DOL Provides Guidance on Defined Benefit Pension Plan Funding Notices

On February 10 the Department of Labor (DOL) issued long-awaited guidance on the contents of annual funding notices that are now required to be furnished by defined benefit pension plans. Defined benefit plans became subject to this funding notice requirement as a result of enactment of the Pension Protection Act of 2006 (PPA).

PPA amended the Employee Retirement Income Security Act of 1974 (ERISA) to impose the notice requirement on plan administrators of all employee benefit plans that are defined benefit plans subject to ERISA's plan termination insurance provisions. The funding notices must be provided to the Pension Benefit Guaranty Corporation (PBGC), as well as to participants and beneficiaries under the plan. When applicable, labor organizations representing participants must also be provided with the annual funding notices.

The annual funding notice requirement is effective for a defined benefit plan's first plan year beginning after December 31, 2007. For most calendar year plans, this means that the first funding notice, which will be for the 2008 plan year, must be provided by April 30, 2009. A model notice for single employer plans was issued with the field assistance bulletin and is available on the DOL Web site or by clicking here. The field assistance bulletin also includes a new model notice for multiemployer plans.

Field Assistance Bulletin 2009-1 establishes guidelines for the annual funding notices. Plan administrators that follow these guidelines in preparing their annual funding notices will be in good faith compliance with the new requirement. The field assistance bulletin contains important guidance for plan administrators, including:

• Direction on how plans should calculate the "funding target attainment percentage" required to be disclosed in the funding notices. Following proposed IRS guidance on this calculation, the DOL has indicated that the funding target attainment percentage is calculated as a fraction the numerator of which is the value of plan assets for the plan year (after subtracting the prefunding balance and the funding standard carryover balance), and the denominator of which is the funding target of the plan for the plan year.
• Direction on how plan administrators should calculate the value of plan assets and liabilities, which must also be disclosed on the notice.
• Clarification that for disclosing the plan's asset allocation, plan administrators should use the same categories of assets that are reported on Form 5500.
• Clarification that for purposes of disclosing the number of active and retired or separated participants, plan administrators should count these individuals as of the valuation date for the plan year to which the notice relates. The field assistance bulletin provides that plan administrators should use the definition in the instructions to Form 5500 to determine who is an "active" and a "retired or separated" participant for this purpose.
• Provision of transition rules for disclosing the funded status of plans for years before 2008, which was the first year that PPA funding changes applied to most single employer plans.
• Clarification that plan administrators may add additional explanatory information to the model notice, and the model notice may be furnished with other notices required by ERISA (such as "endangered" or "critical status" notices).

The DOL also indicated the following in the field assistance bulletin:

• Funding notices can be provided to participants and beneficiaries electronically in accordance with past guidance on safe harbor methods of electronic delivery of notices required under ERISA. However, most plan administrators will be required to mail printed notices, at least to inactive participants.
• Enforcement action will not be taken for failure to provide a funding notice to the PBGC if the plan has liabilities that exceed plan assets by no more than $50 million. Such a plan must provide the notice within 30 days of a request for the notice from the PBGC.

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