Reprinted with permission from Employee Benefit Review - April 2015
The Employee Benefits Security Administration of the Department of Labor (hereinafter, the “DOL”) recently released final regulations related to the provision of annual funding notices under Section 101(f) of ERISA. The regulations finalize the proposed regulations on annual funding notices but do not address some of the additional intervening guidance on annual funding notices released after the proposed regulations and before these final regulations.
Prior to the passage of the Pension Protection Act of 2006 (“PPA”) multiemployer defined benefit pension plans had a requirement to provide an annual funding notice to participants. When the PPA was passed, it contained provisions that changed the funding notice requirements for defined benefit pension plans. The biggest change of the PPA was to extend the requirement to provide such notices to most single employer defined benefit plans. The PPA also impacted the annual funding notice content and timing. These changes were to apply for plan years beginning on or after January 1, 2008.
In 2009, the Department of Labor (“DOL”) set forth some guidance for employers related to the funding notice obligations. Field Assistance Bulletin 2009-01 (the “2009 FAB”) provided certain information for employers to follow and allowed a “good faith” reasonable standard for annual funding notice requirements not addressed.
In 2010, the DOL issued proposed regulations that incorporated many of the requirements found in the 2009 FAB. Employers could follow either the proposed regulations or the FAB guidance until final regulations became effective.
The annual funding notice rules were amended again in 2012 as part of the Moving Ahead for Progress in the 21st Century Act (“MAP-21”). The MAP-21 requirements were further revised in 2014 as part of the Highway and Transportation Funding Act of 2014 (“HAFTA”). The DOL provided guidance on these changes in Field Assistance Bulletin 2015 01. Many of these funding notice provisions were not permanent changes.\
In addition to these changes, in 2014 revisions were made with respect to annual funding notice requirements for multiemployer plans as part of the Multiemployer Pension Reform Act of 2014 (“MPRA”).
As can be seen, since the PPA was enacted in 2006 extending the requirement to provide annual funding notices to more plans, there has been a lot of change and guidance on the proper way to provide the required information. To that end, the DOL recently issued final regulations related to the provision of annual funding notices. For the most part these final regulations track the requirements contained in the 2010 proposed regulations. Interestingly, the final regulations do not address much of the guidance related to annual funding notices that came after the proposed regulations. The DOL explains this by providing that much of the intervening information is temporary and it appears that the DOL wanted model notices and regulations that will not require changes as the temporary information expires.
On February 2, 2015, the DOL released the final regulations related to the annual funding notice requirements. The final regulations are effective March 4, 2015 and apply to plan years beginning on or after January 1, 2015.
The final regulations also provide two model notices – one for single employer plans and another for multiemployer plans – to help plan administrators comply with the requirements. While use of these models is not required, if a plan administrator chooses to use the applicable model it will be deemed to satisfy the content and notice requirements of the final regulations.
The final regulations are similar to the proposed regulations and require the plan administrator of a defined benefit pension plan that is insured by the PBGC to provide a funding notice each year to (i) participants or beneficiaries, (ii) labor unions representing participants or beneficiaries, (iii) employers contributing to a multiemployer plan and (iv) the PBGC. The notice must be furnished by the 120th day following the end of the year for a large plan and by the due date (with extensions) for a small plan’s Form 5500. Thus, for a large employer calendar year plan the first notice under these final regulations will be required to be provided by the end of April 2016.
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 that determine the funding percentage, the fair market value of the plan's assets on the last day of the plan year, the plan's funding and investment policies (generally) and allocation of assets, and known events that are projected to have a material effect on the plan's funding. The notice must contain identifying information about the plan (name and plan number) and each plan sponsor (name and employer identification number) and the name address and phone number of the plan administrator. If there is a different principle administrative officer from the plan administrator then his or her name address and phone number must also be provided. The notice is supposed to be written in a style and format consistent with the requirements for summary plan descriptions. This means that it should be drafted in a manner that can be understood by the average plan participant and does not mislead or misinform those reading it.
The final rules clarify that in rare circumstances (perhaps because of a good faith error or change in actuarial assumptions) if there is a change in the assets and liabilities disclosed after the notice is furnished to participants and before the filing of the Form 5500 for that year, the plan administrator is not required to restate the notice for the year. However, the DOL further provides if the change in data between the two is substantial, the administrator may want to explain it in the next plan year’s funding notice.
The biggest changes from the proposed regulations on annual funding notices include exempting certain terminating single-employer plans from furnishing their funding notices; establishing alternative methods of compliance for multiemployer pension plans that have terminated by mass withdrawal and for plans described in section Code Section 412(e)(3); and including a rule of administrative convenience that if an otherwise disclosable material event first becomes known to the plan administrator 120 days or less before the due date of the funding notice, the event is not required to be disclosed in the notice.
In sum, the final rules are quite similar to the proposed rules with a bit more flexibility for certain plans. Having these final rules is helpful for those plan administrators needing to provide annual funding statements for defined benefit plans. In particular, the fact that there are model notices will permit these plan administrators to be confident that they are complying with the requirements of the final regulations.