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Date: |
February 10, 2009 |
Memorandum For: |
Virginia C. Smith
Director of Enforcement Regional Directors |
From: |
Robert J. Doyle Director of Regulations
and Interpretations |
Subject: |
Defined Benefit Plan Annual Funding Notice - Pension Protection
Act of 2006
|
Section 101(f) of the Employee Retirement Income Security Act
(ERISA) sets
forth requirements applicable to furnishing annual funding notices. Before the
Pension Protection Act of 2006 (PPA), section 101(f) applied only to multiemployer defined benefit plans. Section 501(a) of the PPA amended section
101(f) of ERISA, making significant changes to the annual funding notice
requirements. These amendments require administrators of all defined benefit
plans that are subject to title IV of ERISA, not only multiemployer plans, to
provide an annual funding notice to the Pension Benefit Guaranty Corporation (PBGC),
to each plan participant and beneficiary, to each labor organization
representing such participants or beneficiaries, and, in the case of a multiemployer plan, to each employer that has an obligation to contribute to the
plan. An annual funding notice must include, among other things, the plan’s
funding percentage, a statement of the value of the plan’s assets and
liabilities and a description of how the plan’s assets are invested as of
specific dates, and a description of the benefits under the plan that are
eligible to be guaranteed by the PBGC.
The PPA amendments to section 101(f) apply to plan years beginning after
December 31, 2007, with special rules for disclosing “funding target
attainment percentage” or “funded percentage” with respect to any plan
year beginning before January 1, 2008. Section 501(c) of the PPA requires the
Department to develop a model annual funding notice within one year of the date
of enactment of the PPA.
Recently, concerns have been expressed about the imminent compliance date of
the new annual funding notice requirements, the absence of regulatory guidance
from the Department, and the cost and burdens attendant to annual funding notice
compliance efforts prior to the adoption of annual funding notice regulations
and the issuance of a model annual funding notice by the Department. In
recognition of the foregoing, this memorandum provides guidance to the Employee
Benefits Security Administration’s national and regional offices concerning
good faith compliance with the new annual funding notice requirements.
The Department has not yet issued regulations or other guidance concerning
compliance with the annual funding notice requirements under section 101(f) of
ERISA, as amended by section 501(a) of the PPA. Pending further guidance, the
Department will, as a matter of enforcement policy, treat a plan administrator
as satisfying the requirements of section 101(f), if the administrator has
complied with the guidance contained in this memorandum and has acted in
accordance with a good faith, reasonable interpretation of those requirements
with respect to matters not specifically addressed in this memorandum.
This memorandum contains two model notices and related questions and answers.
The model in Appendix A is for single-employer defined benefit plans and the
model in Appendix B is for multiemployer defined benefit plans. Use of the
models is not mandatory and plans may use other notice forms to satisfy the new
annual funding notice content requirements. However, pending further guidance,
use of an appropriately completed model notice will, as a matter of Department
enforcement policy, satisfy the content requirements of section 101(f) of ERISA.
The new annual funding notice requirements apply to plan years beginning on
or after January 1, 2008. Plans generally must furnish funding notices no later
than 120 days after the close of each plan year. Thus, many plans are required
to furnish their first annual funding notice no later than Thursday, April 30,
2009 (120 days after the close of their 2008 plan year). Section 101(f)(3)(B) of
ERISA provides a timing exception for small plans. For these plans notices must
be provided not later than the earlier of the date on which the annual report is
filed under section 104(a) of ERISA or the latest date the annual report must be
filed under that section (including extensions). A plan is a small plan if it is
described in section 303(g)(2)(B) of ERISA (generally, if it had 100 or fewer
participants on each day during the plan year preceding the year to which the
notice relates) regardless of whether it is a single-employer or multiemployer plan.
Pending further guidance, use of an appropriately completed model notice will
satisfy the content requirements of section 101(f) of ERISA.
No. Consistent with the effective date of the new annual funding notice
requirements, the model in the Appendix to § 2520.101-4 may be used only for
plan years beginning on or before December 31, 2007. For plan years beginning on
or after January 1, 2008, administrators of multiemployer plans may instead use
the model in Appendix B to this memorandum to discharge their notice obligations
under section 101(f) of ERISA. The Department intends to remove § 2520.101-4
from the Code of Federal Regulations in conjunction with the promulgation of a
final rule under section 101(f), as amended.
Yes. Section 101(f)(1) states that the “administrator of a defined benefit
pension plan to which title IV applies shall for each plan year provide a plan
funding notice to the Pension Benefit Guaranty Corporation, to each plan
participant and beneficiary, to each labor organization representing such
participants or beneficiaries, and, in the case of a multiemployer plan, to each
employer that has an obligation to contribute to the plan.”
However, pending further guidance, the Department will not take any
enforcement action regarding the failure to furnish an annual funding notice to
the PBGC for a single-employer plan with liabilities that do not exceed plan
assets by more than $50 million, provided that the administrator furnishes the
latest available annual funding notice to the PBGC within 30 days of receiving a
written request from the PBGC. The PBGC has informed the Department that, in
light of the extended annual funding notice due date for small plans, it will
have electronic access to the information included on the annual funding notice
for most single-employer plans as a result of ERISA’s annual reporting
requirement under section 104(a) at or around the time it would receive a copy
of an annual funding notice under section 101(f). In addition, under the PBGC’s
Reportable Events regulation (29 CFR part 4043), the PBGC typically would
receive information about certain events that might indicate increased exposure
or risk before it would receive information under either section 101(f) or
104(a) of ERISA.
The new requirements apply to any defined benefit plan to which title IV of
ERISA applies. However, the Department will not take enforcement action in the
case of a multiemployer plan that is insolvent and that, as of the due date for
the annual funding notice, is in compliance with the insolvency notice
requirements under title IV of ERISA. In such cases, disclosure of information
under section 101(f) may be redundant given the notice requirements under title
IV of ERISA. The annual funding notice would be of little, if any, value to
recipients in light of the PBGC’s authority and responsibility under title IV
of ERISA with respect to insolvent multiemployer plans. See 71 FR 1904, n.1
(Jan. 11, 2006). See also 70 FR 6306, n.1 (Feb. 4, 2005). A plan that emerges
from insolvency or ceases to comply with the insolvency notice requirements
under title IV of ERISA is not thereafter entitled to the relief provided in
this memorandum.
The term “funding target attainment percentage” is defined in section
303(d)(2) of ERISA, which corresponds to Internal Revenue Code (“Code”)
section 430(d)(2). IRS guidance under Code section 430 also applies for purposes
of section 303 of ERISA. IRS proposed regulations provide that the funding
target attainment percentage of a plan for a plan year is a fraction (expressed
as a percentage), the numerator of which is the value of plan assets for the
plan year (after subtraction of the prefunding balance and the funding standard
carryover balance under section 430(f)(4)(B) of the Code) and the denominator of
which is the funding target of the plan for the plan year (determined without
regard to section 430(i) of the Code). See IRS Proposed Regulation 26 C.F.R. §
1.430(i)-1; 72 FR 74215, 74231 (Dec. 31, 2007). Pending further guidance, for
purposes of the model, the administrator of a single-employer plan should
calculate this percentage for a plan year by dividing the value of the plan’s
assets for that year (after subtracting the balances, if any, mentioned above)
by the funding target of the plan for that year.
Plan administrators should report the fair market value of assets as of the
last day of the plan year. For this purpose, the value may include contributions
made after the end of the plan year to which the notice relates and before the
date the notice is timely furnished but only if such contributions are
attributable to such plan year for funding purposes. A plan's liabilities as of
the last day of the plan year are equal to the present value, as of the last day
of the plan year, of benefits accrued as of that same date. With the exception
of the interest rate assumption, the present value should be determined using
assumptions used to determine the funding target under section 303. The interest
rate assumption is the rate provided under section 4006(a)(3)(E)(iv), but,
pending further guidance, plans should use the last month of the year to which
the notice relates rather than the month preceding the first month of the year
to which the notice relates. The Department recognizes that in their annual
funding notices plans may need to estimate their year-end liability for the plan
year to which the notice relates. Therefore, pending further guidance, plan
administrators may, in a reasonable manner, project liabilities to year-end
using standard actuarial techniques.
The term “funded percentage” is defined in section 305(i) of
ERISA, which
corresponds to section 432(i) of the Code. IRS guidance under Code section 432
also applies for purposes of section 305 of ERISA. IRS proposed regulations
provide that the funded percentage of a plan for a plan year is a fraction
(expressed as a percentage), the numerator of which is the actuarial value of
the plan's assets as determined under section 431(c)(2) of the Code and the
denominator of which is the accrued liability of the plan, determined using the
actuarial assumptions described in section 431(c)(3) of the Code and the unit
credit funding method. See IRS Proposed Regulation 26 C.F.R. §
1.432(a)-1(b)(7); 73 FR 14417, 14423 (March 18, 2008). Pending further guidance,
for purposes of the model, the administrator of a multiemployer plan should
calculate this percentage for a plan year by dividing the plan’s assets for
that year by the accrued liability of the plan for that year, determined using
the unit credit funding method.
As explained in Q-8, a plan's funded percentage for a plan year is determined
based on the actuarial value of the plan's assets and the accrued liability of
the plan using the unit credit funding method. The model, therefore, requires
plans to disclose the assets and liabilities underlying the plan's funded
percentage for each of the relevant plan years, as of the valuation date for
that year, thus showing the mathematical relationship between a plan's assets
and liabilities and its funded percentage. In addition, pursuant to the
reference to sub clause (I)(bb) in section 101(f)(2)(B)(ii)(II) of ERISA, the
model also requires plans to disclose a separate measurement of the fair market
value of plan assets held by the plan (as defined in section 4006(a)(3)(E)(iii)(II))
on the last day of the plan year to which the notice relates, and on the same
date for each of the preceding two plan years.
Pending further guidance, the terms “active” and “retired or separated”
in relation to participants have the same meaning given to those terms in
instructions to the latest annual report filed under section 104(a) of the Act
(currently, instructions relating to lines 6 and 7 of the 2008 Form 5500 Annual
Return/Report). The statute does not specify which day of the plan year is
relevant for this count. A plan administrator should provide this count as of
the plan’s valuation date for the plan year.
Both models have a section, entitled Funding & Investment Policies, which
sets forth a chart with various investment asset categories and, with respect to
each such category, the chart includes a line item on which the plan
administrator should insert an appropriate percentage. For this purpose, the
plan administrator should use the same valuation and accounting methods as for
Form 5500 reporting purposes. The master trust investment account (MTIA),
common/collective trust (CCT), pooled separate account (PSA), and 103-12
investment entity (103-12IE) investment categories have the same definitions as
for the Form 5500 instructions.
In addition, if a plan holds an interest in one or more of the direct filing
entities (DFEs) noted above, i.e., MTIAs, CCTs, PSAs, or 103-12IEs, plan
administrators should include in the model, immediately following the asset
allocation chart, the statement below informing recipients how to obtain more
information regarding the plan’s DFE investments (e.g., the plan’s Schedule
D and/or the DFE’s Schedule H):
For information about the plan’s investment in any of the following types
of investments as described in the chart above – common/collective trusts,
pooled separate accounts, master trust investment accounts, or 103-12 investment
entities – contact [insert the name, telephone number, email address or
mailing address of the plan administrator or designated representative].
The Department has determined, as a matter of enforcement policy and pending
further guidance, that a plan amendment, scheduled benefit increase, or other
known event has a material effect on plan liabilities or assets for the current
plan year if the amendment, scheduled increase, or other known event results, or
is projected to result, in either a change of five percent or more in plan
liabilities or a change of five percent or more in the value of plan assets,
from the prior plan year. Assets and liabilities should be measured in the same
manner that they are measured when calculating the plan’s funding target
attainment percentage or funded percentage. In addition, an amendment, scheduled
benefit increase, or other known event has a material effect on plan liabilities
or assets for the current plan year if, in the judgment of the plan’s enrolled
actuary, the event is material for purposes of the plan’s funding status under
section 430 or 431 of the Code, as applicable, without regard to the five
percent threshold. The term “current plan year” means the plan year
following the plan year to which the notice relates (e.g., the plan year in
which the annual funding notice is furnished to recipients). In addition, as
part of this enforcement policy, if an otherwise disclosable event first becomes
known to the plan administrator 120 days or less before the due date of the
notice, such event is not required to be included in the notice.
Yes. Section 101(f)(2)(C)(ii) of ERISA permits plan administrators to include
in a notice “any additional information which the plan administrator elects to
include to the extent not inconsistent with regulations prescribed by the
Secretary.” Accordingly, pending further guidance, a plan administrator who
decides to use a model may elect to add to the model any additional information
that is necessary or helpful to understanding the mandatory information and that
does not have the effect of misleading or misinforming participants. Plans are
not required to add such information at the end of the model under a separate
heading, as is the case under 29 C.F.R. § 2520.101-4(b)(9) for multiemployer plans with respect to notices relating to plan years beginning on or before
December 31, 2007. In addition, a plan administrator may furnish other notices
required by ERISA along with the model. For example, a plan administrator may
include the notice of endangered or critical status as required by section
305(b)(3)(D)(i) in the same mailing as the annual funding notice and explain the
relationship between these two notices in the annual funding notice.
Yes. Section 101(f)(4)(C) of ERISA provides that an annual funding notice may
be provided in written, electronic, or other appropriate form to the extent such
form is reasonably accessible to persons to whom the notice is required to be
provided. The Department has issued a regulation, 29 C.F.R. § 2520.104b-1(c),
setting forth a safe harbor under which plan administrators will be deemed to
satisfy their disclosure requirements. While compliance with this safe harbor
would constitute good faith compliance with ERISA § 101(f)(4)(C), the
Department notes that the safe harbor is not the exclusive means by which plan
administrators could, in the absence of other guidance, satisfy their obligation
to furnish information to participants and beneficiaries. This guidance does not
foreclose the use of other means by which documents may, consistent with ERISA
and the E-SIGN Act, be furnished to participants and beneficiaries
electronically.
Section 101(f)(1) provides that persons entitled to an annual funding notice
include “each employer that has an obligation to contribute to the plan” in
the case of a multiemployer plan. multiemployer plan administrators should
furnish notice to contributing employers as defined in 29 C.F.R. §
2520.101-4(f)(4).
For a plan year beginning in 2006, the notice must include the funded current
liability percentage (as defined in section 302(d)(8) of ERISA, as in effect
prior to the PPA) of the plan for such plan year. See section 501(d)(2)(A) of
the PPA. Pending further guidance, for a plan year beginning in 2007, in the
case of a single-employer plan, the notice should include the plan’s funding
target attainment percentage determined in accordance with IRS proposed
regulations at 72 FR 74215, 74232 (Dec. 31, 2007). In the case of a multiemployer
plan, for a plan year beginning in 2007, the Department of the
Treasury has advised that the plan’s funded current liability percentage (as
defined in section 302(d)(8) of ERISA, as in effect prior to the PPA) is treated
as the plan’s estimated funded percentage. Pending further guidance, the
notice with respect to a multiemployer plan should therefore include the plan’s
funded current liability percentage for the plan year beginning in 2007. The models in Appendix A and Appendix B reflect PPA funding concepts, not the
transitional data described in this Q-16. Accordingly, for plan years 2008 and
2009, plans using a model should insert “not applicable” in the relevant
cells in the Funding Target Attainment Percentage chart (single-employer plans)
or the Funded Percentage chart (multiemployer plans) and also complete and
include in the model the additional model language set forth in Appendix C. The
language in Appendix C, entitled “Transition Data,” should be inserted in
the model directly below the Funding Target Attainment Percentage chart or the
Funded Percentage chart.
None of these delayed effective date provisions (sections 104, 105, 106 and
402 of the PPA) affects the applicability to these plans of the amendments to
section 101(f) of ERISA. Accordingly, the new annual funding notice requirements
in section 101(f) of ERISA apply to these plans for plan years beginning on or
after January 1, 2008. These plans should disclose their funding target
attainment percentage (and related asset and liability information) determined
in accordance with guidance provided by the Secretary of the Treasury. In the
absence of such guidance, plans subject to the delayed effective date provisions
in sections 104, 105, and 106 of the PPA (rural cooperatives’ plans,
settlement agreement plans, and government contractors’ plans) do not subtract
credit balances from plan assets in calculating their funding target attainment
percentage. The model in Appendix A is available to such plans, but the portions
of the model entitled “Credit Balances” and “At-Risk Status” should be
deleted from the model before use.
The public reporting burden for this collection of information is estimated
to average approximately one minute per response with an average annual burden
of 33 hours per respondent, including time for gathering and maintaining the
data needed to complete the required disclosure.
This FAB revises the collections of information contained in 29 CFR
2520.101-4. According to the Paperwork Reduction Act of 1995 (Pub. L. 104-13),
no persons are required to respond to a collection of information unless such
collection displays a valid OMB control number. The Department is planning to
submit an Information Collection Request (ICR) to the Office of Management and
Budget (OMB) requesting a revision of OMB Control Number 1210-0126. The
Department notes that a federal agency cannot conduct or sponsor a collection of
information unless it is approved by OMB under the PRA, and displays a currently
valid OMB control number, and the public is not required to respond to a
collection of information unless it displays a currently valid OMB control
number. See 44 U.S.C. § 3507. Also, notwithstanding any other provisions of
law, no person shall be subject to penalty for failing to comply with a
collection of information if the collection of information does not display a
currently valid OMB control number. See 44 U.S.C. § 3512. The Department
intends to publish a notice announcing OMB’s decision upon review of the
Department’s ICR.
Questions concerning this memorandum may be directed to Stephanie Ward at
202.693.8500.
Annual Funding Notice
For
[insert name of pension plan]
This notice includes important funding information about your pension plan (“the
Plan”). This notice also provides a summary of federal rules governing the
termination of single-employer defined benefit pension plans and of benefit
payments guaranteed by the Pension Benefit Guaranty Corporation (PBGC), a
federal agency. This notice is for the plan year beginning [insert beginning
date] and ending [insert ending date] (“Plan Year”).
The funding target attainment percentage of a plan is a measure of how well
the plan is funded on a particular date. This percentage for a plan year is
obtained by dividing the Plan’s Net Plan Assets by Plan Liabilities on the
Valuation Date. In general, the higher the percentage, the better funded the
plan. The Plan’s funding target attainment percentage for the Plan Year and 2
preceding plan years is shown in the chart below, along with a statement of the
value of the Plan’s assets and liabilities for the same period.
|
[insert Plan Year, e.g., 2011] |
[insert plan year preceding Plan Year, e.g.,
2010] |
[insert plan year 2 years preceding Plan year, e.g., 2009] |
1. Valuation Date |
[insert date] |
[insert date] |
[insert date] |
2. Plan Assets |
|
|
|
a. Total Plan Assets |
[insert amount] |
[insert amount] |
[insert amount] |
b. Funding Standard Carryover Balance |
[insert amount] |
[insert amount] |
[insert amount] |
c. Prefunding Balance |
[insert amount] |
[insert amount] |
[insert amount] |
d. Net Plan Assets (a) – (b) – (c) = (d) |
[insert amount] |
[insert amount] |
[insert amount] |
3. Plan Liabilities |
[insert amount] |
[insert amount] |
[insert amount] |
4. At-Risk Liabilities |
[insert amount] |
[insert amount] |
[insert amount] |
5. Funding Target Attainment Percentage (2d)/(3) |
[insert percentage] |
[insert percentage] |
[insert percentage] |
{Instructions: Report Valuation Date entries in accordance with section
303(g)(2) of ERISA. Report Total Plan Assets in accordance with section
303(g)(3) of ERISA. Report credit balances (i.e., funding standard carryover
balance and prefunding balance) in accordance with section 303(f) of ERISA.
Report Net Plan Assets, Plan Liabilities (i.e., funding target), and Funding
Target Attainment Percentage in accordance with section 303(d)(2) of ERISA. The
amount reported as “Plan Liabilities” should be the funding target
determined without regard to at-risk assumptions, even if the plan is in at-risk
status. At-Risk Liabilities are determined under section 303(i) of ERISA (taking
into account section 303(i)(5) of ERISA). Report At-Risk Liabilities for any
year covered by this chart in which the Plan was in “at-risk” status within
the meaning of section 303(i) of ERISA, only if At-Risk Liabilities are greater
than Plan Liabilities; otherwise insert “not applicable” in the appropriate
box. Round off all amounts in this notice to the nearest dollar.}
Credit balances were subtracted from the Plan’s assets before calculating
the funding target attainment percentage in the chart above. While pension plans
are permitted to maintain credit balances (called “funding standard carryover
balance” or “prefunding balance”) for funding purposes, such credits may
not be taken into account when calculating a plan’s funding target attainment
percentage. A plan might have a credit balance, for example, if in a prior year
an employer made contributions at a level in excess of the minimum level
required by law. Generally, the excess payments are counted as “credits” and
may be applied in future years toward the minimum level of contributions a plan
sponsor is required by law to make to the plan in those years.
If a plan’s funding target attainment percentage for the prior plan year is
below a specified legal threshold, the plan is considered under law to be in “at-risk”
status. “At-risk” plans are required to use actuarial assumptions that
result in a higher value of plan liabilities and, consequently, require more
funding by the employer. For example, plans in “at-risk” status are required
to assume that all workers eligible to retire in the next 10 years will do so as
soon as they can, and that they will take their distribution in whatever form
would create the highest cost to the plan, without regard to whether those
workers actually do so. The Plan has been determined to be in “at-risk”
status in [enter year or years covered by the chart above]. The increased
liabilities to the Plan as a result of being in “at-risk” status are
reflected in the At-Risk Liabilities row in the chart above.
{Instructions: Include the preceding discussion, entitled At-Risk Status,
only in the case of a plan required to report At-Risk Liabilities.}
Asset values in the chart above are actuarial values, not market values.
Market values tend to show a clearer picture of a plan’s funded status as of a
given point in time. However, because market values can fluctuate daily based on
factors in the marketplace, such as changes in the stock market, pension law
allows plans to use actuarial values for funding purposes. While actuarial
values fluctuate less than market values, they are estimates. As of [enter the
last day of the Plan Year], the fair market value of the Plan’s assets was
[enter amount]. On this same date, the Plan’s liabilities were [enter
amount].
{Instructions: Insert the fair market value of the plan's assets as of the
last day of the plan year. You may include contributions made after the end of
the plan year to which the notice relates and before the date the notice is
timely furnished but only if such contributions are attributable to such plan
year for funding purposes. A plan’s liabilities as of the last day of the plan
year are equal to the present value, as of the last day of the plan year, of
benefits accrued as of that same date. With the exception of the interest rate
assumption, the present value should be determined using assumptions used to
determine the funding target under section 303. The interest rate assumption is
the rate provided under section 4006(a)(3)(E)(iv), but using the last month of
the year to which the notice relates rather than the month preceding the first
month of the year to which the notice relates.}
The total number of participants in the plan as of the Plan’s valuation
date was [insert number]. Of this number, [insert number] were active
participants, [insert number] were retired or separated from service and
receiving benefits, and [insert number] were retired or separated from service
and entitled to future benefits.
The law requires that every pension plan have a procedure for establishing a
funding policy to carry out the plan objectives. A funding policy relates to the
level of contributions needed to pay for promised benefits. The funding policy
of the Plan is [insert a summary statement of the Plan’s funding policy].
Once money is contributed to the Plan, the money is invested by plan
officials called fiduciaries. Specific investments are made in accordance with
the Plan’s investment policy. Generally speaking, an investment policy is a
written statement that provides the fiduciaries who are responsible for plan
investments with guidelines or general instructions concerning various types or
categories of investment management decisions. The investment policy of the Plan
is [insert a summary statement of the Plan’s investment policy].
In accordance with the Plan’s investment policy, the Plan’s assets were
allocated among the following categories of investments, as of the end of the
Plan Year. These allocations are percentages of total assets:
Asset Allocations |
Percentage |
1. Interest-bearing cash |
__________ |
2. U.S. Government securities |
__________ |
3. Corporate debt instruments (other than employer securities):
|
|
Preferred |
__________ |
All other |
__________ |
4. Corporate stocks (other than employer securities): |
|
Preferred |
__________ |
All other |
__________ |
5. Partnership/joint venture interests |
__________ |
6. Real estate (other than employer real property) |
__________ |
7. Loans (other than to participants) |
__________ |
8. Participant loans |
__________ |
9. Value of interest in common/collective trusts |
__________ |
10. Value of interest in pooled separate accounts |
__________ |
11. Value of interest in master trust investment accounts |
__________ |
12. Value of interest in 103-12 investment entities |
__________ |
13. Value of interest in registered investment companies (e.g., mutual funds) |
__________ |
14. Value of funds held in insurance co. general account (unallocated
contracts) |
__________ |
15. Employer-related investments: |
|
Employer Securities |
__________ |
Employer real property |
__________ |
16. Buildings and other property used in plan operation |
__________ |
17. Other |
__________ |
Federal law requires the plan administrator to provide in this notice a
written explanation of events, taking effect in the current plan year, which are
expected to have a material effect on plan liabilities or assets. For the plan
year beginning on [insert beginning of plan year for year after plan year to
which notice relates] and ending on [insert end of plan year for year after plan
year to which notice relates], the following events are expected to have such an
effect: [insert explanation of any plan amendment, scheduled benefit increase or
reduction, or other known event taking effect in the current plan year and
having a material effect on plan liabilities or assets for the year, as well as
a projection to the end of the current plan year of the effect of the amendment,
scheduled increase or reduction, or event on plan liabilities].
{Instructions: Include the preceding discussion, entitled Events with
Material Effect on Assets or Liabilities, only if applicable.}
A pension plan is required to file with the US Department of Labor an annual
report (i.e., Form 5500) containing financial and other information about the
plan. Copies of the annual report are available from the US Department of Labor,
Employee Benefits Security Administration’s Public Disclosure Room at 200
Constitution Avenue, NW, Room N-1513, Washington, DC 20210, or by calling
202.693.8673. Or you may obtain a copy of the Plan’s annual report by making a
written request to the plan administrator. [If the Plan’s annual report is
available on an Intranet web site maintained by the plan sponsor (or plan
administrator on behalf of the plan sponsor), modify the preceding sentence to
include a statement that the Form also may be obtained through that web site and
include the web site address.]
Employers can end a pension plan through a process called “plan
termination.” There are two ways an employer can terminate its pension plan.
The employer can end the plan in a “standard termination” but only after
showing the PBGC that the plan has enough money to pay all benefits owed to
participants. The plan must either purchase an annuity from an insurance company
(which will provide you with lifetime benefits when you retire) or, if your plan
allows, issue one lump-sum payment that covers your entire benefit. Before
purchasing your annuity, your plan administrator must give you advance notice
that identifies the insurance company (or companies) that your employer may
select to provide the annuity. The PBGC’s guarantee ends when your employer
purchases your annuity or gives you the lump-sum payment.
If the plan is not fully-funded, the employer may apply for a distress
termination if the employer is in financial distress. To do so, however, the
employer must prove to a bankruptcy court or to the PBGC that the employer
cannot remain in business unless the plan is terminated. If the application is
granted, the PBGC will take over the plan as trustee and pay plan benefits, up
to the legal limits, using plan assets and PBGC guarantee funds.
Under certain circumstances, the PBGC may take action on its own to end a
pension plan. Most terminations initiated by the PBGC occur when the PBGC
determines that plan termination is needed to protect the interests of plan
participants or of the PBGC insurance program. The PBGC can do so if, for
example, a plan does not have enough money to pay benefits currently due.
If a single-employer pension plan terminates without enough money to pay all
benefits, the PBGC will take over the plan and pay pension benefits through its
insurance program. Most participants and beneficiaries receive all of the
pension benefits they would have received under their plan, but some people may
lose certain benefits that are not guaranteed.
The PBGC pays pension benefits up to certain maximum limits. The maximum
guaranteed benefit is [insert amount from PBGC web site, www.pbgc.gov,
applicable for the current plan year] per month, or [insert amount from PBGC web
site, www.pbgc.gov, applicable for the current plan year] per year, payable in
the form of a straight life annuity, for a 65-year-old person in a plan that
terminates in [insert current plan year]. The maximum benefit may be reduced for
an individual who is younger than age 65. [If the Plan does not provide for
commencement of benefits before age 65, you may omit this sentence.] The maximum
benefit will also be reduced when a benefit is provided to a survivor of a plan
participant.
The PBGC guarantees “basic benefits” earned before a plan is terminated,
which includes [Include the following guarantees that apply to benefits
available under the Plan.]:
-
pension benefits at normal retirement age;
-
most early retirement benefits;
-
annuity benefits for survivors of plan participants; and
-
disability benefits for a disability that occurred before the date the
plan terminated.
The PBGC does not guarantee certain types of benefits [Include the following
guarantee limits that apply to the benefits available under the Plan.]:
-
The PBGC does not guarantee benefits for which you do not have a vested
right when a plan terminates, usually because you have not worked enough years
for the company.
-
The PBGC does not guarantee benefits for which you have not met all age,
service, or other requirements at the time the plan terminates.
-
Benefit increases and new benefits that have been in place for less than
one year are not guaranteed. Those that have been in place for less than five
years are only partly guaranteed.
-
Early retirement payments that are greater than payments at normal
retirement age may not be guaranteed. For example, a supplemental benefit that
stops when you become eligible for Social Security may not be guaranteed.
-
Benefits other than pension benefits, such as health insurance, life
insurance, death benefits, vacation pay, or severance pay, are not guaranteed.
-
The PBGC generally does not pay lump sums exceeding $5,000.
Even if certain benefits are not guaranteed, participants and beneficiaries
still may receive some of those benefits from the PBGC depending on how much
money the terminated plan has and how much the PBGC collects from the employer.
The law requires a plan sponsor to provide the PBGC with financial
information about the sponsor and the plan under certain circumstances, such as
when the funding target attainment percentage of the plan (or any other pension
plan sponsored by a member of the sponsor’s controlled group) falls below 80
percent (other triggers may also apply). The sponsor of the Plan, [enter name of
plan sponsor], and each member of its controlled group, if any, was subject to
this requirement to provide corporate financial information and plan actuarial
information to the PBGC. The PBGC uses this information for oversight and
monitoring purposes.
{Instructions: Insert the preceding paragraph entitled “Corporate
Information on File with PBGC” only if a reporting under section 4010 of ERISA
was required for the Plan Year.}
For more information about this notice, you may contact
[enter name of plan
administrator and if applicable, principal administrative officer], at [enter
phone number and address and insert email address if appropriate]. For
identification purposes, the official plan number is [enter plan number] and the
plan sponsor’s employer identification number or “EIN” is [enter EIN of
plan sponsor]. For more information about the PBGC and benefit guarantees, go to
PBGC's Web site, www.pbgc.gov, or call PBGC toll-free at 1.800.400.7242 (TTY/TDD
users may call the Federal relay service toll free at 1.800.877.8339 and ask to
be connected to 1.800.400.7242).
Annual Funding Notice
For
[insert name of pension plan]
This notice includes important funding information about your pension plan (“the
Plan”). This notice also provides a summary of federal rules governing multiemployer
plans in reorganization and insolvent plans and benefit payments
guaranteed by the Pension Benefit Guaranty Corporation (PBGC), a federal agency.
This notice is for the plan year beginning [insert beginning date] and ending
[insert ending date] (referred to hereafter as “Plan Year”).
The funded percentage of a plan is a measure of how well that plan is funded.
This percentage is obtained by dividing the Plan’s assets by its liabilities
on the valuation date for the plan year. In general, the higher the percentage,
the better funded the plan. The Plan’s funded percentage for the Plan Year and
2 preceding plan years is set forth in the chart below, along with a statement
of the value of the Plan’s assets and liabilities for the same period.
|
[insert Plan Year, e.g., 2011] |
[insert plan year preceding Plan Year, e.g.,
2010] |
[insert plan year 2 years preceding Plan Year, e.g., 2009] |
Valuation Date |
[insert date] |
[insert date] |
[insert date] |
Funded Percentage |
[insert percentage] |
[insert percentage] |
[insert percentage] |
Value of Assets |
[insert amount] |
[insert amount] |
[insert amount] |
Value of Liabilities |
[insert amount] |
[insert amount] |
[insert amount] |
{Instructions: The plan’s “funded percentage” is equal to a fraction,
the numerator of which is the value of the plan’s assets (determined in the
same manner as under section 304(c)(2) of ERISA) and the denominator of which is
the accrued liability of the plan (determined in the same manner as under
section 304(c)(3) of ERISA, but taking into account section 305(i)(8) of ERISA).
Report the value of the plan’s assets and liabilities in the same manner as
under section 304 of ERISA (but taking into account section 305(i)(8) of ERISA
with respect to liabilities) as of the plan’s valuation date for the plan
year.}
Asset values in the chart above are actuarial values, not market values.
Market values tend to show a clearer picture of a plan’s funded status as of a
given point in time. However, because market values can fluctuate daily based on
factors in the marketplace, such as changes in the stock market, pension law
allows plans to use actuarial values for funding purposes. While actuarial
values fluctuate less than market values, they are estimates. As of [enter the
last day and year of the Plan Year], the fair market value of the Plan’s
assets was [enter amount]. As of [enter the last day and year of the plan year
preceding the Plan Year], the fair market value of the Plan’s assets was [enter
amount]. As of [enter the last day and year of the plan year two years
preceding the Plan Year], the fair market value of the Plan’s assets was [enter
amount].
{Instructions: Insert the fair market value of the plan's assets as of the
last day of the plan year. You may include contributions made after the end of
the plan year to which the notice relates and before the date the notice is
timely furnished but only if such contributions are attributable to such plan
year for funding purposes.}
The total number of participants in the plan as of the Plan’s valuation
date was [insert number]. Of this number, [insert number] were active
participants, [insert number] were retired or separated from service and
receiving benefits, and [insert number] were retired or separated from service
and entitled to future benefits.
The law requires that every pension plan have a procedure for establishing a
funding policy to carry out the plan objectives. A funding policy relates to the
level of contributions needed to pay for benefits promised under the plan
currently and over the years. The funding policy of the Plan is [insert a
summary statement of the Plan’s funding policy].
Once money is contributed to the Plan, the money is invested by plan
officials called fiduciaries. Specific investments are made in accordance with
the Plan’s investment policy. Generally speaking, an investment policy is a
written statement that provides the fiduciaries who are responsible for plan
investments with guidelines or general instructions concerning various types or
categories of investment management decisions. The investment policy of the Plan
is [insert a summary statement of the Plan’s investment policy].
In accordance with the Plan’s investment policy, the Plan’s assets were
allocated among the following categories of investments, as of the end of the
Plan Year. These allocations are percentages of total assets:
Asset Allocations
|
Percentage
|
1. Interest-bearing cash
|
__________ |
2. U.S. Government securities
|
__________ |
3. Corporate debt instruments (other than employer securities): |
|
Preferred |
__________ |
All other |
__________ |
4. Corporate stocks (other than employer securities): |
|
Preferred |
__________ |
Common |
__________ |
5. Partnership/joint venture interests |
__________ |
6. Real estate (other than employer real property) |
__________ |
7. Loans (other than to participants) |
__________ |
8. Participant loans |
__________ |
9. Value of interest in common/collective trusts |
__________ |
10. Value of interest in pooled separate accounts |
__________ |
11. Value of interest in master trust investment accounts |
__________ |
12. Value of interest in 103-12 investment entities |
__________ |
13. Value of interest in registered investment companies (e.g., mutual funds) |
__________ |
14. Value of funds held in insurance co. general account (unallocated
contracts) |
__________ |
15. Employer-related investments: |
|
Employer Securities |
__________ |
Employer real property |
__________ |
16. Buildings and other property used in plan operation |
__________ |
17. Other |
__________ |
Under federal pension law a plan generally will be considered to be in “endangered”
status if, at the beginning of the plan year, the funded percentage of the plan
is less than 80 percent or in “critical” status if the percentage is less
than 65 percent (other factors may also apply). If a pension plan enters
endangered status, the trustees of the plan are required to adopt a funding
improvement plan. Similarly, if a pension plan enters critical status, the
trustees of the plan are required to adopt a rehabilitation plan. Rehabilitation
and funding improvement plans establish steps and benchmarks for pension plans
to improve their funding status over a specified period of time.
{Instructions: Select and complete the appropriate option
below.}
{Option one}
The Plan was not in endangered or critical status in the Plan Year.
{Option two}
The Plan was in [insert “endangered” or “critical”] status in the
Plan Year because [insert summary description of why plan was in this status
based on statutory factors]. In an effort to improve the Plan’s funding
situation, the trustees adopted [insert summary of Plan’s funding improvement
or rehabilitation plan, including when adopted and expected duration, and a
description of any update to the plan adopted during the plan year to which the
notice relates].
You may obtain a copy of the Plan’s funding improvement or rehabilitation
plan and the actuarial and financial data that demonstrate any action taken by
the plan toward fiscal improvement by contacting the plan administrator. [If
applicable, insert: “Or you may obtain this information at [insert Intranet
address of plan sponsor (or plan administrator on behalf of the plan sponsor)].]
Federal law requires trustees to provide in this notice a written explanation
of events, taking effect in the current plan year, which are expected to have a
material effect on plan liabilities or assets. For the plan year beginning on [insert
date] and ending on [insert date], the following events are expected to
have such an effect: [insert explanation of any plan amendment, scheduled
benefit increase or reduction, or other known event taking effect in the current
plan year and having a material effect on plan liabilities and assets for the
year, as well as a projection to the end of the current plan year of the effect
of the amendment, scheduled increase or reduction, or event on plan liabilities].
{Instructions: Include the preceding discussion, entitled Events with
Material Effect on Assets or Liabilities, only if applicable.}
A pension plan is required to file with the US Department of Labor an annual
report (i.e., Form 5500) containing financial and other information about the
plan. Copies of the annual report are available from the US Department of Labor,
Employee Benefits Security Administration’s Public Disclosure Room at 200
Constitution Avenue, NW, Room N-1513, Washington, DC 20210, or by calling
202.693.8673. Or you may obtain a copy of the Plan’s annual report by making a
written request to the plan administrator. [If the Plan’s annual report is
available on an Intranet web site maintained by the plan sponsor (or plan
administrator on behalf of the plan sponsor), modify the preceding sentence to
include a statement that the Form also may be obtained through that web site and
include the web site address.]
Federal law has a number of special rules that apply to financially troubled
multiemployer plans. Under so-called “plan reorganization rules,” a plan
with adverse financial experience may need to increase required contributions
and may, under certain circumstances, reduce benefits that are not eligible for
the PBGC’s guarantee (generally, benefits that have been in effect for less
than 60 months). If a plan is in reorganization status, it must provide
notification that the plan is in reorganization status and that, if
contributions are not increased, accrued benefits under the plan may be reduced
or an excise tax may be imposed (or both). The law requires the plan to furnish
this notification to each contributing employer and the labor organization.
Despite the special plan reorganization rules, a plan in reorganization
nevertheless could become insolvent. A plan is insolvent for a plan year if its
available financial resources are not sufficient to pay benefits when due for
the plan year. An insolvent plan must reduce benefit payments to the highest
level that can be paid from the plan’s available financial resources. If such
resources are not enough to pay benefits at a level specified by law (see
Benefit Payments Guaranteed by the PBGC, below), the plan must apply to the PBGC
for financial assistance. The PBGC, by law, will loan the plan the amount
necessary to pay benefits at the guaranteed level. Reduced benefits may be
restored if the plan’s financial condition improves.
A plan that becomes insolvent must provide prompt notification of the
insolvency to participants and beneficiaries, contributing employers, labor
unions representing participants, and PBGC. In addition, participants and
beneficiaries also must receive information regarding whether, and how, their
benefits will be reduced or affected as a result of the insolvency, including
loss of a lump sum option. This information will be provided for each year the
plan is insolvent.
The maximum benefit that the PBGC guarantees is set by law. Only vested
benefits are guaranteed. Specifically, the PBGC guarantees a monthly benefit
payment equal to 100 percent of the first $11 of the Plan’s monthly benefit
accrual rate, plus 75 percent of the next $33 of the accrual rate, times each
year of credited service. The PBGC’s maximum guarantee, therefore, is $35.75
per month times a participant’s years of credited service.
Example 1: If a participant with 10 years of credited service has an accrued
monthly benefit of $500, the accrual rate for purposes of determining the PBGC
guarantee would be determined by dividing the monthly benefit by the participant’s
years of service ($500/10), which equals $50. The guaranteed amount for a $50
monthly accrual rate is equal to the sum of $11 plus $24.75 (.75 x $33), or
$35.75. Thus, the participant’s guaranteed monthly benefit is $357.50 ($35.75
x 10).
Example 2: If the participant in Example 1 has an accrued monthly benefit of
$200, the accrual rate for purposes of determining the guarantee would be $20
(or $200/10). The guaranteed amount for a $20 monthly accrual rate is equal to
the sum of $11 plus $6.75 (.75 x $9), or $17.75. Thus, the participant’s
guaranteed monthly benefit would be $177.50 ($17.75 x 10).
The PBGC guarantees pension benefits payable at normal retirement age and
some early retirement benefits. In calculating a person’s monthly payment, the
PBGC will disregard any benefit increases that were made under the plan within
60 months before the earlier of the plan’s termination or insolvency (or
benefits that were in effect for less than 60 months at the time of termination
or insolvency). Similarly, the PBGC does not guarantee pre-retirement death
benefits to a spouse or beneficiary (e.g., a qualified pre-retirement survivor
annuity) if the participant dies after the plan terminates, benefits above the
normal retirement benefit, disability benefits not in pay status, or non-pension
benefits, such as health insurance, life insurance, death benefits, vacation
pay, or severance pay.
For more information about this notice, you may contact
[enter name of plan
administrator and if applicable, principal administrative officer], at [enter
phone number and address and insert email address if appropriate]. For
identification purposes, the official plan number is [enter plan number] and the
plan sponsor’s employer identification number or “EIN” is [enter EIN of
plan sponsor]. For more information about the PBGC and benefit guarantees, go to
PBGC's Web site, www.pbgc.gov, or call PBGC toll-free at 1.800.400.7242 (TTY/TDD
users may call the Federal relay service toll free at 1.800.877.8339 and ask to
be connected to 1.800.400.7242).
For a brief transition period, the Plan is not required by law to report
certain funding related information because such information may not exist for
plan years before 2008. The plan has entered “not applicable” in the chart
above to identify the information it does not have. In lieu of that information,
however, the Plan is providing you with comparable information that reflects the
funding status of the Plan under the law then in effect. For [enter plan year],
the Plan’s “funded current liability percentage” was [insert ratio of
actuarial value of assets to current liability, as of the valuation date,
expressed as a percentage. If the percentage is equal to or greater than 100
percent, you may insert “at least 100 percent”.], the Plan’s assets were
[enter amount], and Plan liabilities were [enter amount]. {Instructions: repeat
the preceding sentence for each year for which the plan does not have
information. Such sentence may need to be modified for single employer plans to
reflect guidance issued by the Secretary of the Treasury, i.e., for
single-employer plans, use “funding target attainment percentage determined
under IRS transitional rules” rather than “funded current liability
percentage,” as appropriate.}
|