On February 10, the Department of Labor (DOL) published Field Assistance Bulletin 2009-01 (the FAB), providing guidance on the defined benefit plan annual funding notice requirements under the Pension Protection Act of 2006 (PPA). Most significantly, the FAB does not extend the deadline for providing the notice to participants (which, for many plans, is April 30, 2009), permits good faith compliance with the FAB in the absence of DOL regulations on the notice requirement, and provides a model funding notice.
Background. The PPA amended § 101(f) of ERISA to require an annual notice to all participants and beneficiaries in defined benefit pension plans subject to Title IV of ERISA of the plan’s funded status. The notice must also be provided to the Pension Benefit Guaranty Corporation (PBGC), labor organizations representing participants, and, in the case of a multiemployer plan, to each contributing employer. The notice must include, among other things, the plan’s funding percentage, a statement of the value of assets and liabilities of the plan, information on the investment of the plan’s assets, and a description of benefits eligible to be guaranteed by the PBGC.
The annual notice requirement applies to plan years beginning on or after January 1, 2008, and the notice is required to be provided no later than 120 days after the end of each plan year (a later deadline applies to “small plans,” i.e., generally plans with fewer than 100 participants). Therefore, for plans with a plan year that is the calendar year, the first notice is generally required by April 30, 2009.
The PPA required the DOL to issue a model notice in 2007, but before the FAB the DOL had not yet issued either a model notice or regulations. The FAB provides a model notice and other guidance to the Employee Benefits Security Administration’s national and regional offices interpreting certain aspects of the notice requirements.
Good Faith Compliance. The FAB provides that, pending further DOL guidance, a plan administrator will be treated as complying with the notice requirement if the plan administrator follows the guidance in the FAB and a good faith, reasonable interpretation of other aspects of the notice requirement not addressed by the FAB.
Model Notice. The FAB includes two model notices — one for single employer plans and one for multiemployer plans. Use of the model is not required, but using the model will be considered to satisfy the notice requirements. The model notice for single employer plans includes the following elements.
Sutherland Observation: The summaries of the plan’s funding and investment policies may require some lead time to prepare. If a plan does not have a current version of these policies in place, now would be a good time to make any necessary updates.
Questions and Answers Regarding Annual Notice. The FAB provides a series of 17 questions and answers relating to various aspects of the annual notice. The following summarizes several of the significant items of guidance regarding single employer plans:
- Although the notice is technically required to be furnished to the PBGC, pending further guidance, the DOL will not take any enforcement action against plans that fail to send the notice to the PBGC, except for plans that have liabilities that exceed assets by more than $50 million. Plans must still provide the notice to the PBGC within 30 days of a PBGC request, however.
- The “funding target attainment percentage” for a plan should be determined based on the guidance in Proposed Treasury Regulations § 1.430(i)-1, issued December 31, 2007.
- Assets and liabilities should be determined as of the last day of the year, using reasonable actuarial methods to project liabilities as of year-end. Fair market value of assets may include contributions made after the end of the plan year, provided the contributions are attributable to the relevant plan year for funding purposes.
- The participant data should be determined as of the last day of the applicable plan year.
- The asset allocation chart in the model notice includes investments in direct filing entities, such as master trust investment accounts, collective trust accounts, and similar investments. If the plan holds one of those types of investments, the FAB provides a special statement that should be added to the model notice indicating a source from which participants can obtain additional information about the investments.
- The annual notice must include information regarding any amendment, scheduled benefit increase, or other known event having a “material effect” on plan liabilities or assets in the current year. The FAB states that the DOL will consider an event “material” if it would result in a change of 5% or more in plan liabilities or assets, or if the enrolled actuary for the plan considers the event material for funding purposes. The FAB also clarifies that the current plan year for this purpose refers to the year in which the notice is given, rather than the preceding plan year. The FAB further provides that an event need not be described in the notice if it first becomes known to the plan administrator in the 120 days before the due date of the annual notice.
Sutherland Observation: The exception for events that first become known in the 120 days before the notice due date is significant. For example, if a calendar year plan is providing a funding notice for the 2008 plan year, and the stock market drops significantly in early 2009 (before the April 30, 2009 due date), the assets may change by more than 5%, but the change will not be required to be reported in the notice.
- The annual notice can be furnished electronically, either in accordance with existing DOL regulations regarding electronic notices or through other means that are consistent with E-SIGN and ERISA.
- The annual funding notice for 2008 must include funding percentage information for 2006 and 2007, the two preceding plan years. For 2007, the FAB provides that this funding percentage information must be the funding target attainment percentage determined in accordance with the proposed regulations as described above. However, for 2006, the FAB states that the funding percentage is the “funded current liability percentage” as determined prior to the PPA. The FAB indicates that the funding attainment percentage chart in the model notice should state “not applicable” in the row for 2006, with a special explanation for 2006 below the chart, including the 2006 funded current liability percentage. The FAB provides model language for that explanation.