Annual Funding Notice for Defined Benefit Plans

SUMMARY: This document contains a final rule implementing the annual funding notice requirement of section 101(f) of the Employee Retirement Income Security Act of 1974, as amended (ERISA). The final rule requires the administrators of defined benefit plans (single-employer and multiemployer) to furnish an annual funding notice to participants, beneficiaries, the Pension Benefit Guaranty Corporation, and certain other persons. The rule enhances retirement security and increases pension plan transparency by ensuring that workers receive timely and accurate notification annually of the funded status of their defined benefit pension plans. This document also contains necessary conforming amendments to other regulations under ERISA, such as the summary annual report regulation.

EFFECTIVE DATE: Effective date: March 4, 2015.

Applicability date: The final rule is applicable to notices for plan years beginning on or after January 1, 2015. Prior to this applicability date, however, plan administrators may elect to comply with the requirements of the final regulation and the Department of Labor, as a matter of enforcement, will consider such compliance as satisfying the requirements of section 101(f) of ERISA. This temporary enforcement policy does not address the rights or obligations of other parties.

FOR FURTHER INFORMATION CONTACT: Thomas M. Hindmarch or Stephanie Ward Cibinic, Office of Regulations and Interpretations, Employee Benefits Security Administration, (202) 693-8500. This is not a toll-free number.

SUPPLEMENTARY INFORMATION: In accordance with Executive Order 13563 (76 FR 3821), this section of the preamble contains an executive summary of the rulemaking in order to promote public understanding of the content of the final rule. Sections B through G of this preamble, below, contain a more detailed description of the final regulatory provisions and need for the rulemaking as well as its costs and benefits.

1. Purpose of Regulatory Action

This final rule implements the annual funding notice requirement of section 101(f) of ERISA as amended by the Pension Protection Act of 2006 (PPA), Public Law 109-280, 120 Stat. 780. The PPA made significant changes to the existing funding notice requirement by enhancing the content of the notice, shortening the timeframe for providing notices, and expanding the requirement to provide funding notices from multiemployer defined benefit plans (which have been required to provide funding notices starting with plan years beginning in 2005) to all defined benefit plans. Section 501 of the PPA authorizes the Secretary of Labor to promulgate rules to implement the amendments to the annual funding notice requirement and to publish model notices.

2. Summary of Major Provisions

The final rule requires the plan administrator of a defined benefit pension plan that is subject to the Pension Benefit Guaranty Corporation's Insurance Program to furnish a funding notice annually to participants, beneficiaries, labor organizations representing such participants or beneficiaries, employers obligated to make contributions to a multiemployer plan, and the Pension Benefit Guaranty Corporation (PBGC). Large plans must furnish the notice by the 120th day following the end of the plan year to which the notice relates (the "notice year"). A small plan may furnish a funding notice on or before the due date, with extensions, of the plan's Form 5500 Annual Return/Report filed with the Department of Labor (the Department). While the Department made some changes, the final rule is substantially the same as the proposal (published in November 2010) with respect to specific funding information disclosed in the notice. For example, the funding notice must show the plan's funding percentage, the assets and liabilities that determine the funding percentage, the fair market value of the plan's assets on the last day of the plan year, the plan's funding and investment policies and allocation of assets, known events that are projected to have a material effect on the plan's funding, and other information. Significant changes from the proposal include: exempting certain terminating single-employer plans from furnishing their funding notices; establishing alternative methods of compliance for multiemployer pension plans that have terminated by mass withdrawal and for plans described in section 412(e)(3) of the Internal Revenue Code of 1986, as amended (hereinafter "Code"); and including a rule of administrative convenience that if an otherwise disclosable material event first becomes known to the plan administrator 120 days or less before the due date of the funding notice, the event is not required to be disclosed in the notice.

3. Costs and Benefits

The Department estimates that the costs attributable to the final rule will be approximately $51 million in the first year and $46.5 million in each subsequent year. /1/ The Department expects that the final rule will increase the transparency of information about the funding status of defined benefit plans, which benefits all parties interested in the financial viability of such plans by providing them with a greater opportunity to monitor the plans' funding status and take action when necessary. In addition, the rule will benefit plan administrators by providing them with model notices, which should mitigate burden and contribute to the efficiency of compliance. The Department believes that these benefits justify the costs associated with the final rule. The Department's full cost/benefit analysis is set forth below in Section G of this preamble, entitled "Regulatory Impact Analysis."

FOOTNOTE 1 This is approximately $6 million less than the total cost the Department estimated at the proposed rule stage. The cost reduction results primarily from a reduction in the clerical time required to prepare and distribute the notices based on a comment from an actuary. The Department has estimated minimal start-up costs (primarily to review and update the model notice), because plans have been complying with the annual funding notice requirement for several years. END FOOTNOTE

B. Background

In 2006, section 501(a) of the PPA significantly amended section 101(f) of ERISA. Before the PPA, section 101(f) of ERISA only required multiemployer defined benefit pension plans to furnish a funding notice annually to plan participants and others. /2/ Now, section 101(f) of ERISA, as amended by the PPA, requires administrators of all defined benefit plans that are subject to title IV of ERISA, not only multiemployer plans, to furnish annual funding notices. In addition, the PPA shortened the time frame for providing funding notices and changed the content requirements. These changes and others are discussed in detail below. Pursuant to section 501(d) of the PPA, the amendments to section 101(f) apply to plan years beginning after December 31, 2007.

FOOTNOTE 2 In 2004, the Pension Funding Equity Act, Public Law 108-218, amended title I of ERISA by adding section 101(f), which required multiemployer defined benefit plans to furnish a funding notice annually to each participant and beneficiary, to each labor organization representing such participants or beneficiaries, to each employer that has an obligation to contribute under the plan, and to the Pension Benefit Guaranty Corporation. END FOOTNOTE

In 2009, the Department issued Field Assistance Bulletin 2009-01 (FAB 2009-01) to provide interim guidance to plan administrators in discharging their obligations under the new annual funding notice requirements. FAB 2009-01 addresses a number of issues under section 101(f) of ERISA and includes model funding notices. Much of the guidance in FAB 2009-01 was incorporated into the proposed regulation and now into the final regulation contained in this document. The final rule supersedes FAB 2009-01 as of the applicability date of the final rule. Until the applicability date, plan administrators may continue to rely on FAB 2009-01 or they may elect to comply with the requirements of the final regulation.

In 2010, the Department published in the Federal Register a proposed rule under section 101(f) of ERISA and invited interested parties to comment. /3/ The Department received 11 written comments on the proposal. Copies of these comments are available to the public on the Department's Web site at http://www.dol.gov/ebsa.

FOOTNOTE 3 75 FR 70625 (Nov. 18, 2010). END FOOTNOTE

In 2012, section 40211(b)(2)(A) of the Moving Ahead for Progress in the 21st Century Act (MAP-21), Public Law 112-141, 126 Stat. 405, amended the annual funding notice requirements by adding a new paragraph (2)(D) to ERISA section 101(f). The additional MAP-21 disclosures relate to the effect of the ERISA section 303(h)(2)(C)(iv) funding stabilization rules on single-employer plan liabilities and minimum required contributions to such plans for the 2012, 2013, and 2014 plan years. Section 40211(b)(2)(B) of MAP-21 directed the Department to modify the model annual funding notice required under section 501(c) of the PPA to prominently include these new disclosures. On March 8, 2013, the Department issued Field Assistance Bulletin 2013-01 (FAB 2013-01), which included a supplement to the model annual funding notice for single-employer defined benefit pension plans and a number of questions and answers providing guidance on how to comply with the MAP-21 requirements.

In 2014, section 2003(b) of the Highway and Transportation Funding Act of 2014 (HATFA), Public Law 113-159, 128 Stat. 1839, modified the MAP-21 funding stabilization rules of section 303(h)(2)(C)(iv) of ERISA and the disclosure requirements of section 101(f)(2)(D) of ERISA and directed the Department to modify the MAP-21 supplement to the model annual funding notice. To reflect the changes made to the funding stabilization rules, section 2003(b)(2)(A)(ii) of HATFA changed the plan years subject to disclosures required by section 101(f)(2)(D) from plan years 2012 through 2014 to plan years 2012 through 2019. Section 2003(b)(2)(A)(i) of HATFA added a reference to HATFA in the disclosure statements required by sections 101(f)(2)(D)(i)(I) and (II) of ERISA. On January 14, 2015, the Department issued Field Assistance Bulletin 2015-01 (FAB 2015-01), providing guidance on how to comply with the HATFA requirements. /4/

--This is a summary of a Federal Register article originally published on the page number listed below--

Final rule.

CFR Part: "29 CFR Part 2520"

RIN Number: "RIN 1210-AB18"

Citation: "80 FR 5626"

Federal Register Page Number: "5626"

"Rules and Regulations"