DB Annual Funding Notice

The DOL has released Field Assistance Bulletin (FAB) 2009-01, providing guidance and model notices to assist defined benefit pension plans with their new annual funding notice requirements.  The new funding notice requirements are a result of section 501(a) of the Pension Protection Act of 2006 (PPA) amending section 101(f) of the Employee Retirement Income Security Act of 1974 (ERISA). 

Prior to this amendment a section 101(f) applied only to multiemployer defined benefit plans, now all defined benefit plans that are subject to title IV of ERISA are required to provide annual funding notices.  The funding notice also replaces the summary annual report (SAR) requirement.  These notices must be furnished to each participant and beneficiary, to the Pension Benefit Guaranty Corporation (PBGC) and to labor organizations representing participants.  In the case of a multiemployer plan, a notice must be provided to each contributing employer. 

The model notice requires the disclosure of the following (among other items):

• Funding Target Attainment Percentage
• Fair Market value of Assets as of the Last Day of the Year
• Participant Information broken down by number of participants in each category. Categories are: active participants, retired or separated participants receiving benefits and retired or separated participants entitled to future benefits.
• Funding and Investment Policies
• Benefit Payments Guaranteed by the PBGC

This amendment is effective for plan years beginning on or after January 1, 2008.  Plans generally must furnish funding notices no later than 120 days following the close of each plan year; therefore, April 30, 2009 is the deadline for 2008 calendar year plans.  For small plans, the deadline is the actual filing date of the plan’s Form 5500.

The DOL has advised that, pending future guidance, plan administrators that follow the guidelines in the FAB will be in good faith compliance with the new requirement.  The FAB contains 17 questions and answers and 2 model notices – one for single employer plans and one for multiemployer plans.  Although use of the model notice is not mandatory, it will satisfy the content requirements of section 101(f).

The following are some important items noted in the FAB:

• The DOL will not take action against a single employer plan with liabilities that do not exceed plan assets by more than $50 million for failing to submit an annual funding notice to the PBGC as long as the administrator furnishes one within 30 days of receiving a written request from the PBGC.
• The DOL will not take action against a multiemployer plan that is insolvent as of the due date of the notice, and is compliant with the insolvency requirements under title IV of ERISA.
• Plans that elect to use a model notice may add additional information that is helpful to understanding the mandatory information.  Unlike prior notice requirements, the additional information does not have to be listed at the end of the model under a separate heading.
• The annual funding notice can be furnished electronically.

The FAB also provides direction as to the proper method of calculating:

• The funding target attainment percentage of a plan
• Year end assets and liabilities
• The plan’s funded percentage for the plan year in which the notice relates, and for the two preceding plan years
• “Active” and “retired or separated” participants
• The asset allocation of the plan

Bill Grossman, ERPA, QPA