Section 101(f) of the Employee Retirement Income Security Act (ERISA) sets forth requirements applicable to furnishing annual funding notices. Before the Pension Protection Act of 2006 (PPA), section 101(f) applied only to multiemployer defined benefit plans. Section 501(a) of the PPA amended section 101(f) of ERISA, making significant changes to the annual funding notice requirements. These amendments require administrators of all defined benefit plans that are subject to title IV of ERISA, not only multiemployer plans, to provide an annual funding notice to the Pension Benefit Guaranty Corporation (PBGC), to each plan participant and beneficiary, to each labor organization representing such participants or beneficiaries, and, in the case of a multiemployer plan, to each employer that has an obligation to contribute to the plan. An annual funding notice must include, among other things, the plan's funding percentage, a statement of the value of the plan's assets and liabilities and a description of how the plan's assets are invested as of specific dates, and a description of the benefits under the plan that are eligible to be guaranteed by the PBGC.
The PPA amendments to section 101(f) apply to plan years beginning after December 31, 2007, with special rules for disclosing funding target attainment percentage or funded percentage with respect to any plan year beginning before January 1, 2008. Section 501(c) of the PPA requires the Department to develop a model annual funding notice within one year of the date of enactment of the PPA.
Recently, concerns have been expressed about the imminent compliance date of the new annual funding notice requirements, the absence of regulatory guidance from the Department, and the cost and burdens attendant to annual funding notice compliance efforts prior to the adoption of annual funding notice regulations and the issuance of a model annual funding notice by the Department. In recognition of the foregoing, this memorandum provides guidance to the Employee Benefits Security Administrations national and regional offices concerning good faith compliance with the new annual funding notice requirements.
The Department has not yet issued regulations or other guidance concerning compliance with the annual funding notice requirements under section 101(f) of ERISA, as amended by section 501(a) of the PPA. Pending further guidance, the Department will, as a matter of enforcement policy, treat a plan administrator as satisfying the requirements of section 101(f), if the administrator has complied with the guidance contained in this memorandum and has acted in accordance with a good faith, reasonable interpretation of those requirements with respect to matters not specifically addressed in this memorandum.
This memorandum contains two model notices and related questions and answers. The model in Appendix A is for single-employer defined benefit plans and the model in Appendix B is for multiemployer defined benefit plans. Use of the models is not mandatory and plans may use other notice forms to satisfy the new annual funding notice content requirements. However, pending further guidance, use of an appropriately completed model notice will, as a matter of Department enforcement policy, satisfy the content requirements of section 101(f) of ERISA.
The new annual funding notice requirements apply to plan years beginning on or after January 1, 2008. Plans generally must furnish funding notices no later than 120 days after the close of each plan year. Thus, many plans are required to furnish their first annual funding notice no later than Thursday, April 30, 2009 (120 days after the close of their 2008 plan year). Section 101(f)(3)(B) of ERISA provides a timing exception for small plans. For these plans' notices must be provided not later than the earlier of the date on which the annual report is filed under section 104(a) of ERISA or the latest date the annual report must be filed under that section (including extensions). A plan is a small plan if it is described in section 303(g)(2)(B) of ERISA (generally, if it had 100 or fewer participants on each day during the plan year preceding the year to which the notice relates) regardless of whether it is a single-employer or multiemployer plan.
Pending further guidance, use of an appropriately completed model notice will satisfy the content requirements of section 101(f) of ERISA.
No. Consistent with the effective date of the new annual funding notice requirements, the model in the Appendix to 2520.101-4 may be used only for plan years beginning on or before December 31, 2007. For plan years beginning on or after January 1, 2008, administrators of multiemployer plans may instead use the model in Appendix B to this memorandum to discharge their notice obligations under section 101(f) of ERISA. The Department intends to remove 2520.101-4 from the Code of Federal Regulations in conjunction with the promulgation of a final rule under section 101(f), as amended.
Yes. Section 101(f)(1) states that the "administrator of a defined benefit pension plan to which title IV applies shall for each plan year provide a plan funding notice to the Pension Benefit Guaranty Corporation, to each plan participant and beneficiary, to each labor organization representing such participants or beneficiaries, and, in the case of a multiemployer plan, to each employer that has an obligation to contribute to the plan."
However, pending further guidance, the Department will not take any enforcement action regarding the failure to furnish an annual funding notice to the PBGC for a single-employer plan with liabilities that do not exceed plan assets by more than $50 million, provided that the administrator furnishes the latest available annual funding notice to the PBGC within 30 days of receiving a written request from the PBGC. The PBGC has informed the Department that, in light of the extended annual funding notice due date for small plans, it will have electronic access to the information included on the annual funding notice for most single-employer plans as a result of ERISA's annual reporting requirement under section 104(a) at or around the time it would receive a copy of an annual funding notice under section 101(f). In addition, under the PBGC's Reportable Events regulation (29 CFR part 4043), the PBGC typically would receive information about certain events that might indicate increased exposure or risk before it would receive information under either section 101(f) or 104(a) of ERISA.
The new requirements apply to any defined benefit plan to which title IV of ERISA applies. However, the Department will not take enforcement action in the case of a multiemployer plan that is insolvent and that, as of the due date for the annual funding notice, is in compliance with the insolvency notice requirements under title IV of ERISA. In such cases, disclosure of information under section 101(f) may be redundant given the notice requirements under title IV of ERISA. The annual funding notice would be of little, if any, value to recipients in light of the PBGC's authority and responsibility under title IV of ERISA with respect to insolvent multiemployer plans. See 71 FR 1904, n.1 (Jan. 11, 2006). See also 70 FR 6306, n.1 (Feb. 4, 2005). A plan that emerges from insolvency or ceases to comply with the insolvency notice requirements under title IV of ERISA is not thereafter entitled to the relief provided in this memorandum.
The term "funding target attainment percentage" is defined in section 303(d)(2) of ERISA, which corresponds to Internal Revenue Code ("Code") section 430(d)(2). IRS guidance under Code section 430 also applies for purposes of section 303 of ERISA. IRS proposed regulations provide that the funding target attainment percentage of a plan for a plan year is a fraction (expressed as a percentage), the numerator of which is the value of plan assets for the plan year (after subtraction of the prefunding balance and the funding standard carryover balance under section 430(f)(4)(B) of the Code) and the denominator of which is the funding target of the plan for the plan year (determined without regard to section 430(i) of the Code). See IRS Proposed Regulation 26 C.F.R. §1.430(i)-1; 72 FR 74215, 74231 (Dec. 31, 2007). Pending further guidance, for purposes of the model, the administrator of a single-employer plan should calculate this percentage for a plan year by dividing the value of the plan's assets for that year (after subtracting the balances, if any, mentioned above) by the funding target of the plan for that year.
Plan administrators should report the fair market value of assets as of the last day of the plan year. For this purpose, the value may include contributions made after the end of the plan year to which the notice relates and before the date the notice is timely furnished but only if such contributions are attributable to such plan year for funding purposes. A plan's liabilities as of the last day of the plan year are equal to the present value, as of the last day of the plan year, of benefits accrued as of that same date. With the exception of the interest rate assumption, the present value should be determined using assumptions used to determine the funding target under section 303. The interest rate assumption is the rate provided under section 4006(a)(3)(E)(iv), but, pending further guidance, plans should use the last month of the year to which the notice relates rather than the month preceding the first month of the year to which the notice relates. The Department recognizes that in their annual funding notices plans may need to estimate their year-end liability for the plan year to which the notice relates. Therefore, pending further guidance, plan administrators may, in a reasonable manner, project liabilities to year-end using standard actuarial techniques.
The term "funded percentage" is defined in section 305(i) of ERISA, which corresponds to section 432(i) of the Code. IRS guidance under Code section 432 also applies for purposes of section 305 of ERISA. IRS proposed regulations provide that the funded percentage of a plan for a plan year is a fraction (expressed as a percentage), the numerator of which is the actuarial value of the plan's assets as determined under section 431(c)(2) of the Code and the denominator of which is the accrued liability of the plan, determined using the actuarial assumptions described in section 431(c)(3) of the Code and the unit credit funding method. See IRS Proposed Regulation 26 C.F.R. §1.432(a)-1(b)(7); 73 FR 14417, 14423 (March 18, 2008). Pending further guidance, for purposes of the model, the administrator of a multiemployer plan should calculate this percentage for a plan year by dividing the plan's assets for that year by the accrued liability of the plan for that year, determined using the unit credit funding method.
As explained in Q-8, a plan's funded percentage for a plan year is determined based on the actuarial value of the plan's assets and the accrued liability of the plan using the unit credit funding method. The model, therefore, requires plans to disclose the assets and liabilities underlying the plan's funded percentage for each of the relevant plan years, as of the valuation date for that year, thus showing the mathematical relationship between a plan's assets and liabilities and its funded percentage. In addition, pursuant to the reference to sub clause (I)(bb) in section 101(f)(2)(B)(ii)(II) of ERISA, the model also requires plans to disclose a separate measurement of the fair market value of plan assets held by the plan (as defined in section 4006(a)(3)(E)(iii)(II)) on the last day of the plan year to which the notice relates, and on the same date for each of the preceding two plan years.
Pending further guidance, the terms "active" and "retired or separated" in relation to participants have the same meaning given to those terms in instructions to the latest annual report filed under section 104(a) of the Act (currently, instructions relating to lines 6 and 7 of the 2008 Form 5500 Annual Return/Report). The statute does not specify which day of the plan year is relevant for this count. A plan administrator should provide this count as of the plan's valuation date for the plan year.
Both models have a section, entitled Funding & Investment Policies, which sets forth a chart with various investment asset categories and, with respect to each such category, the chart includes a line item on which the plan administrator should insert an appropriate percentage. For this purpose, the plan administrator should use the same valuation and accounting methods as for Form 5500 reporting purposes. The master trust investment account (MTIA), common/collective trust (CCT), pooled separate account (PSA), and 103-12 investment entity (103-12IE) investment categories have the same definitions as for the Form 5500 instructions.
In addition, if a plan holds an interest in one or more of the direct filing entities (DFEs) noted above, i.e., MTIAs, CCTs, PSAs, or 103-12IEs, plan administrators should include in the model, immediately following the asset allocation chart, the statement below informing recipients how to obtain more information regarding the plan's DFE investments (e.g., the plan's Schedule D and/or the DFE's Schedule H):
For information about the plan's investment in any of the following types of investments as described in the chart above-- common/collective trusts, pooled separate accounts, master trust investment accounts, or 103-12 investment entities-- contact [insert the name, telephone number, email address or mailing address of the plan administrator or designated representative].
The Department has determined, as a matter of enforcement policy and pending further guidance, that a plan amendment, scheduled benefit increase, or other known event has a material effect on plan liabilities or assets for the current plan year if the amendment, scheduled increase, or other known event results, or is projected to result, in either a change of five percent or more in plan liabilities or a change of five percent or more in the value of plan assets, from the prior plan year. Assets and liabilities should be measured in the same manner that they are measured when calculating the plan's funding target attainment percentage or funded percentage. In addition, an amendment, scheduled benefit increase, or other known event has a material effect on plan liabilities or assets for the current plan year if, in the judgment of the plan's enrolled actuary, the event is material for purposes of the plan's funding status under section 430 or 431 of the Code, as applicable, without regard to the five percent threshold. The term current plan year means the plan year following the plan year to which the notice relates (e.g., the plan year in which the annual funding notice is furnished to recipients). In addition, as part of this enforcement policy, if an otherwise disclosable event first becomes known to the plan administrator 120 days or less before the due date of the notice, such event is not required to be included in the notice.
Yes. Section 101(f)(2)(C)(ii) of ERISA permits plan administrators to include in a notice "any additional information which the plan administrator elects to include to the extent not inconsistent with regulations prescribed by the Secretary." Accordingly, pending further guidance, a plan administrator who decides to use a model may elect to add to the model any additional information that is necessary or helpful to understanding the mandatory information and that does not have the effect of misleading or misinforming participants. Plans are not required to add such information at the end of the model under a separate heading, as is the case under 29 C.F.R. § 2520.101-4(b)(9) for multiemployer plans with respect to notices relating to plan years beginning on or before December 31, 2007. In addition, a plan administrator may furnish other notices required by ERISA along with the model. For example, a plan administrator may include the notice of endangered or critical status as required by section 305(b)(3)(D)(i) in the same mailing as the annual funding notice and explain the relationship between these two notices in the annual funding notice.
Yes. Section 101(f)(4)(C) of ERISA provides that an annual funding notice may be provided in written, electronic, or other appropriate form to the extent such form is reasonably accessible to persons to whom the notice is required to be provided. The Department has issued a regulation, 29 C.F.R. § 2520.104b-1(c), setting forth a safe harbor under which plan administrators will be deemed to satisfy their disclosure requirements. While compliance with this safe harbor would constitute good faith compliance with ERISA 101(f)(4)(C), the Department notes that the safe harbor is not the exclusive means by which plan administrators could, in the absence of other guidance, satisfy their obligation to furnish information to participants and beneficiaries. This guidance does not foreclose the use of other means by which documents may, consistent with ERISA and the E-SIGN Act, be furnished to participants and beneficiaries electronically.
Section 101(f)(1) provides that persons entitled to an annual funding notice include "each employer that has an obligation to contribute to the plan" in the case of a multiemployer plan. Multiemployer plan administrators should furnish notice to contributing employers as defined in 29 C.F.R. §2520.101-4(f)(4).
For a plan year beginning in 2006, the notice must include the funded current liability percentage (as defined in section 302(d)(8) of ERISA, as in effect prior to the PPA) of the plan for such plan year. See section 501(d)(2)(A) of the PPA. Pending further guidance, for a plan year beginning in 2007, in the case of a single-employer plan, the notice should include the plan's funding target attainment percentage determined in accordance with IRS proposed regulations at 72 FR 74215, 74232 (Dec. 31, 2007). In the case of a multiemployer plan, for a plan year beginning in 2007, the Department of the Treasury has advised that the plan's funded current liability percentage (as defined in section 302(d)(8) of ERISA, as in effect prior to the PPA) is treated as the plan's estimated funded percentage. Pending further guidance, the notice with respect to a multiemployer plan should therefore include the plan's funded current liability percentage for the plan year beginning in 2007.
The models in Appendix A and Appendix B reflect PPA funding concepts, not the transitional data described in this Q-16. Accordingly, for plan years 2008 and 2009, plans using a model should insert not applicable in the relevant cells in the Funding Target Attainment Percentage chart (single-employer plans) or the Funded Percentage chart (multiemployer plans) and also complete and include in the model the additional model language set forth in Appendix C. The language in Appendix C, entitled Transition Data, should be inserted in the model directly below the Funding Target Attainment Percentage chart or the Funded Percentage chart.
None of these delayed effective date provisions (sections 104, 105, 106 and 402 of the PPA) affects the applicability to these plans of the amendments to section 101(f) of ERISA. Accordingly, the new annual funding notice requirements in section 101(f) of ERISA apply to these plans for plan years beginning on or after January 1, 2008. These plans should disclose their funding target attainment percentage (and related asset and liability information) determined in accordance with guidance provided by the Secretary of the Treasury. In the absence of such guidance, plans subject to the delayed effective date provisions in sections 104, 105, and 106 of the PPA (rural cooperatives plans, settlement agreement plans, and government contractors plans) do not subtract credit balances from plan assets in calculating their funding target attainment percentage. The model in Appendix A is available to such plans, but the portions of the model entitled "Credit Balances" and "At-Risk Status" should be deleted from the model before use.
The public reporting burden for this collection of information is estimated to average approximately one minute per response with an average annual burden of 33 hours per respondent, including time for gathering and maintaining the data needed to complete the required disclosure.
This FAB revises the collections of information contained in 29 CFR 2520.101-4. According to the Paperwork Reduction Act of 1995 (Pub. L. 104-13), no persons are required to respond to a collection of information unless such collection displays a valid OMB control number. The Department is planning to submit an Information Collection Request (ICR) to the Office of Management and Budget (OMB) requesting a revision of OMB Control Number 1210-0126. The Department notes that a federal agency cannot conduct or sponsor a collection of information unless it is approved by OMB under the PRA, and displays a currently valid OMB control number, and the public is not required to respond to a collection of information unless it displays a currently valid OMB control number. See 44 U.S.C. 3507. Also, notwithstanding any other provisions of law, no person shall be subject to penalty for failing to comply with a collection of information if the collection of information does not display a currently valid OMB control number. See 44 U.S.C. 3512. The Department intends to publish a notice announcing OMB's decision upon review of the Departments ICR.
Questions concerning this memorandum may be directed to Stephanie Ward at 202.693.8500.
This notice includes important funding information about your pension plan ("the Plan"). This notice also provides a summary of federal rules governing the termination of single-employer defined benefit pension plans and of benefit payments guaranteed by the Pension Benefit Guaranty Corporation (PBGC), a federal agency. This notice is for the plan year beginning [insert beginning date] and ending [insert ending date] ("Plan Year").
The funding target attainment percentage of a plan is a measure of how well the plan is funded on a particular date. This percentage for a plan year is obtained by dividing the Plan's Net Plan Assets by Plan Liabilities on the Valuation Date. In general, the higher the percentage, the better funded the plan. The Plan's funding target attainment percentage for the Plan Year and 2 preceding plan years is shown in the chart below, along with a statement of the s assets and liabilities for the same period.
[insert Plan Year, e.g., 2011]
[insert plan year preceding Plan Year, e.g., 2010]
[insert plan year 2 years preceding Plan year, e.g., 2009]