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    Make Sure To Make Minimum Funding
    Anyone who sponsors a defined benefit plan should be familiar with the minimum funding requirements of Section 302 of ERISA.  Basically, the minimum funding requirement sets forth the minimum annual contribution required to maintain the plan, and measures the funding standard account to determi [...]


    Make Sure To Make Minimum Funding

    Anyone who sponsors a defined benefit plan should be familiar with the minimum funding requirements of Section 302 of ERISA.  Basically, the minimum funding requirement sets forth the minimum annual contribution required to maintain the plan, and measures the funding standard account to determine if an accumulated funding deficiency has occurred.  It is in essence a snapshot of the general health of the plan as it relates to contribution is versus payments out. 

    There is not necessarily a direct correlation between the required minimum funding and a general underfunding of the plan.  Plans can be underfunded (meaning without sufficient assets to pay all vested benefits) but still have a positive funding standard account balance.  The minimum funding requirement of Section 302 does not require the employer to eliminate all underfunding, only that they meet the required annual contribution.  This became very significant in the case of Cress v. Wilson (S.D. NY Dec. 2008).

    In the Cress case, a class of Plaintiffs sued the trustees of a Northwest Airlines pension plan, claiming that by permitting the plan to become grossly underfunded, they breached their fiduciary duties.  The Court determined that in fact, the plan had met all of the funding requirements of Section 302 (meaning the minimum funding requirements were met) and that, since that was the required measure of funding in ERISA, no breach had occurred.

    The Court did not suggest that the underfunding of the plan could not have occurred as a result of some other breach, but it does appear that, at least to this Court, meeting the annual funding obligation in a timely manner serves as some protection to plan sponsors if their plan is underfunded.  So make sure you make minimum funding obligations to the plan.


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