IRS Issues Guidance with Timing and Content Requirements for ERISA Section 101(j) Notices | Practical Law

IRS Issues Guidance with Timing and Content Requirements for ERISA Section 101(j) Notices | Practical Law

IRS Notice 2012-46 sets out detailed timing and content requirements for an ERISA Section 101(j) notice that a single-employer defined benefit plan is required to provide to participants and beneficiaries because it became subject to a benefit limitation on account of the underfunded status of the plan.

IRS Issues Guidance with Timing and Content Requirements for ERISA Section 101(j) Notices

by PLC Employee Benefits & Executive Compensation
Law stated as of 06 Jul 2012 • USA (National/Federal)
IRS Notice 2012-46 sets out detailed timing and content requirements for an ERISA Section 101(j) notice that a single-employer defined benefit plan is required to provide to participants and beneficiaries because it became subject to a benefit limitation on account of the underfunded status of the plan.
On July 2, 2012, the IRS issued Notice 2012-46, which sets out detailed notice requirements for single-employer defined benefit plans under ERISA Section 101(j) that must notify participants because the plan becomes subject to benefit limitations due to its underfunded status under IRC Section 436 and ERISA Section 206(g). Notice 2012-46 provides:
  • Detailed timing requirements for ERISA Section 101(j) notices.
  • Guidance on the interaction of ERISA Section 204(h) notices and ERISA Section 101(j) notices.
  • A description of what information is required to be in the notice, including sample compliant ERISA Section 101(j) notice language.
Under ERISA, the Secretary of Labor may assess a civil penalty of up to $1,000 per day for each violation of the notice requirements.

Timing of ERISA 101(j) Notices

ERISA Section 101(j) requires that plan administrators provide notice to plan participants and beneficiaries within 30 days after the date on which:
  • The plan becomes subject to a limitation on unpredictable contingent event benefits under ERISA Section 206(g)(1) (IRC Section 436(b)).
  • The plan becomes subject to a limitation on prohibited payments under ERISA Section 206(g)(3)(A), (B) or (C) (IRC Section 436(d)(1), (2) or (3)).
  • Benefit accruals under the plan are required to have ceased under ERISA Section 206(g)(4) (IRC Section 436(e)).
The Secretary of the Treasury is separately authorized to determine that an ERISA Section 101(j) notice is required.
Notice 2012-46 explains that the required benefit limitations described above are generally triggered on the first Section 436 measurement date when a plan's adjusted funding target attainment percentage (AFTAP) for the plan year is certified or presumed to be less than:
  • 60%, for unpredictable contingent event benefits and benefit accruals.
  • 80%, for prohibited payments. Additional limitations, requiring a separate notice, occur when the AFTAP falls below 60%.
Notice 2012-46 also provides special rules for the date on which an ERISA Section 101(j) notice is required for plans whose AFTAP equal or exceeds 60% for unpredictable contingent benefits and for plans that permit new annuity starting dates.

ERISA Section 101(j) Notices and ERISA Section 204(h) Notices

Notice 2012-46 explains the interaction of the notice requirements under ERISA Section 101(j) and Section 204(h) for plans that cease benefit accruals. The rules are very specific to each factual circumstance but generally provide that each set of notice rules apply separately. For example, if a plan is amended to cease all benefit accruals independent of any benefit limitations imposed under ERISA, a Section 101(j) notice is not required to be provided (because participants are not affected by the benefit limitation itself). In this situation, however, an ERISA Section 204(h) notice would be required on account of the amendment. On the other hand, even though accruals have ceased, an ERISA 101(j) notice would become required if the plan is unable to pay unpredictable continent event benefits or prohibited payments.

Content Requirements and Sample Notice Language

Notice 2012-46 also:
  • Specifies which individuals must be provided with an ERISA Section 101(j) notice for each situation described in the guidance.
  • Describes all of the required information for an ERISA Section 101(j) notice.
  • Contains sample language for a notice describing the options participants and beneficiaries have to elect benefits.
  • Specifies that notices must be:
    • in writing; and
    • furnished in any paper or electronic form to the extent the form is reasonably accessible to participants and beneficiaries.

Request for Comments

The notice contains a request for comments on whether ERISA Section 101(j) notices should be:
  • Required to be provided at additional dates, such as whenever a limitation ceases to apply.
  • Provided to either:
    • individuals who become participants or beneficiaries after the first date the limitation applies; or
    • participants and beneficiaries at later dates if the limitation continues to apply to the plan, such as on an annual or tri-annual basis.
Notice 2012-46 is effective 90 days after publication of the notice in the Federal Register. The notice states that plan administrators may rely on the provisions of the notice before that date, and may also apply a reasonable interpretation of Section 101(j) before that date.