EBSA issues final rules on DB annual funding notice requirements under PPA

The Employee Benefits Security Administration (EBSA) has issued final regulations that implement the defined benefit plan annual funding notice requirements under ERISA Sec. 101(f), as amended by the Pension Protection Act of 2006 (PPA, P.L. 109-280). ERISA Sec. 101(f), as amended, generally requires administrators of all defined benefit plans subject to ERISA Title IV, not just multiemployer defined benefit plans, to furnish an annual funding notice to the Pension Benefit Guaranty Corporation (PBGC), participants, beneficiaries, labor organizations representing these participants and beneficiaries, and, in the case of multiemployer plans, employers that have an obligation to contribute to the plans. The regulations also include conforming amendments to other ERISA regulations, such as the summary annual report regulation to implement the PPA’s repeal of the ERISA summary annual report requirement for plans subject to ERISA Sec. 101(f).

Final regs incorporate guidance in FAB 2009-01

In February 2009, EBSA issued Field Assistance Bulletin 2009-01 to provide interim guidance to plan administrators on the annual funding notice requirements under ERISA Sec. 101(f). Much of this guidance has been incorporated into the final regulations, and the final regulations supersede Field Assistance Bulletin 2009-01 as of the applicability date of the final regulations. In November 2010, EBSA published proposed regulations soliciting public comments. EBSA received 11 comments.

In March 2013, EBSA issued Field Assistance Bulletin 2013-01, providing guidance needed as a result of amendments to ERISA Sec. 101(f) by the Moving Ahead for Progress in the 21st Century Act (MAP-21, P.L. 112-141). On January 14, 2015, EBSA issued Field Assistance Bulletin 2015-01, which provided guidance needed following the passage of the Highway and Transportation Funding Act of 2014 (HATFA, P.L. 113-159). Because the MAP-21 and HATFA supplemental disclosures are temporary and otherwise have no effect on the permanent disclosure requirements in ERISA Sec. 101(f), they are not addressed in the final regulations. EBSA states that these Bulletins are not superseded by the final regulations.

Final rule changes

EBSA explains that the final regulations are substantially similar to the proposed regulations, but some changes were made to simplify the disclosure requirements and reduce cost burdens on plans, including the adoption of narrow exemptions and alternative methods of compliance. According to EBSA, the final regulations are substantially similar to the proposed regulations with respect to specific funding information disclosed in the notice. The final regulations also reflect changes made to ERISA Sec. 101(f) by the Multiemployer Pension Reform Act of 2014 (MPRA, P.L. 113-235), which added new disclosure requirements to ERISA Sec. 101(f)(2)(B) relating to the new multiemployer funding classification of “critical and declining status.” In addition, other MPRA changes affected the model annual funding notice for multiemployer plans.

Significant changes from the proposed regulations 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 Code Sec. 412(e)(3); 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.

Exemption for terminating single-employer plan. After consulting with the PBGC, the Treasury Department, and the IRS, EBSA added a provision in the final regulations, which exempts the plan administrator from providing a funding notice for a plan year if the due date for the funding notice is on or after the date the plan administrator files a standard termination notice (i.e., PBGC Form 500) pursuant to PBGC Reg. Sec. 4041.25. However, the proposed termination date must be on or before the due date of the funding notice and a final distribution of assets in satisfaction of the plan’s benefit liabilities must proceed according to the requirements of ERISA Sec. 4041(b).

Alternative method of compliance. The final regulations make an alternative method of compliance available for a multiemployer plan that terminates as a result of the withdrawal of every employer from the plan or the cessation of the obligation of all employers to contribute under the plan, as described in ERISA Sec. 4041A(a)(2), focusing mainly on providing information on the plan’s assets and benefit payments, and on information about PBGC guarantees, insolvency and possible benefit reductions. The regulations do not require disclosure of this alternative notice to labor organizations representing participants, contributing employers, or the PBGC. As to Code Sec. 412(e)(3) insurance contract plans, the final regulations adopt an alternative method of compliance that focuses on whether the premiums necessary to fund retirement benefits under these plans are being paid to the insurer in a timely manner and the consequences of a failure to do so.

Persons entitled to notice. Under the proposed and final regulations, a person entitled to receive a funding notice includes each participant covered under the plan on the last day of the notice year, each beneficiary receiving benefits under the plan on the last day of the notice year, each labor organization representing participants under the plan on the last day of the notice year, the PBGC, and, in the case of a multiemployer plan, each employer that, as of the last day of the notice year, is a party to the collective bargaining agreement(s) pursuant to which the plan is maintained or who otherwise may be subject to withdrawal liability under ERISA. In the final regulations, EBSA added “[e]ach alternate payee under the plan on the last day of the notice year …” to the list of persons entitled to a funding notice.

Timing requirements

The funding notices generally must be furnished not later than 120 days after the end of the plan year to which the notice relates (i.e., the notice year). However, in the case of small plans, the final rules provide that notices must be furnished no later than the earlier of the date on which the annual report is filed or the latest date the report could be filed (with granted filing extensions). For this purpose, a plan is a small plan if it had 100 or fewer participants on each day during the plan year preceding the notice year. This definition applies to both single- and multiemployer plans.

Model notices provided

The appendices to the final regulations include two model notices that may be used by plan administrators. The model in Appendix A is for single-employer plans (including multiple-employer plans) and the model in Appendix B is for multiemployer plans. EBSA retained the general framework of the proposed model notices. However, the model notices were revised to eliminate passive sentences, lengthy sentences were made shorter and more concise, funding jargon was removed, and readability was improved, where possible.

Use of a model notice is not mandatory. However, the final regulations provide that use of a model notice will be deemed to satisfy the content, style, and format requirements in the final rules.

Effective/applicability dates

The final regulations are effective March 4, 2015 and applicable to notices for plan years beginning on or after January 1, 2015. Prior to this applicability date, the Department of Labor, as a matter of enforcement, will consider compliance with the final regulations as satisfying the requirements of ERISA Sec. 101(f). Note, however, that until the applicability date of the final rule, plan administrators may continue to rely on Field Assistance Bulletin 2009-01 or they may elect to comply with the requirements of the final regulations.

Source: EBSA final regulations, 80 FR 5625, February 3, 2015.

Visit our News Library to read more news stories.