DOL Final Rule Implements Annual Funding Notice Requirement for Defined Benefit Plans | Practical Law

DOL Final Rule Implements Annual Funding Notice Requirement for Defined Benefit Plans | Practical Law

The Department of Labor (DOL) issued a final rule that implements the annual funding notice requirement for defined benefit plans under Section 101(f) of the Employee Retirement Income Security Act (ERISA). The final rule includes model annual funding notices for single-employer and multiemployer pension plans.  

DOL Final Rule Implements Annual Funding Notice Requirement for Defined Benefit Plans

by Practical Law Employee Benefits & Executive Compensation
Published on 03 Feb 2015 • USA (National/Federal)
The Department of Labor (DOL) issued a final rule that implements the annual funding notice requirement for defined benefit plans under Section 101(f) of the Employee Retirement Income Security Act (ERISA). The final rule includes model annual funding notices for single-employer and multiemployer pension plans.
On January 30, 2015, the DOL released a final rule (Final Rule) that implements the requirement under ERISA Section 101(f) that administrators of defined benefit plans provide an annual funding notice 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) ((80 Fed. Reg. 5626 (Feb. 2, 2015)).
With respect to specific funding information disclosed in the notice, the Final Rule is substantially similar to the DOL's November 2010 proposed rule.
The Final Rule also includes model annual funding notices for single-employer and multiemployer pension plans.
The Final Rule is applicable to funding notices for plan years beginning on or after January 1, 2015. However, prior to January 1, 2015, administrators may elect to comply with the requirements of the Final Rule.

Annual Funding Notice Requirement

Section 101(f) was added to ERISA by the Pension Funding Equity Act of 2004 (PFEA), which requires multiemployer defined benefit plans to furnish an annual funding notice to plan participants and beneficiaries, each labor organization representing plan participants or beneficiaries, each employer that is obliged to contribute to the plan and the PBGC.
The Pension Protection Act of 2006 (PPA) amended Section 101(f) to require administrators of all defined benefit plans that are subject to Title IV of ERISA, not only multiemployer plans, to furnish annual funding notices. The PPA made other significant changes to the funding notice requirement, such as enhancing the content of the notice and shortening the timeframe for providing the notice.
DOL Field Assistance Bulletin 2009-01 (FAB 2009-01) provided interim guidance on the notice requirement and included model notices. That guidance was substantially incorporated in the DOL's 2010 proposed funding notice rule and the Final Rule. The Final Rule supersedes FAB 2009-01.
Section 101(f)'s disclosure requirements were also amended by:
Most recently, the DOL issued Field Assistance Bulletin 2015-01 (FAB 2015-01), which provides guidance on the annual funding notice requirements following the HATFA for certain single-employer defined benefit plans and a revised model supplement to the model annual funding notice (see Legal Update, DOL Issues Guidance on the Annual Funding Notice Requirements Following HATFA).
The preamble to the Final Rule does not address the MAP-21 and HATFA supplemental disclosures because they are temporary and have no effect on the permanent disclosure requirements in ERISA Section 101(f). Instead, plan administrators may rely on FAB 2013-01 and FAB 2015-01 or any other guidance issued by the DOL under ERISA Section 101(f) until their expiration date.

Final Rule

The Final Rule, 29 C.F.R. Section 2520.101-5, implements the annual funding notice requirement of ERISA Section 101(f) (29 U.S.C. § 1021) as amended by the PPA. The Final Rule requires administrators of all defined benefit plans subject to Title IV of ERISA (that is, single-employer and multiemployer defined benefit plans that are subject to the PBGC's Insurance Program) to provide an annual funding notice to each:
  • Plan participant covered under the plan on the last day of the notice year.
  • Plan beneficiary receiving benefits under the plan on the last day of the notice year.
  • Labor organization representing participants or beneficiaries on the last day of the notice year.
  • Employer that, as of the last day of the notice year, is obligated to make contributions to a multiemployer plan because it is either a party to the collective bargaining agreement(s) pursuant to which the plan is maintained or otherwise may be subject to withdrawal liability under ERISA Section 4203 (29 U.S.C. § 1383).
  • The PBGC.
The regulation provides limited exceptions to the notice requirement:
  • For single-employer plans that distribute assets in satisfaction of all benefit liabilities in a distress termination or all guaranteed benefits in a distress termination.
  • For insolvent multiemployer plans.
  • When there is a merger or consolidation of two or more plans.
Large plans must furnish the notice by the 120th day following the end of the plan year to which the notice relates (the notice year). A small single-employer or multiemployer plan (which has 100 or fewer participants on each day during the plan year preceding the notice year) may furnish a funding notice on or before the due date, with extensions, of the plan's Form 5500 filed with the DOL.
The Final Rule implements changes to ERISA Section 101(f), as amended by PPA, and therefore supersedes and reserves 29 CFR Section 2520.101-4, which the DOL issued in 2006 under the PFEA.

Notice Requirements

The Final Rule has substantially the same requirements as the 2010 proposed rule concerning the specific funding information disclosed in the notice. The Final Rule requires that the annual notice include:
  • Identifying information. Much of this information is the same as used in Form 5500.
  • The plan's funding percentage. A single-employer plan's notice must state whether the funding target attainment percentage, as defined in ERISA Section 303(d)(2) (29 U.S.C. § 1083(d)(2)), is at least 100% for the notice year and each of the two preceding plan years, and if not, the actual percentages. A multiemployer plan's notice must state whether the plan's funded percentage (as defined in ERISA Section 305(i) (29 U.S.C. § 1085)) for the notice year and each of the two preceding plan years is at least 100%, and if not, the actual percentages.
  • The assets and liabilities that determine the funding percentage. The funding notice must include a statement of the plan's total assets and liabilities as of the valuation date and the last day of the plan year.
  • Demographic information. The statement must provide the number of participants who, as of the valuation date of the notice year, are:
    • retired or separated from service and receiving benefits;
    • retired or separated from service and entitled to future benefits, but currently not receiving benefits; or
    • active participants under the plan.
  • The plan's funding and investment policies and allocation of assets. The statement must provide the:
    • plan's funding policy;
    • the asset allocation of investments under the plan, expressed as percentages of total assets, as of the end of the notice year; and
    • a general description of any investment policy of the plan as it relates to the funding and investment policies.
  • Endangered, Critical or Critical and Declining Status. Paragraph (b)(6) of the Final Rule (29 C.F.R. Section 2520.101-5(b)(6)) requires that the funding notice for a multiemployer plan indicate whether the plan was in endangered, critical, or critical and declining status for the notice year under ERISA Section 305. Paragraph (b)(6)(iii) includes several required items for the funding notice of a plan in critical and declining status, which were added to ERISA Section 101(f) by MPRA:
    • the projected date of the plan's insolvency;
    • a clear statement that such insolvency may result in benefit reductions; and
    • a statement describing whether the plan sponsor has taken legally permitted actions to prevent insolvency.
  • Known events that are projected to have a material effect on the plan's funding. The Final Rule includes numerous special rules and definitions that explain how these requirements apply to plans.
  • Termination or Insolvency. The notice shall include a summary of the rules governing the termination of single-employer plans under ERISA Title IV, Subtitle C and the rules governing insolvency of multiemployer plans, including limitations on benefits payments.
  • PBGC guarantees. The funding notice must include a general description of the plan benefits that are eligible to be guaranteed by the PBGC.
  • Information disclosed to the PBGC. The notice must state whether the contributing sponsor or a controlled group member was subject to the reporting requirements under ERISA Section 4010.
  • The Final Rule also includes style, format and distribution requirements for the notice, as well as alternative methods of compliance.

Model Notices

Appendix A and B of the Final Rule provide model notices. They are optional, but use of a model notice will be deemed to satisfy the content, style and format requirements of the Final Rule.

Practical Implications

The Final Rule applies to notices for plan years beginning on or after January 1, 2015. This notice is provided in 2016 for calendar year plans. To best ensure compliance with the numerous requirements contained in the Final Rule, plan administrators should consult with their actuaries to ensure that the required content can be provided on a timely basis.