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DOL Issues Model Annual Funding Notices Due For Calendar Year Defined Benefit Plans on April 30, 2009

March 19, 2009

For plan years beginning after December 31, 2007, all defined benefit plans that are subject to Title IV of ERISA are required to provide certain annual funding notices to the PBGC, plan participants and beneficiaries, labor organizations, and, in the case of multiemployer plans, each participating employer.  The notice must be provided within 120 days following each plan year.  For a calendar plan year, the deadline for providing the notice is April 30, 2009.  In Field Assistance Bulletin No. 2009-01, the DOL issued model notices that plan sponsors can use until additional regulatory guidance is issued by the DOL.  The model notices can be found at http://www.dol.gov/ebsa/regs/fab2009-1.html

FUNDING NOTICE REPLACES SUMMARY ANNUAL REPORT

The Funding Notice is required under Section 101(f) of ERISA and replaces the Summary Annual Report (SAR) previously required to be provided by a defined benefit plan.  The Funding Notice requires much more detailed disclosures than were required for the SAR.

Defined contribution plans and welfare plans subject to ERISA still must provide the SAR as before.  Any ERISA-covered defined benefit plan not subject to Title IV of ERISA (PBGC insurance) also must continue to provide the SAR.

CONTENTS OF NOTICE

The annual Funding Notice must include:

  • the plan’s “funding target attainment percentage”,
  • a statement of the value of the plan’s assets and liabilities,
  • the plan’s funding and investment policies,
  • a description of how the plan’s assets are invested as of specific dates,
  • the number of participants receiving benefits under the plan, and
  • a description of the benefits under the plan that are eligible to be guaranteed by the PBGC.

The Field Assistance Bulletin provides additional guidance on how to determine the funding target attainment percentage, the calculation of year-end assets and liabilities and a number of other disclosures.  Although the funding information is typically required to be disclosed for 3 years, the DOL provided some transitional rules for the 2008 and 2009 Funding Notices.  Administrators will need to work with their actuaries and legal counsel to prepare the required information.

The Funding Notice must also describe certain “events” (including a plan amendment or scheduled benefit increase or reduction) in the current plan year (i.e., the plan year in which the notice is being provided).  The DOL defines an event as any plan amendment or other known event that takes effect in the current plan year and has a material effect on plan liabilities or assets for the current plan year.  The description of the event in the Funding Notice must include:

  • an explanation of the event, and
  • a projection to the end of such plan year of the effect of the event on plan liabilities. 

Until further guidance is issued, a “material effect” means the event results, or is projected to result, in either a change of five percent or more in plan liabilities or a change of five percent or more in the value of plan assets, from the prior plan year.  In addition, an event has a material effect on plan liabilities or assets for the current plan year if, in the judgment of the plan’s enrolled actuary, the event is material for purposes of the plan’s funding status under Section 430 or 431 of the Internal Revenue Code, as applicable, without regard to the five percent threshold. 

The DOL provides some temporary relief from this current year disclosure requirement.  Until further guidance is issued, for DOL enforcement policy purposes, if an otherwise disclosable event first becomes known to the plan administrator 120 days or less before the due date of the Funding Notice, such event is not required to be included in the Funding Notice.

GOOD FAITH COMPLIANCE

Use of the Model Funding Notice provided by the DOL is not mandatory.  However, an appropriately completed Model Funding Notice will, for DOL enforcement policy purposes, satisfy the requirements of ERISA Section 101(f).

Failure to provide the Funding Notice may, in the discretion of the court, result in a penalty of $110 per participant per day.

WHEN NOTICE IS REQUIRED

The Funding Notice must be provided annually within 120 days following the end of the plan year.  For small plans (generally, plans with 100 or fewer participants each day during the plan year preceding the year to which the Funding Notice relates), the notice must be provided not later than the earlier of the date on which the Form 5500 is filed or the latest date the Form 5500 must be filed (including any extensions).

For single employer plans, the new Funding Notice rules apply to plan years beginning after December 31, 2007.  Multiemployer plans were already required to provide the Funding Notice although the Field Assistance Bulletin provides additional guidance on the information that must be included in the Funding Notice for multiemployer plans for plan years beginning after December 31, 2007.

WHO MUST RECEIVE THE FUNDING NOTICE

The plan sponsor must provide the Funding Notice to plan participants and beneficiaries, the PBGC, any labor organizations representing plan participants or beneficiaries and, for multiemployer plans, participating employers.  While the Funding Notice is required to be provided to the PBGC, the PBGC has advised that, pending further guidance, no enforcement action will be taken by it regarding the failure to furnish the notice to it by a single employer plan with liabilities that do not exceed plan assets by more than $50 million, so long as the plan administrator furnishes the latest available funding notice to the PBGC within 30 days after receiving a written request for it from the PBGC. 

HOW MUST THE FUNDING NOTICE BE PROVIDED

In addition to providing the Funding Notice in written form, a plan 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 plan administrator can use another electronic method to furnish the document electronically, as long as that method is consistent with ERISA and the E-SIGN Act.

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