What is the Annual Funding Notice (“AFN”)?

Section 101(f) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) requires that the administrators of single-employer defined benefit plans furnish an AFN to (a) each participant and beneficiary, (b) each labor organization representing such participants or beneficiaries, and (c) the Pension Benefit Guaranty Corporation (the “PBGC”). The AFN must include, among other things, the plan’s funding percentage, a statement of the value of the plan’s assets and liabilities, 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 Department of Labor issued a model AFN in Field Assistance Bulletin 2009-01.  

What is the AFN Distribution Due Date?

The AFN is required to be distributed no later than 120 days after the close of each plan year. For calendar year plans, the 2009 filing deadline is April 30, 2009. For small plans, the AFN must be provided no later than the date the Form 5500 is filed and not later than the Form 5500 filing deadline (including extensions). Generally, plan is a “small plan” if it had 100 or fewer participants on each day during the plan year preceding the year to which the AFN relates.  

Which Participants and Beneficiaries are Required to Receive the AFN?

Generally, ERISA requires that distribution of the AFN be made to (a) plan participants covered under the plan on the last day of the plan year to which the AFN relates and (b) beneficiaries (which also includes alternate payees) receiving benefits under the plan on the last day of the plan year to which the AFN relates.  

How is the AFN Distributed to Participants and Beneficiaries?

The objective for distribution is to use measures reasonably calculated to ensure actual receipt of the AFN by the persons required to receive the AFN. One or a combination of the following methods is acceptable:  

  • in-hand delivery at work, such as distribution to office in-boxes or with paychecks (it is not acceptable to post or place copies of the material in a location frequented by participants);  
  • first, second, or third-class mail; provided that for second or third-class mail, return and forwarding postage is guaranteed, address correction is requested, and any AFN that is returned with an address correction is sent again by first class mail or personally delivered to the participant at his or her worksite;  
  • electronic media, such as e-mail, subject to additional requirements, described below:  

If electronic media is used, the administrator must ensure that the communication is actually received by the participant or beneficiary. Some ways to ensure receipt are through the use of return receipts or notice of undelivered electronic mail features, periodic reviews or electronic surveys. The measures used to ensure actual receipt must also be reasonably calculated to protect the confidentiality of personal information relating to an individual’s benefit.

A notice must be provided to each participant or beneficiary, in electronic or non-electronic form, at the time the AFN is furnished electronically, that apprises the individual of the significance of the AFN and the right to request and obtain a paper version of the AFN. The required notice may be included with other information relating to the plan or the plan sponsor, but only if the required notice is sufficiently conspicuous to alert participants and beneficiaries to the electronically-furnished AFN.

Electronic delivery may be made to an actively employed participant who (a) has the ability to effectively access documents furnished in electronic form at any location where the participant is reasonably expected to perform his or her duties as an employee and (b) for whom access to the employer’s or plan sponsor’s electronic information system is an integral part of those duties. Computer kiosks or other electronic information systems in common areas of the workplace may not be used as the exclusive means by which the AFN may be delivered.  

Certain rules apply to electronic delivery of the AFN to participants and beneficiaries outside the workplace who do not have access to the employer’s or plan sponsor’s electronic information system. The individual receiving the AFN electronically must affirmatively consent to its receipt. Prior to consenting to electronic delivery, a participant or beneficiary must be provided, in electronic or non-electronic form, a clear and conspicuous statement disclosing (a) the types of documents to which consent will apply, (b) the individual’s right to withdraw consent at any time without charge, (c) the procedures for withdrawing consent and for updating the address for receipt of electronically-furnished documents, (d) the individual’s right to request and obtain a paper version of an electronically-furnished document, including whether the paper version will be provided free of charge, and (e) any software or hardware requirements for accessing and retaining the documents to be provided electronically.  

A participant or beneficiary must also be provided with a hard copy of the AFN if there are any changes in hardware or software requirements that would create a material risk that the individual will not be able to access or retain the electronically furnished AFN. The participant or beneficiary must also (a) be provided with a statement of the revised hardware or software requirements for access to and retention of an electronically furnished AFN, (b) be apprised of the right to withdraw consent without charge and without imposition of any condition or consequence that was not disclosed at the time of the initial consent and (c) affirmatively consent again to the electronic delivery of the AFN.  

Published guidance from the Department of Labor provides that these electronic methods are not the exclusive means by which administrators could, in the absence of other guidance, satisfy their obligation to furnish information electronically to participants and beneficiaries. Administrators may use other means by which documents may, consistent with ERISA and the Electronic Signatures in Global and National Commerce Act (“E-SIGN”), be furnished. If you are interested in using an alternative method, contact us for additional information.  

  • publication in newsletters is an alternative method which is subject to specific requirements. If you are interested in this alternative method, contact us for additional information.  

How is the AFN Provided to the Labor Organization?

The administrator should furnish the AFN to the labor organization representing the participants and beneficiaries of the plan in one or a combination of the methods described above or in the manner it typically uses to provide notices to the labor organization(s).  

How is the AFN Provided to the PBGC?

The Department of Labor Field Assistance Bulletin 2009-01 provides that only the administrators of plans with plan liabilities which exceed plan assets by more than $50 million are required to provide a copy of the AFN to the PBGC. Pending further guidance from the Department of Labor, those not required to file the AFN must provide a copy to the PBGC within 30 days of receiving a written request from the PBGC for a copy of the AFN. The administrator can either e-mail or mail the AFN to the PBGC.  

The e-mail address for the PBGC is:  

single-employerAFN@pbgc.gov  

The use of read receipt/send confirmation is recommended.  

The mailing address for the PBGC for these purposes is:  

PBGC  

ATTN: Single-Employer AFN Coordinator  

1200 K Street, NW, Suite 270  

Washington, DC 20005-4026