The IRS Wants to Change How Pension Plans Count Their Own Expenses. Comments Close October 19.

Treasury and the IRS have proposed regulations that change two mechanical questions inside the pension funding rules: which expenses a single-employer defined benefit plan must count when it calculates what it owes for the year, and which plan terms an actuary takes into account when valuing it. The proposal was published in the Federal Register on August 20, 2026 as REG-107855-25 and carries a comment deadline of October 19, 2026.

What target normal cost is

Section 430 sets the minimum contribution a sponsor must make to a single-employer defined benefit plan. The calculation rests on two quantities measured at the plan's valuation date.

• Funding target: the present value of benefits already accrued as of the start of the plan year.
• Target normal cost: the present value of benefits expected to accrue during the plan year, plus plan-related expenses expected to be paid from plan assets during that year.

The second half of that second definition - plan-related expenses - is what the proposal addresses. A plan that pays its recordkeeper, its actuary and its investment managers out of plan assets has to decide which of those payments belong in the current year's target normal cost.

The expense question

Under the proposal, investment-related expenses are excluded from target normal cost. The difficulty is that service providers do not always bill in tidy categories. The proposal handles that with a threshold: where total payments to a service provider reach or exceed $5,000 and the payments cover a mix of services, only the investment management fees that are itemised count as investment-related expenses.

The practical consequence is a documentation one. A plan that wants a fee treated as investment-related needs an invoice that says so.

Which plan terms count, and when

The second half of the proposal deals with amendments adopted after the valuation date. Plan amendments that qualify under a section 401(b)(2) or 401(b)(3) election, and that are made within the specified deadlines, can be reflected in the prior plan year's funding target and target normal cost. Where a plan changes how it operates during a remedial amendment period to reflect an amendment it has not yet formally adopted, the proposal treats those provisions as adopted when the operations change rather than when the paperwork catches up.

The anti-abuse test

The proposal adds a provision requiring certain mid-year amendments to be taken into account when they raise target normal cost out of proportion to the funding target. The test is arithmetic: the amendment must be included where the percentage increase in target normal cost as a result of the amendment is more than twice the percentage increase in the funding target.

The rate table published alongside it

The same Internal Revenue Bulletin that carries the proposal, Bulletin 2026-38 dated September 14, also carries Notice 2026-51, the monthly update of the interest rates these calculations run on. It sets a 30-year Treasury weighted average rate of 4.59% for plan years beginning in August 2026, with a permissible range of 4.13% to 4.82%, and publishes July 2026 spot segment rates of 4.62, 5.62 and 6.51.

Who this reaches

The proposal governs sponsors of single-employer defined benefit pension plans and the enrolled actuaries who value them. It does not change anything for participants in defined contribution plans, and it does not change the benefit a defined benefit participant is promised. What it changes is the size and timing of the contribution the sponsor is required to make.

This article describes a proposed regulation and is not legal, actuarial or investment advice.