On February 10, 2009, the U.S. Department of Labor (DOL) issued Field Assistance Bulletin 2009-01 (FAB). The FAB provides initial guidance on compliance with the annual pension funding notice requirements under Section 101(f) of the Employee Retirement Income Security Act (ERISA) as amended by the Pension Protection Act of 2006 (PPA). The FAB also provides “safe harbor” model notices that may be used by plan administrators of affected retirement plans to comply with ERISA Section 101(f). Below is a summary of the key points addressed in the FAB.
When Must the Notice Be Provided?
The new notice requirements are effective for plan years beginning after December 31, 2007. The notice must be provided no later than 120 days after the end of the plan year. A calendar year plan must provide the notice by April 30, 2009. Small plans (those with no more than 100 total participants throughout the year) have until the date that the annual report (form 5500) is filed to issue the notice.
Who Must Provide the Notice?
ERISA Section 101(f) requires that administrators of both single-employer and multi-employer defined benefit pension plans covered by Title IV of ERISA—Pension Benefit Guaranty Corporation (PBGC) covered plans—provide the annual funding notice. The annual funding notice replaces the summary annual report previously required for single-employer plans covered by Title IV of ERISA.
Who Must Receive a Notice?
The PBGC; each plan participant and beneficiary; each labor organization representing plan participants or beneficiaries; and, with respect to multi-employer plans, each employer that has an obligation to contribute to the plan must be provided with a copy of the notice. However, until further guidance is provided, the DOL will not take any enforcement action against the administrator of a single-employer plan for failing to provide a notice to the PBGC if both the following conditions are satisfied: plan liabilities do not exceed plan assets by more than $50 million, and the administrator furnishes the latest available annual funding notice to the PBGC within 30 days of receiving a written request from the PBGC.
Is Use of the Model Notice Required?
No, an administrator can comply using a different form of notice. An adequate notice must include the required information and be “written in a manner so as to be understood by the average plan participant.” The advantage of using the model notice is that, pending further guidance, an appropriately completed model notice satisfies the content requirements of ERISA section 101(f). FAB 2009-01 also provides that “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.”
What Information Must Be Included in the Notice?
In addition to identifying the plan and plan year for the notice, ERISA section 101(f)(2) describes plan-specific information required in an adequate notice. This plan-specific information is broken into four general categories in the FAB model notice.
Funding Target Attainment Percentage
The annual funding notice must include information on the plan’s overall funded status for the plan year and the two immediately preceding plan years. The DOL guidance clarifies that for 2008 the notice must include the plan’s 2008 funding target attainment percentage, a statement as to the plan’s 2007 funded status that is consistent with Internal Revenue Service guidance regarding the PPA funding requirements, and a statement of the plan’s 2006 current liability funded percentage (i.e., the funded status of the plan in pre-PPA terms). In addition, plans that are at-risk must include additional information regarding their at-risk status.
Fair Market Value of Assets
The annual funding notice must also include disclosure of the fair market value of the plan’s assets as well as the plan’s liabilities, both determined as of plan year-end. The asset amount can include contributions made after year-end, but before the notice is timely provided, as long as these contributions are attributable to the year covered by the notice for funding purposes. The FAB also provides that, pending further guidance, year-end liabilities may be estimated based on prior measurements using standard actuarial techniques.
The administrator must provide the number of participants by category as of the valuation date. The category definitions are consistent with those used for completing the form 5500 and should be in the 2008 Actuarial Valuation report.
Funding and Investment Policies
A narrative description of the sponsor’s funding policy for the plan and the trust’s investment policy must be included in the annual funding notice. The model notice includes a chart illustrating the plan’s year-end asset allocation by percentage of plan assets invested in up to 20 categories. The plan administrator should use the same valuation and accounting methods as are used for Form 5500 reporting purposes.
In addition to the information referred to above, the annual funding notice must contain a statement regarding any plan amendment, scheduled benefit increase or other known event that results in (or is projected to result in) a 5 percent change in the plan’s assets or liabilities, or which the plan’s actuary determines to be material to the plan’s funded status.
The notice must also provide participants with information on how to obtain a copy of the plan’s annual report (5500 filing), a summary of rules governing plan termination, PBGC guaranteed benefit amounts, a discussion of corporate information on file with the PBGC and the plan administrator’s contact information for participants seeking additional information.
Can the Annual Funding Notice Be Distributed Electronically?
The administrator can distribute the notice electronically using the safe harbor method described in 29 C.F.R. § 2520.104b-1(c). In addition to the safe harbor method, the administrator can use another method to furnish the document electronically, as long as that method is consistent with ERISA and the E-SIGN Act.
Is There Any Additional Guidance for Multi-Employer Plan Administrators?
Multi-employer plans cannot use the model notice from Appendix to 29 C.F.R. 2520.101-4 for plan years beginning after December 31, 2007. Although all plans covered by Title IV of ERISA are required to provide a notice, the DOL will not take enforcement action for failure to provide a notice by the administrator of a multi-employer plan that is insolvent and in compliance with the insolvency notice requirements of ERISA.