correction: use the documented statutory amortization bases and prior-year schedules.
Assuming proposed rules are already effective
Symptom: a 2026 proposal is applied as if it changed the current statute. Correction: separate currently effective law and final regulations from proposed rulemaking, and verify effective dates before use.
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The IRS’s 2026-38 bulletin summarizes proposed regulations that would modify rules relating to the minimum funding requirement for single-employer defined benefit pension plans. The bulletin describes them as proposed regulations; they are not automatically effective rules. Confirm the final text, effective date and any transition provisions before changing a valuation method or contribution calculation.
For a current filing or contribution decision, the controlling sources are the statute, final regulations, applicable IRS notices and the plan’s documented elections—not a proposal treated as law.
What the formula can and cannot tell you
The formula tells you which components must be assembled and how the funding-status branch works. It does not tell you the plan’s dollar amount without a complete valuation. In particular, the available information does not establish a universal payment due date, quarterly installment requirement or election for an individual plan.
Those questions require the plan year, plan documents, census and benefit data, asset and funding-balance records, prior amortization schedules, applicable notices and rules, and plan-specific actuarial judgment. Use the formula as a control framework for reviewing an actuarial valuation, not as a substitute for one.
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