Public Law 113-92: CSEC & Rural Pension Plan Rules

Public Law 113-97, the Cooperative and Small Employer Charity Pension Flexibility Act, was enacted on April 7, 2014. This legislation amended parts of the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code. It adjusted pension funding requirements established by the Pension Protection Act of 2006, creating more manageable obligations for certain charitable and cooperative employers.

Defining a CSEC Plan

A plan qualifies as a Cooperative and Small Employer Charity (CSEC) plan by meeting specific criteria. The plan must be a defined benefit plan sponsored by a cooperative or a charitable organization described in section 501(c)(3) of the Internal Revenue Code. The law also requires the plan to have been maintained by more than one such employer as of June 25, 2010.

The definition extends to a few other circumstances. A plan maintained by a single qualifying employer may qualify if that organization was chartered to provide services related to children and had employees in at least 40 states. Another category includes a plan from a charitable organization in existence since 1938 that conducts medical research for mothers and children.

Modified Pension Funding Rules

The Act established distinct funding rules for CSEC plans, permanently exempting them from the stricter standards of the Pension Protection Act. A key part of this relief is how these plans handle funding shortfalls. Instead of the standard 7-year amortization period for single-employer plans, CSEC plans follow older funding rules that generally allow unfunded liabilities to be amortized over 30 years. Liabilities from plan amendments are amortized over 15 years, and this longer timeframe allows for smaller, more predictable annual contributions.

Another modification involves the interest rates used to calculate pension liabilities. The Act exempted CSEC plans from the complex interest rate rules that apply to standard plans. CSEC plans use a different funding method with an interest rate based on long-term corporate bonds. This approach provides more stability and protects employers from sudden spikes in required contributions due to temporary dips in interest rates. The law also requires special notices to plan participants, informing them that their plan operates under different rules.

Provisions for Rural Cooperative Plans

The law also contained separate provisions for certain pension plans sponsored by rural cooperatives, which are distinct from the CSEC plan category. These plans were granted a temporary delay in the application of the Pension Protection Act’s funding rules. This transitional relief was targeted at plans where at least 85% of the employers were rural cooperatives or related organizations.

This relief expired for plan years beginning on or after January 1, 2017. Since its expiration, these plans are now subject to the main PPA funding rules, unless they also qualify as a CSEC plan.