The first new annual funding notices required by the Pension Protection Act of 2006 must be distributed by April 30, 2009, for calendar year plans. With barely enough time left to prepare these notices, the Department of Labor (DOL) recently issued helpful guidance and a model notice in Field Assistance Bulletin 2009-1 (FAB). Plan sponsors may rely on the FAB as good-faith compliance with the funding notice requirement until the DOL issues final regulations. Because the notice requirement applies only to defined benefit plans covered by the Pension Benefit Guaranty Corporation (PBGC), governmental plans and nonelecting church plans are exempt from the funding notice rules. This E-Bulletin only addresses the requirements for single employer plans, although the FAB also addresses the funding notice requirements for multiemployer plans.
The funding notice must be provided to each plan participant and beneficiary, each labor organization representing the participants or beneficiaries, and to the PBGC. If the plan's liabilities do not exceed plan assets by more than $50 million, however, the DOL will not enforce the PBGC notice requirement, as long as the plan furnishes the most recent notice to the PBGC within 30 days of a written request.
The notice generally must be distributed within 120 days after the end of each plan year to which the notice relates, beginning with the plan year beginning in 2008. This means plans will have to collect data much earlier in the year than ever before under the summary annual report rules, which were superseded by the annual funding notice. Small plans (generally those with 100 or fewer participants) may wait to provide the notice until they file their Form 5500 Annual Report. The penalty for late filing is $110 per day per recipient.
The annual funding notice may be in written, electronic, or other appropriate form, to the extent the form is reasonably accessible to the persons entitled to the notice. The existing DOL safe-harbor on electronic disclosures, for example, for distribution of summary plan descriptions, applies to the annual funding notice.
Content of the Notice
The annual funding notice must include the following information, much of which is significantly beyond the information previously required for summary annual reports.
General Plan Information - The notice must include identifying information, including the plan name, the address and phone number of the plan administrator and the plan's principal administrative officer, the sponsor's EIN, and the plan number.
Funding Target Attainment Percentage (FTAP) Information - The notice must state whether the plan's FTAP for the plan year to which the notice relates and for the two preceding plan years is at least 100%. If not, the actual percentages must be provided. The FTAP is generally determined by dividing the actuarial value of plan assets for the plan year by the funding target for that year, under the PPA rules. The FAB provides transition rules for providing this information for the pre-PPA years, 2006 and 2007. In addition, at-risk liabilities must be shown for any plan that is in at-risk status.
Value of the assets and liabilities at year end - The assets must be measured at fair market as of the last day of the plan year to which the notice relates. Contributions made after the end of the year, but before delivery of the notice, may be counted if they are attributable to that year for funding purposes. The plan's liabilities are equal to the present value, as of the last day of the year to which the notice relates, of benefits accrued to that date. If year-end liabilities are not yet known, they may be projected to year-end using standard actuarial techniques.
Number of participants - The notice must state the number of participants who are (1) retired or separated from service and receiving benefits, (2) retired or separated and entitled to future benefits, and (3) active participants. The same definitions as used for the Form 5500 should be used for this purpose. The count should be provided as of the plan's valuation date for the plan year to which the notice relates.
Funding policy and asset allocation - The annual funding notice must include a summary of the plan's funding policy and the asset allocation of plan investments based on a percentage of overall assets as of the end of the plan year to which the notice relates. The model notice includes a chart with various investment asset categories, with a line for the applicable percentage to be included. The same valuation and accounting methods as used for the Form 5500 should be used.
Material changes - Any amendment, scheduled benefit increase or reduction or other known event taking effect in the plan year in which the notice is given must be disclosed if it will have a material effect on plan liabilities or assets. The effect will be considered material if it is projected to result in at least a 5% change from the year to which the notice relates, or if the plan's enrolled actuary determines the change is material.
Plan termination information - The annual funding notice must summarize the rules governing plan terminations and describe the PBGC's guaranteed benefits.
Annual Report Statement - The notice must include a statement that the recipient may obtain a copy of the Form 5500 Annual Report upon request, through the DOL's Web site, or through the sponsor's intranet Web site (if applicable).
Additional information - The plan administrator may include any other additional information that is necessary or helpful to understanding the mandatory information and does not have the effect of misleading or misinforming the participants. Plan sponsors may use this option to place the required information in appropriate context. Other notices may also be furnished with the model, although an explanation as to the relationship between the notices may be needed.
What to Do
You should discuss with your plan's actuary whether all of the required information is available, and if not, how to assemble it. You should also consider using the model notice to ensure compliance. The model for single employer plans is Appendix A to the FAB, which you can find at http://www.dol.gov/ebsa/pdf/fab2009-1.pdf. If you would like any further information, or would like assistance with compliance with any of the annual funding notice requirements, please contact any member of Warner's Employee Benefits Practice Group.