Updated July 30, 2026. Quick answer: This is not a plan being difficult. IRC §436(d)(1) requires a single-employer defined benefit plan to provide that if its adjusted funding target attainment percentage for a plan year is less than 60 percent, the plan “may not pay any prohibited payment.” Between 60 and 80 percent it may pay only a restricted amount, and only once. The monthly annuity keeps being paid throughout — it is the acceleration that is barred.
The three states a plan can be in
| Adjusted funding target attainment percentage | What §436(d) permits | Provision |
|---|---|---|
| Below 60 percent | No prohibited payment at all, after the valuation date for the plan year | §436(d)(1) |
| 60 percent or greater but below 80 percent | Only up to the lesser of 50 percent of the payment that could otherwise be made, or the present value of the participant’s maximum PBGC guarantee — and only one such payment across the whole restricted stretch | §436(d)(3)(A), (d)(3)(B)(i) |
| Sponsor in bankruptcy | No prohibited payment, regardless of funding, until the plan’s enrolled actuary certifies the percentage is “not less than 100 percent” | §436(d)(2) |
§436(d)(3)(A) in the statute’s own words: the plan “may not pay any prohibited payment … to the extent the amount of the payment exceeds the lesser of— (i) 50 percent of the amount of the payment which could be made without regard to this section, or (ii) the present value … of the maximum guarantee with respect to the participant under section 4022 of the Employee Retirement Income Security Act of 1974.”
And §436(d)(3)(B)(i): “only 1 prohibited payment meeting the requirements of subparagraph (A) may be made with respect to any participant during any period of consecutive plan years to which the limitations … apply.” One, not one per year.
What a ‘prohibited payment’ is, and why your monthly benefit is safe
§436(d)(5)(A) defines it as “any payment, in excess of the monthly amount paid under a single life annuity … to a participant or beneficiary whose annuity starting date … occurs during any period a limitation … is in effect”, together with “any payment for the purchase of an irrevocable commitment from an insurer to pay benefits, and (C) any other payment specified by the Secretary by regulations.” Subparagraph (C) is a live catch-all rather than boilerplate — the list is not closed by (A) and (B).
Read the benchmark. The restriction bites on amounts above the single-life monthly figure. So an underfunded plan under §436(d) is still paying monthly annuities; what it may not do is hand you the accelerated equivalent. The paragraph also excludes small benefits distributable without consent under §411(a)(11). And note subparagraph (B): a plan in this state may not buy you out through an insurer either.
Why this belongs at the front of the decision rather than the end. This is a gate, not a trade-off. If the plan is restricted, there is no election to weigh. And the timing runs the wrong way from intuition: an offer that looks like it can wait may not survive the next valuation date, while a plan that just crossed back above a threshold may be why the offer appeared at all. Ask your administrator for the current AFTAP certification and the valuation date it attaches to — that single document tells you which of the three rows above you are standing in.
§436(d)(4) carves out a plan whose terms provided for no benefit accruals throughout a defined period beginning September 1, 2005. That is a narrow historical exception and worth confirming rather than assuming. If a restricted payment is available to you, note that it is measured partly against the PBGC maximum guarantee — the same figure that defines your downside if the plan does fail.
Sources
IRC §436(d)(1), (d)(2), (d)(3)(A), (d)(3)(B)(i) and (d)(5), quoted verbatim; §436(d)(3)(A)(ii) cross-references section 4022 of ERISA. Retrieved from the United States Code, July 2026.
This states what the cited authority says. It is not tax, legal or investment advice. A pension election turns on your own plan document, your own health and marital situation, and figures your plan must give you in writing — and this site states no interest rate, no conversion factor and no break-even age, because every one of those is specific to your plan and a borrowed number is worse than none.