EBSA Issues Final Regs on Annual DB Funding Notices

The Department of Labor’s Employee Benefits Security Administration says a new disclosure rule will ensure workers receive annual funded status notifications for their defined benefit pension plans.

The Department of Labor’s Employee Benefits Security Administration (EBSA) is set to publish in the Federal Register a final rule to increase pension plan transparency by ensuring that workers receive annual notification of the funded status of their defined benefit pension plans.

In a fact sheet presented on its website, EBSA explains the complicated history of the new final regulation. EBSA says that in 2006, section 501(a) of the Pension Protection Act (PPA) “significantly amended section 101(f) of ERISA to require administrators of defined benefit plans that are subject to title IV of ERISA, not only multiemployer plans, to furnish annual funding notices.” The PPA also shortened the timeframe for providing funding notices and changed the content requirements of such notices, EBSA explains. Pursuant to section 501(d) of the PPA, the amendments to section 101(f) applied to plan years beginning after December 31, 2007.

Then, on February 10, 2009, EBSA issued Field Assistance Bulletin 2009-01, providing interim guidance under section 101(f), pending adoption of a final regulation. On November 18, 2010, the Department published a proposed final regulation, soliciting public comments. EBSA received 11 comments, which are available for public inspection. In March 2013 EBSA issued Field Assistance Bulletin 2013-01, providing guidance needed as a result of amendments to section 101(f) of ERISA by section 40211(b)(2) of the Moving Ahead for Progress in the 21st Century Act.

Then, on January 15, 2015, EBSA issued Field Assistance Bulletin 2015-01, providing even more guidance needed as a result of the Highway and Transportation Funding Act of 2014. According to EBSA, these earlier bulletins are not superseded by the final regulation.

The Department will officially publish the final regulation in the Federal Register on February 2, 2015. The final rule is applicable to notices for plan years beginning on or after January 1, 2015. Prior to this applicability date, however, the Department of Labor, as a matter of enforcement, will consider compliance with the final regulations as satisfying the requirements of section 101(f) of ERISA.

In its final form, the disclosure regulation generally requires administrators of defined benefit plans subject to Title IV of ERISA to furnish a funding notice each year to the Pension Benefit Guaranty Corporation (PBGC); each plan participant and beneficiary; each labor organization representing such participants or beneficiaries; and, in the case of a multiemployer plan, each employer that has an obligation to contribute to the plan.

The final regulation is “substantially similar to the proposed regulation,” EBSA says, but some changes were made to simplify the disclosure and reduce cost burdens on plans, including the adoption of narrow exemptions and alternative methods of compliance. The final regulation also reflects changes made to section 101(f) by the Multiemployer Pension Reform Act of 2014.

Content requirements for the annual disclosures include:

Funding Percentage – Annual notices must include the plan's funding percentage. Single-employer plans must report their "funding target attainment percentage" and multiemployer plans must report their "funded percentage," EBSA says, adding the funding percentage must be reported for the past three plan years.

Assets and Liabilities – Annual notices must include information regarding the plan's assets and liabilities. For example, notices must include a statement of the value of the plan's assets and liabilities on the same date used to determine the plan's funding percentage. Notices also must include a description of how the plan's assets are invested as of the last day of the plan year.

Material Effect Events – Annual notices must disclose amendments, scheduled benefit increases (or reductions) or other known events having a material effect on the plan's assets and liabilities if the event is taken into account for funding purposes for the first time in the year following the notice year. If an event first becomes known to a plan administrator 120 days or less before the due date of a notice, the plan administrator is not required to explain, or project the effect of, the event in that notice.

PBGC Guarantees and other Title IV Information – Annual notices must include a general description of the benefits under the plan that are eligible to be guaranteed by the PBGC, along with an explanation of the limitations on the guarantee and the circumstances under which such limitations apply. Single-employer plan notices must include a summary of the rules governing plan termination and multiemployer plan notices must include a summary of the rules governing insolvency.

Regarding the timing of these disclosures, EBSA says funding notices generally must be furnished no later than 120 days after the close of the plan year. Small plans (plans with 100 or fewer participants) must furnish funding notices no later than the filing of the plan's annual report, including filing extensions.

The final rule includes two model notices (one for single-employer plans and one for multiemployer plans) to aid plan administrators in meeting their obligations, EBSA says.

The full text of the final rule is here