On Feb. 10, 2009, the U.S. Department of Labor (DOL) issued Field Assistance Bulletin (FAB) 2009-01, providing guidance for plan administrators to comply with the annual funding notice requirement for defined benefit pension plans under the Pension Protection Action of 2006 (PPA). The annual funding notice must be distributed in lieu of the Summary Annual Report (SAR) for defined benefit plans but requires more information than the SAR.  

Distribution Requirements: The PPA requires that no later than 120 days after the end of each plan year (beginning with the 2008 plan year), all defined benefit plans covered by the Pension Benefit Guaranty Corporation (PBGC) distribute an annual funding notice to:

  • all plan participants and beneficiaries
  • any applicable labor organizations  
  • the PBGC  
  • in the case of a multiemployer plan, each employer that is obligated to make contributions to the plan.  

Small plans, generally with fewer then 101 employees, can delay distribution of the notice until the filing date of their Form 5500. Funding notices can be distributed electronically in accordance with ERISA safe harbor methods of electronic delivery. Most plan administrators, however, will be required to mail printed notices to inactive participants.  

Content Requirements: The DOL has issued separate model funding notices for single employer plans and multiemployer plans. A plan is not required to use the model notice as long as the new content requirements are met. The new notice requires significantly more financial details than the SAR. First, the notice must disclose the plan's funding target attainment percentage (FTAP) for the relevant plan year and two prior years—the two year requirement is waived for the 2008 plan year. Details on how to calculate the FTAP are included in FAB 2009-01. In addition, the notice must state if the plan was in endangered status (the FTAP is less then 80%) or critical status (the FTAP is less then 65%) during the plan year. If so, the funding notice must also include a summary of a correction plan. In light of the current turbulent market, this is a particularly important requirement to note for this year's filing.  

The funding notice must also contain (1) a three year history of the fair market value of plan assets and liabilities; (2) summaries of the plan's funding and investment policies and asset allocation; (3) information on the number of plan participants and participant counts by category; (4) explanations of any plan amendments or other material changes that have occurred or are expected to occur; (5) statements about the electronic availability of Form 5500 or availability upon request; and (6) an explanation of how the PBGC guarantees participants' benefits.  

FAB 2009-1 includes questions and answers which provide additional guidance. The guidance clarifies that if a plan sponsor uses the model notice, it is permissible to include additional information that may be necessary or helpful to understand the mandatory information as long as it does not have the effect of misleading or misinforming. Additional information is not required to appear under a separate heading at the end of the notice. Further, the annual funding notice may be distributed together with other required notices such as the PPA notice of endangered or critical status.  

Multiemployer Plans: The Worker Retiree and Employer Recover Act of 2008 allows multiemployer plans to make an election to use their actual funding certification from the prior year, which has the effect of allowing a plan that was funded at or above 80% last year to avoid declaring in this year’s annual funding notice thatthe plan’s funding status has become endangered or critical. Instead, such plan would have to indicate in its notice that the plan has made this special election.  

Next Steps: The PPA annual funding notice requirements are effective for plan years beginning after Dec. 31, 2007. Accordingly, most calendar year plans will need to distribute notices by April 30, 2009 for the 2008 plan year. There is an automatic $110 per participant per day penalty for failure to distribute by the deadline. The Department of Labor has indicated that plan administrators acting in good faith with the guidelines under FAB 2009-01 will be deemed to have satisfied the new notice requirements. Plan sponsors should begin now to make sure that they can meet the new disclosure requirements because the funding notice is now more complicated to prepare, requires the assistance of the plan’s actuary to complete and since the deadline is now three months earlier than the SAR deadline for plans with 101 or more participants.  

The DOL answers to frequently asked questions are available at: http://www.dol.gov/ebsa/regs/fab2009-1.html  

Link to the Single Employer Model Funding Notice: http://www.dol.gov/ebsa/regs/FundingNoticeAppA.doc  

Link to the Multiemployer Model Funding Notice: http://www.dol.gov/ebsa/regs/FundingNoticeAppB.doc