Defined benefit pension plan administrators: You might need to change your annual funding notice.

The Department of Labor published a final rule in the Federal Register on February 2, 2015 clarifying the requirements under ERISA 101(f) that administrators of defined benefit plans, both multiemployer and single employer, provide an annual funding notice (AFN) to plan participants and beneficiaries, labor organizations representing participants or beneficiaries, employers obligated to make contributions to a multiemployer plan and the Pension Benefit Guaranty Corporation (PBGC). The final rule is similar to the proposed rule of November 2010.

Effective for plan years beginning on or after January 1, 2015

The final rule took effect March 4, 2015 and applies to funding notices for plan years beginning on or after January 1, 2015. For a calendar year plan, the new funding notice would be required in 2016. For 2014 plan years, administrators may choose either to use the updated guidance or use their previous approach.

The final rule and model notices incorporate the changes required by the Multiemployer Pension Reform Act (MPRA) for multiemployer plans in critical and declining status.

HATFA and MAP-21 model supplements

The final model notices do not incorporate language required to comply with the Moving Ahead for Progress in the 21st Century Act (MAP-21) and the Highway and Transportation Funding Act (HATFA). Supplemental language complying with HATFA and MAP-21 would not change, no matter if a plan is using the new, final model notices or its previous approach for the 2014 plan year.

A revised model supplement to the model annual funding notice is provided in Field Assistance Bulletin (FAB) 2015-01, for certain single employer defined benefit plans following HATFA. FAB 2013-01 provides a model supplement to the annual funding notice for certain single employer defined benefit plans under MAP-21. Plan administrators may rely on FAB 2013-01 and FAB 2015-01 until their expiration date.

[Related: Administrators Masters Program (AMP®)]

Improved readability and simplified investment information

The model AFN language in the final rule uses shorter sentences that are easier to understand. The new models allow using broader investment classifications to report the allocation of plan assets. The classifications for Form 5500 Schedule R could be used instead of more specific classifications from Form 5500 Schedule H.

[Related: Accounting and Auditing Institute for Employee Benefit Plans]

 All PBGC-insured defined benefit plans are subject except …

The final rule requires all defined benefit plans subject to the PBGC Insurance Program to provide an annual funding notice, except:

• Single employer plans distributing assets in satisfaction of all benefit liabilities in a distress termination or all guaranteed benefits in a distress termination
• Insolvent multiemployer plans
• When there is a merger or consolidation of two or more plans.

Information required in the notices:

• Identifying information
• The plan’s funding percentage
• Assets and liabilities that determine the funding percentage
• Participant demographic information
• Funding and investment policies and allocation of assets
  • Plan’s funding policy
  • Asset allocation of investments under the plan, expressed as percentage of assets
  • General description of investment policy of the plan, relating to the official funding and investment policies
• Known events that are to have a material effect on the plan’s funding
• Termination or insolvency
• PBGC guarantees (general description)
• Information disclosed to the PBGC
• Multiemployer plans: endangered, critical or critical and declining status
  • For plans that are in the critical and declining status:
    • The projected date of the plan’s insolvency
    • A clear statement that an insolvency may result in benefit reductions
    • A statement describing whether the plan sponsor has taken legally permitted actions to prevent insolvency.

The final rule also contains:

• Style, format and distribution requirements
• Alternative methods of compliance.

Resources:

Department of Labor Fact Sheet

Annual Funding Notice for Defined Benefit Plans, Final Rule, February 2, 2015

• Model notice for single employer plans is on pages 5649-5656.
• Model notice for multiemployer plans is on pages 5657-5663.

Lois Mathis-Gleason, CEBS
Senior Information/Research Specialist at the International Foundation