[Federal Register: February 4, 2005 (Volume 70, Number 23)]
[Proposed Rules]
[Page 6305-6312]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr04fe05-30]
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Part VII
Department of Labor
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Employee Benefits Security Administration
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29 CFR Part 2520
Annual Funding Notice for Multiemployer Defined Benefit Pension Plans;
Proposed Rule
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
29 CFR Part 2520
RIN 1210-AB00
Annual Funding Notice for Multiemployer Defined Benefit Pension
Plans
AGENCY: Employee Benefits Security Administration, DOL.
ACTION: Proposed rule.
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SUMMARY: This document contains a proposed regulation that, upon
adoption, would implement the notice requirement in section 101(f) of
the Employee Retirement Income Security Act of 1974. Section 103 of the
Pension Funding Equity Act of 2004 (PFEA '04) amended section 101 of
ERISA by adding a new subsection (f), which requires the administrator
of a multiemployer defined benefit plan to provide participants,
beneficiaries, and certain other parties, including the Pension Benefit
Guaranty Corporation, with an annual funding notice indicating, among
other things, whether the plan's funded current liability percentage is
at least 100 percent. This document also contains a model notice that
may be used by plan administrators in discharging their duties under
section 101(f). This proposed regulation, upon adoption, will affect
plan administrators, participants, and beneficiaries of multiemployer
defined benefit pension plans, as well as labor organizations
representing such participants or beneficiaries and employers that have
an obligation to contribute under such plans.
DATES: Written comments on the proposed regulation should be received
by the Department of Labor on or before March 7, 2005. See ``C. Request
for Comments,'' in the SUPPLEMENTARY INFORMATION section.
ADDRESSES: Comments should be addressed to the Office of Regulations
and Interpretations, Employee Benefits Security Administration, Room N-
5669, U.S. Department of Labor, 200 Constitution Avenue NW.,
Washington, DC 20210, Attn: PFEA '04 Project. Comments also may be
submitted electronically to e-ORI@dol.gov. All comments received will
be available for public inspection at the Public Disclosure Room, N-
1513, Employee Benefits Security Administration, 200 Constitution
Avenue NW., Washington, DC 20210.
FOR FURTHER INFORMATION CONTACT: Stephanie L. Ward, Office of
Regulations and Interpretations, Employee Benefits Security
Administration, (202) 693-8500. This is not a toll-free number.
SUPPLEMENTARY INFORMATION:
A. Background
Section 103(a) of the Pension Funding Equity Act of 2004, Pub. L.
108-218 (PFEA '04), which was enacted on April 10, 2004, added section
101(f) to the Employee Retirement Income Security Act of 1974, as
amended (ERISA or the Act). Section 101(f) provides that the
administrator of a defined benefit plan which is a multiemployer plan
shall for each plan year furnish a plan funding notice to each plan
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. Section 103(b) of PFEA '04 amended section
502(c)(1) of ERISA to provide that any administrator who fails to meet
the requirements of section 101(f) with respect to a participant or
beneficiary may, in a court's discretion, be personally liable to such
participant or beneficiary in the amount of up to $100 a day from the
date of such failure or refusal and the court may in its discretion
order such other relief as it deems proper. Section 103(c) of PFEA '04
provides that the Secretary of Labor shall, not later than 1 year after
the date of the enactment of PFEA '04, issue regulations (including a
model notice) necessary to implement the amendments made by section
103. Section 103(d) of PFEA '04 provides that the amendments made by
section 103 of PFEA '04 shall apply to plan years beginning after
December 31, 2004.
B. Overview of Proposed Regulation
Paragraph (a) of the proposed regulation implements the
requirements set forth in section 101(f)(1) of the Act. This section in
general requires the administrator of a multiemployer defined benefit
pension plan to furnish annually a notice of the plan's funded status
to the plan's participants and beneficiaries and other specified
interested parties (each labor organization representing such
participants or beneficiaries, each employer that has an obligation to
contribute under the plan, and the Pension Benefit Guaranty Corporation
(PBGC)). Those persons entitled to the notice are further clarified in
paragraph (f) of the proposed regulation.
Paragraph (a)(2) provides a limited exception to the requirement to
furnish the annual funding notice. Under the exception, the plan
administrator of a plan receiving financial assistance from the PBGC is
not required to furnish the annual funding notice to the parties
otherwise entitled to such notice. The Department, after consulting
with the PBGC, is of the view that such notice would be of little, if
any, value to such parties in light of the PBGC's authority and
responsibility under title IV of ERISA with respect to insolvent
multiemployer plans.\1\
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\1\ The provisions of title IV of ERISA that apply in the
context of a plan's receipt of financial assistance from the PBGC
(sections 4245(e) and 4281(d)) ensure that participants and
beneficiaries of insolvent plans are adequately informed of, among
other things, their plan's funding status (including for
participants in pay status, their individual benefit levels), and
PBGC's benefit guarantees. In addition, PBGC receives plan financial
information before providing financial assistance. Inasmuch as the
foregoing title IV provisions are largely duplicative of the
requirements in section 101(f) of ERISA, an exception from the
requirements of section 101(f) for plans receiving financial
assistance necessarily would reduce administrative costs to these
plans, thereby increasing the plan's available resources for benefit
payments.
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Paragraph (b) of the proposed regulation sets forth the content
requirements of the notice required under section 101(f). Paragraph (b)
requires that the identification and financial information included in
the notice is consistent with the information included in the plan's
Annual Return/Report filed for the plan year to which the notice
relates.
Specifically, paragraph (b)(1)-(4) provides that the notice shall
include: The name of the plan; the address and phone number of the plan
administrator and the plan's principal administrative officer (if
different from the plan administrator); the plan sponsor's employer
identification number (currently line 2(b) of the Annual Return/Report
Form 5500); and the plan number (currently line 1(b) of the Annual
Return/Report Form 5500).
Paragraph (b)(5)-(8) further provides that the notice shall include
information relevant to the plan's funding, including: a statement as
to whether the plan's funded current liability percentage (calculated
by dividing the actuarial value of the plan's assets (currently line
1b(2) of the Schedule B of the Annual Return/Report Form 5500) by the
current liability (currently line 2b(4), column (3), of the Schedule B
of the Annual Return/Report Form 5500) for the plan year to which the
notice relates is at least 100 percent (and, if not, the actual
percentage); a statement of the market value of the plan's assets
(currently line 1b(1) of the Schedule B of the Annual Return/Report
Form 5500) and the valuation date, the
[[Page 6307]]
amount of benefit payments for the plan year to which the notice
relates (currently line 2e(4) of the Schedule H of the Annual Return/
Report Form 5500), and the ratio of the assets to the benefit payments
for the plan year to which the notice relates; a summary of the rules
governing insolvent multiemployer plans, including the limitations on
benefit payments and any potential benefit reductions and suspensions
(and the potential effects of such limitations, reductions, and
suspensions on the plan); and 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.
Paragraph (b)(9) of the proposed regulation permits inclusion in
the notice of any additional information that the administrator
determines would be helpful to understanding the information required
to be contained in the notice.
Paragraphs (c) and (e) of the proposed regulation, respectively,
set forth the form and manner requirements relating to the notice.
Paragraph (c) of the proposed regulation provides that notices shall be
written in a manner calculated to be understood by the average plan
participant. See 29 CFR 2520.102-2. Paragraph (e) of the proposed
regulation provides that notices (except for notices to the PBGC) shall
be furnished in a manner consistent with the requirements of 29 CFR
2520.104b-1. Collectively, these requirements are intended to ensure
that notices are written so that the average plan participant can
understand them, and that they are provided in a form reasonably
accessible to those individuals eligible to receive the notice. In
addition, the Department believes that plan administrators already are
familiar with the rules in Sec. Sec. 2520.102-2 and 2520.104b-1,
thereby easing the burden of compliance with this regulation.
The Department worked with the PBGC to develop model language for
use in connection with funding notices. Such language is set forth in a
model notice in the appendix to the regulation. Use of the model notice
is not mandatory. However, paragraph (g) of the proposed regulation
provides that, by using the model notice, the plan administrator will
be deemed to satisfy its duties with respect to the requirements of
paragraphs (b) and (c) of the proposed regulation, except with respect
to information referenced in paragraph (b)(9) of the regulation.
Paragraph (d) provides that notices shall be furnished within 9
months after the close of the plan year, unless the Internal Revenue
Service has granted an extension of time to file the annual report, in
which case the notice shall be furnished within 2 months after the
close of the extension period. This paragraph implements the
requirements of section 101(f)(3) of the Act, which provides that
annual funding notices shall be provided to recipients no later than
two months after the deadline (including extensions) for filing the
annual report for the plan year to which the notice relates.
Paragraph (f) of the proposed regulation delineates the persons to
whom funding notices required by this section must be furnished. In an
effort to limit administrative burdens and costs attendant to
compliance with this notice requirement, paragraph (f) of the proposal
limits an administrator's disclosure obligation to only individuals who
are participants on the last day of the plan year to which the notice
relates, beneficiaries receiving benefits under the plan on the last
day of the plan year to which the notice relates, labor organizations
representing participants under the plan on the last day of the plan
year to which the notice relates, and each employer that, as of the
last day of the plan year to which the notice relates, 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. By
focusing on a person's status on the last day of the previous plan
year, the plan administrator is thereby relieved of additional costs of
tracking and providing notice to individuals, labor organizations and
employers who may no longer have an interest in the plan's funding
condition.
Paragraph (f)(4) provides a more detailed clarification of which
employers are entitled to an annual funding notice. Specifically, the
language ``is a party to the collective bargaining agreement(s)
pursuant to which the plan is maintained'' therein is intended to cover
not only employers that have a present obligation to contribute under
the plan, but also those whose obligation may be temporarily suspended
due to a funding holiday granted by the plan's board of trustees. In
addition, the Department, through its use of the phrase ``or who
otherwise may be subject to withdrawal liability,'' intends to make it
clear that, in the case of plans that cover employees in the building
and construction industry, entertainment industry, or trucking,
household goods moving and public warehousing industries, notice is
required for any employer that, as of the last day of the plan year to
which the notice relates, has ceased to have an obligation to
contribute under the plan, but has continued exposure to withdrawal
liability pursuant to section 4203(b), (c), or (d) of ERISA. The
clarification in paragraph (f)(4) is intended to ensure that all
employers that have a direct financial interest in the plan's funding
status will receive a notice.
C. Request for Comments
The Department invites comments from interested persons on all
aspects of the proposed regulation. Comments should be addressed to the
Office of Regulations and Interpretations, Employee Benefits Security
Administration, Room N-5669, U.S. Department of Labor, 200 Constitution
Avenue NW., Washington, DC 20210, Attn: PFEA '04 Project. Comments also
may be submitted electronically to e-ORI@dol.gov. All comments received
will be available for public inspection at the Public Disclosure Room,
N-1513, Employee Benefits Security Administration, 200 Constitution
Avenue NW., Washington, DC 20210.
The Department has limited the comment period to 30 days in order
to issue a final regulation on the earliest possible date, taking into
account Congress' expectation that regulations would be issued not
later than one year from enactment of the PFEA '04, which was April 10,
2004. The Department believes that, in light of the limited number of
issues presented for consideration by the proposal, the provided 30-day
comment period affords interested persons an adequate amount of time to
analyze the proposal and submit comments.
D. Regulatory Impact Analysis
Summary
This proposed regulation contains a model notice and other guidance
necessary to implement the amendments made by new section 101(f) of
ERISA, as enacted by section 103(a) of PFEA '04. The regulation, if
adopted as proposed, will offer a model notice to administrators of
multiemployer defined benefit plans, which is expected to mitigate
burden and contribute to the efficiency of compliance.
The multiemployer defined benefit plan funding notice provision of
PFEA '04 was enacted amid concerns about persisting low interest rates
and declines in equity values, each of which has an increasing effect
on contribution
[[Page 6308]]
requirements and a decreasing effect on the funding levels of defined
benefit plans. More complete and timelier disclosures were considered
an important element of measures enacted in PFEA '04 to strengthen the
long-term health of the defined benefit pension system. Increasing the
transparency of information about the funding status of multiemployer
plans for participants and beneficiaries, the labor organizations
representing them, contributing employers, and PBGC will afford all
parties interested in the financial viability of these plans greater
opportunity to monitor their funding status.
According to a March 2004 Report by the General Accounting Office
\2\ the regulatory framework within which multiemployer plans operate
shifts certain financial risks away from the government and by
implication the taxpayer. Contributing employers to multiemployer plans
share the risk of funding benefits for all participants, not just those
in their employment, and face specific liabilities if they withdraw
from the plans. Participants in multiemployer plans face lower benefit
guaranties than those in single-employer plans. According to the GAO
report, these factors create incentives for participants and employers
to work together constructively to find solutions to plans' financial
difficulties. These notices will provide timely disclosure of
information concerning the funding status of these plans to support the
effort of all interested parties to monitor their financial condition
and take action where necessary.
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\2\ See GAO-04-423 Private Pensions. Multiemployer Plans Face
Short and Long-Term Challenges. U.S. General Accounting Office,
March 2004. General Accounting Office name changed to Government
Accountability Office effective July 7, 2004.
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The regulation would further afford plan administrators greater
certainty that they have discharged their notice obligation under
section 101(f). The proposed regulation is also intended to clarify
certain terms used in section 101(f) for the general purpose of
delineating those persons entitled to receive the notice. The benefits
of greater efficiency, certainty, and clarity are expected to be
substantial, but cannot be specifically quantified.
The cost of the multiemployer defined benefit plan notices is
expected to amount to $777,000 in the year of implementation, and
$644,000 in each subsequent year. The total estimated cost includes the
one-time development of a notice by each plan, and the annual
preparation and mailing by the administrators of all multiemployer
defined benefit plans of the required notices to plan participants and
beneficiaries, specified labor organizations, employers that have an
obligation to contribute to these plans, and to the Pension Benefit
Guaranty Corporation. The first year estimate is higher to account for
the time required for plan administrators to adapt and review the model
notice.
In this proposed regulation, the Department has attempted to
provide guidance to assist administrators to meet this objective the
most economically efficient way possible. Because the costs of this
proposal arise from notice provisions in PFEA '04, the data and
methodology used in developing these estimates are more fully described
in the Paperwork Reduction Act section of this analysis of regulatory
impact.
Executive Order 12866
Under Executive Order 12866 (58 FR 51735), the Department must
determine whether a regulatory action is ``significant'' and therefore
subject to review by the Office of Management and Budget (OMB). Section
3(f) of the Executive Order defines a ``significant regulatory action''
as an action that is likely to result in a rule (1) having an annual
effect on the economy of $100 million or more, or adversely and
materially affecting a sector of the economy, productivity,
competition, jobs, the environment, public health or safety, or State,
local or tribal governments or communities (also referred to as
``economically significant''); (2) creating serious inconsistency or
otherwise interfering with an action taken or planned by another
agency; (3) materially altering the budgetary impacts of entitlement
grants, user fees, or loan programs or the rights and obligations of
recipients thereof; or (4) raising novel legal or policy issues arising
out of legal mandates, the President's priorities, or the principles
set forth in the Executive Order. It has been determined that this
proposed regulation is significant within the meaning of section
3(f)(4) of the Executive Order. OMB has, therefore, reviewed this
proposed regulation pursuant to the Executive Order.
Paperwork Reduction Act
As part of its continuing effort to reduce paperwork and respondent
burden, the Department of Labor conducts a preclearance consultation
program to provide the general public and federal agencies with an
opportunity to comment on proposed and continuing collections of
information in accordance with the Paperwork Reduction Act of 1995 (PRA
95) (44 U.S.C. 3506(c)(2)(A)). This helps to ensure that requested data
can be provided in the desired format, reporting burden (time and
financial resources) is minimized, collection instruments are clearly
understood, and the impact of collection requirements on respondents
can be properly assessed.
Currently, EBSA is soliciting comments concerning the proposed
information collection request (ICR) included in the proposed
regulation regarding the Annual Funding Notice for Defined Benefit
Multiemployer Pension Plans. A copy of the ICR may be obtained by
contacting the PRA addressee shown below.
The Department has submitted a copy of the proposed information
collection to OMB in accordance with 44 U.S.C. 3507(d) for review of
its information collections. The Department and OMB are particularly
interested in comments that:
Evaluate whether the proposed collection of information is
necessary for the proper performance of the functions of the agency,
including whether the information will have practical utility;
Evaluate the accuracy of the agency's estimate of the
burden of the collection of information, including the validity of the
methodology and assumptions used;
Enhance the quality, utility, and clarity of the
information to be collected; and
Minimize the burden of the collection of information on
those who are to respond, including through the use of appropriate
automated, electronic, mechanical, or other technological collection
techniques or other forms of information technology, e.g., permitting
electronic submission of responses.
Comments should be sent to the Office of Information and Regulatory
Affairs, Office of Management and Budget, Room 10235, New Executive
Office Building, Washington, DC 20503; Attention: Desk Officer for the
Employee Benefits Security Administration. Although comments may be
submitted through April 5, 2005, OMB requests that comments be received
within 30 days of publication of the Notice of Proposed Rulemaking to
ensure their consideration.
PRA Addressee: Address requests for copies of the ICR to Gerald B.
Lindrew, Office of Policy and Research, U.S. Department of Labor,
Employee Benefits Security Administration, 200 Constitution Avenue,
NW., Room N-5647, Washington, DC 20210.
[[Page 6309]]
Telephone (202) 693-8410; Fax: (202) 219-5333. These are not toll-free
numbers.
The information collection provisions of this proposed regulation
are found in Sec. 2520.101-4. A model notice is provided in the
Appendix to Sec. 2520.101-4 to facilitate compliance and moderate the
burden attendant to supplying notices to participants and
beneficiaries, labor organizations, contributing employers, and PBGC as
required by PFEA '04 and the proposed regulation. Use of the model
notice is not mandatory; however, use of the model will be deemed to
satisfy the requirements for content, style, and format of the notice,
except with respect to any other information the plan administrator
elects to include. This proposed regulation is also intended to clarify
certain of the PFEA '04 requirements as to content, style and format,
manner of furnishing, and persons entitled to receive notice.
In order to estimate the potential costs of the notice provisions
of section 101(f) of ERISA and this proposed regulation, the Department
estimated the number of multiemployer defined benefit plans, and the
numbers of participants, beneficiaries receiving benefits, labor
organizations representing participants, and employers that have an
obligation to contribute to these plans. The PBGC Pension Insurance
Data Book 2003 indicates that as of September 30, 2003, there were
1,623 multiemployer defined benefit plans with 9.7 million participants
and beneficiaries receiving benefits. These estimates are based on
premium filings with PBGC for 2002, projected by PBGC to 2003,
generally the most recent information currently available. This total
has been adjusted to 1,595 to reflect the exception from the
requirement to furnish a funding notice for years in which a plan is
receiving financial assistance from PBGC.
The Department is not aware of a direct source of information as to
the number of labor organizations that represent participants of
multiemployer defined benefit plans and that would be entitled to
receive notice under section 101(f). As a proxy for this number, the
Department has relied on information supplied by the Department's
Employment Standards Administration, Office of Labor Management
Standards, as to the number of labor organizations that filed required
annual reports for their most recent fiscal year, generally 2002, at
this time. The Department adjusted the number provided by excluding
labor organizations that appeared to represent only state, local, and
federal governmental employees to account for the fact that such
employees are generally unlikely to be participants in plans covered
under Title I of ERISA. The resulting estimate of labor organizations
entitled to receive notice is 21,000. Although this number has been
used for purposes of this analysis, it is believed that this number is
an upper bound for the actual number of labor organizations that will
receive notice because it is likely that some labor organizations do
not represent participants in defined benefit plans, or that some labor
organizations represent only participants in single employer plans not
subject to section 101(f).
The Department is also unaware of a source of information for the
current number of employers obligated to contribute to multiemployer
defined benefit plans. PBGC assisted with development of an estimate of
this number by providing the Department with a tabulation on their 1987
premium filings of the number of employers contributing to
multiemployer defined benefit plans at that time. This was the last
year this data element was required to be reported. The Department has
attempted to validate that 1987 figure by dividing the number of
participants in multiemployer defined benefit plans in the industries
in which these plans are most concentrated, such as construction,
trucking, and retail food sales,\3\ by the average number of employees
per firm in those industries based on data published by the Office of
Advocacy, U.S. Small Business Administration for 2001. This computation
resulted in a figure that was similar in magnitude, but somewhat higher
than the 277,600 employers reported in the PBGC premium filing data. As
a result, the Department has used 300,000 for its estimate of the
number of contributing employers to whom the required notice will be
sent.
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\3\ Multiemployer Plans Face Short and Long-Term Challenges.
U.S. General Accounting Office, March 2004. General Accounting
Office name changed to Government Accountability Office effective
July 7, 2004. See GAO-04-423 Private Pensions.
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For purposes of its estimates of regulatory impact, then, the
Department has assumed that each plan will develop a notice, and that
each year the multiemployer defined benefit plan notices will be
prepared and sent by the administrators of 1,595 plans to 9.7 million
participants and beneficiaries, 21,000 labor organizations, and 300,000
contributing employers, and to PBGC, for a total of about 10 million
notices.
It is assumed that the availability of a model notice as provided
in paragraph (f) will lessen the time otherwise required by a plan
administrator to draft a required notice. In developing burden
estimates, the Department has included one hour for reviewing and
adapting the model notice, and 30 minutes for completing the notice for
each plan. Reviewing and adapting the notice is expected to be
performed by service providers, specifically by legal counsel at an
hourly rate of $83. This accounts for the estimated burden of
developing the notice, which amounts to about $133,000 for the 1,595
plans. Completing the notice by adding information relevant to each
year is expected to take 30 minutes in the first year of
implementation, as well as in subsequent years, and it is expected to
be performed by the same professionals who are accounted for as
preparing the Summary Annual Report (SAR) for plans, namely financial
professionals at the rate of $68 per hour. The assumed preparation cost
to plans to complete the notice is therefore about $55,000 per year.
The total cost to plans to develop and complete the notice in the year
of implementation is about $187,000.
The estimated distribution costs for the notices are based on
separate assumptions for participant and beneficiary notices versus the
labor organization, contributing employer, and PBGC notices. The
distribution cost for the notices to participants and beneficiaries is
relatively modest compared to the number of notices because it is
assumed that these notices will be provided at the same time and as
part of the same mailing as the Summary Annual Report. The mailing
costs for the SAR are already accounted for in the ICR for the SAR,
currently approved under OMB Control Number 1210-0040. Therefore, only
an additional materials cost is accounted for in the estimate of
distribution costs for participant and beneficiary notices, which
totals $292,000.
Distribution cost estimates for the notices to labor organizations,
employers, and PBGC include $0.40 for materials and postage, and two
minutes at a clerical wage rate of about $17 for each notice. Total
distribution costs to labor organizations, contributing employers, and
PBGC, therefore, are expected to total about $316,000. Distribution
costs for all notices are estimated at $608,000.
In order to estimate the hour burden of preparation and
distribution of the notices, the Department has generally relied on the
same assumptions used for estimates of the burden of SAR preparation
and distribution. Specifically, it is assumed that 100% of notices are
developed by service providers, and that 90% of notices are prepared
and distributed by service providers. Those activities are
[[Page 6310]]
appropriately accounted for as cost burden, for which plans pay service
providers. The remaining 10% of notices prepared and distributed in
house by plan administrators are appropriately accounted for as hour
burden. Materials and mailing costs are considered direct cost burden,
as well. The Department has not accounted here for reductions in
mailing and material costs that might arise from the electronic
distribution of some notices. Although such distribution may be deemed
to satisfy the requirements of section 2520.104b-1(b)(1) with respect
to fulfilling the disclosure obligation if conditions of section
2520.104b-1(c) are satisfied, it is assumed for purposes of these
estimates that these funding notices are less likely to be provided
electronically due to the nature of the industries involved and the
relationships of the parties affected by this requirement since the
active workers affected often do not have access to e-mail at their
workplaces. The resulting hour and cost burden estimates are shown
below. The Department requests comments on the data, assumptions, and
methodology used in arriving at these estimates of economic impact and
PRA 95 burden.
Type of Review: New.
Agency: Department of Labor, Employee Benefits Security
Association.
Title: Multiemployer Defined Benefit Plan Funding Notice.
OMB Number: 1210-NEW.
Affected Public: Individuals or households; Business or other for-
profit; Not-for-profit institutions.
Respondents: 1,595.
Frequency of Response: Annual.
Responses: 10,048,000.
Estimated Total Burden Hours: 1,155.
Total Annualized Capital/Startup Costs: $133,000.
Total Annual Cost (Operating and Maintenance): $644,000.
Total Annualized Cost: $777,000.
OMB will consider comments submitted in response to this request in
its review of the request for approval of the ICR; these comments will
also become a matter of public record.
Regulatory Flexibility Act
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes
certain requirements with respect to Federal rules that are subject to
the notice and comment requirements of section 553(b) of the
Administrative Procedure Act (5 U.S.C. 551 et seq.) and which are
likely to have a significant economic impact on a substantial number of
small entities. Unless an agency certifies that a proposed rule is not
likely to have a significant economic impact on a substantial number of
small entities, section 603 of the RFA requires that the agency present
an initial regulatory flexibility analysis at the time of the
publication of the notice of proposed rulemaking describing the impact
of the rule on small entities and seeking public comment on such
impact. Small entities include small businesses, organizations and
governmental jurisdictions.
For purposes of analysis under the RFA, the Employee Benefits
Security Administration (EBSA) proposes to continue to consider a small
entity to be an employee benefit plan with fewer than 100 participants.
The basis of this definition is found in section 104(a)(2) of ERISA,
which permits the Secretary of Labor to prescribe simplified annual
reports for pension plans that cover fewer than 100 participants. Under
section 104(a)(3), the Secretary may also provide for exemptions or
simplified annual reporting and disclosure for welfare benefit plans.
Pursuant to the authority of section 104(a)(3), the Department has
previously issued at 29 CFR 2520.104-20, 2520.104-21, 2520.104-41,
2520.104-46 and 2520.104b-10 certain simplified reporting provisions
and limited exemptions from reporting and disclosure requirements for
small plans, including unfunded or insured welfare plans covering fewer
than 100 participants and which satisfy certain other requirements.
Further, while some large employers may have small plans, in
general small employers maintain most small plans. Thus, EBSA believes
that assessing the impact of this proposed rule on small plans is an
appropriate substitute for evaluating the effect on small entities. The
definition of small entity considered appropriate for this purpose
differs, however, from a definition of small business that is based on
size standards promulgated by the Small Business Administration (SBA)
(13 CFR 121.201) pursuant to the Small Business Act (15 U.S.C. 631 et
seq.). EBSA therefore requests comments on the appropriateness of the
size standard used in evaluating the impact of this proposed rule on
small entities. The Department does not expect that the plans
potentially impacted by this proposal will be small entities. However,
the Department requests comments on the potential impact of proposal on
small entities, and on ways in which any burdens on small entities
might be minimized.
EBSA has preliminarily determined that this rule will not have a
significant economic impact on a substantial number of small entities.
In support of this determination, EBSA has prepared the following
initial regulatory flexibility analysis.
Section 103(c) of PFEA '04 provides that the Secretary of Labor
shall issue regulations (including a model notice) necessary to
implement the amendments made by new section 101(f) of ERISA, as
enacted by section 103(a) of PFEA '04. Section 101(f) of ERISA requires
the administrator of a multiemployer defined benefit pension plan to
furnish annually a notice of the plan's funded status to the plan's
participants and beneficiaries and other specified interested parties
(each labor organization representing such participants and
beneficiaries, each employer that has an obligation to contribute under
the plan, and the PBGC).
The conditions set forth in this proposed regulation are intended
to satisfy the PFEA '04 requirement that the Secretary prescribe
regulations (including a model notice) necessary to implement the
amendments made by section 103.
The proposed rule would impact small plans that are multiemployer
defined benefit pension plans. It is expected that the proposal will
affect approximately 10 small plans, and 800 participants in small
plans.
The initial cost of the funding notice for small plans is expected
to be about $82 per plan. Preparation of this information is in most
cases accomplished by professionals that provide services to employee
benefit plans.
The benefits of greater certainty afforded fiduciaries by the model
notice are substantial but cannot be specifically quantified.
To the Department's knowledge, there are no federal regulations
that might duplicate, overlap, or conflict with the proposed regulation
for multiemployer defined benefit pension plan funding notices under
section 101(f) of ERISA.
Congressional Review Act
The rules being issued here are subject to the Congressional Review
Act provisions of the Small Business Regulatory Enforcement Fairness
Act of 1996 (5 U.S.C. 801 et seq.) and if finalized will be sent to
Congress and the Comptroller General for review. The rule is not a
``major rule'' as that term is defined in 5 U.S.C. 804, because it is
not likely to result in (1) an annual effect on the economy of $100
million or more; (2) a major increase in costs or prices for consumers,
individual industries, or Federal, State, or local government agencies,
or geographic regions; or (3) significant adverse effects
[[Page 6311]]
on competition, employment, investment, productivity, innovation, or on
the ability of United States-based enterprises to compete with foreign-
based enterprises in domestic and export markets.
Unfunded Mandates Reform Act
For purposes of the Unfunded Mandates Reform Act of 1995 (Pub. L.
104-4), as well as Executive Order 12875, this proposed regulation does
not include any Federal mandate that may result in expenditures by
State, local, or tribal governments, and does not impose an annual
burden exceeding $100 million on the private sector.
Federalism Statement
Executive Order 13132 (August 4, 1999) outlines fundamental
principles of federalism and requires the adherence to specific
criteria by Federal agencies in the process of their formulation and
implementation of policies that have substantial direct effects on the
States, on the relationship between the national government and the
States, or on the distribution of power and responsibilities among the
various levels of government. This final rule does not have federalism
implications because it has no substantial direct effect on the States,
on the relationship between the national government and the States, or
on the distribution of power and responsibilities among the various
levels of government. Section 514 of ERISA provides, with certain
exceptions specifically enumerated that are not pertinent here, that
the provisions of Titles I and IV of ERISA supersede any and all laws
of the States as they relate to any employee benefit plan covered under
ERISA. The requirements implemented in this final rule do not alter the
fundamental reporting and disclosure requirements of the statute with
respect to employee benefit plans, and as such have no implications for
the States or the relationship or distribution of power between the
national government and the States.
List of Subjects in 29 CFR Part 2520
Accounting, Employee benefit plans, Pensions, Reporting and
recordkeeping requirements.
For the reasons set forth in the preamble, the Department of Labor
proposes to amend 29 CFR part 2520 as follows:
PART 2520--RULES AND REGULATIONS FOR REPORTING AND DISCLOSURE
1. The authority citation for part 2520 is revised to read as
follows:
Authority: 29 U.S.C. 1021-1025, 1027, 1029-31, 1059, 1134 and
1135; and Secretary of Labor's Order 1-2003, 68 FR 5374 (Feb. 3,
2003). Sec. 2520.101-2 also issued under 29 U.S.C. 1132, 1181-1183,
1181 note, 1185, 1185a-b, 1191, and 1191a-c. Secs. 2520.102-3,
2520.104b-1 and 2520.104b-3 also issued under 29 U.S.C. 1003,1181-
1183, 1181 note, 1185, 1185a-b, 1191, and 1191a-c. Secs. 2520.104b-1
and 2520.107 also issued under 26 U.S.C. 401 note, 111 Stat. 788.
Section 2520.101-4 also issued under sec. 103 of Pub. L. 108-218.
2. Add the following new section and related appendix to subpart A:
Sec. 2520.101-4 Annual funding notice for multiemployer defined
benefit pension plans.
(a) In general. (1) Except as provided in paragraph (a)(2) of this
section, pursuant to section 101(f) of the Act, the administrator of a
defined benefit, multiemployer pension plan shall furnish annually to
each person specified in paragraph (f) of this section a funding notice
that conforms to the requirements of this section.
(2) A plan administrator shall not be required to furnish a funding
notice for any plan year for which the plan is receiving financial
assistance from the Pension Benefit Guaranty Corporation pursuant to
section 4261 of ERISA.
(b) Content of notice. A funding notice shall, consistent with the
information included in the plan's Annual Return/Report Form 5500 filed
for the plan year to which the funding notice relates, include the
following information:
(1) The name of the plan;
(2) The address and phone number of the plan administrator and the
plan's principal administrative officer (if different from the plan
administrator);
(3) The plan sponsor's employer identification number;
(4) The plan number;
(5) A statement as to whether the plan's funded current liability
percentage (as defined in section 302(d)(8)(B)) for the plan year to
which the notice relates is at least 100 percent (and, if not, the
actual percentage);
(6) A statement of the market value of the plan's assets (and
valuation date), the amount of benefit payments, and the ratio of the
assets to the payments for the plan year to which the notice relates;
(7) A summary of the rules governing insolvent multiemployer plans,
including the limitations on benefit payments and any potential benefit
reductions and suspensions (and the potential effects of such
limitations, reductions, and suspensions on the plan);
(8) A general description of the benefits under the plan which are
eligible to be guaranteed by the Pension Benefit Guaranty Corporation,
along with an explanation of the limitations on the guarantee and the
circumstances under which such limitations apply; and
(9) Any additional information that the plan administrator elects
to include, provided that such information is necessary or helpful to
understanding the mandatory information in the notice.
(c) Style and format of notice. Funding notices shall be written in
a manner calculated to be understood by the average plan participant.
(d) When to furnish notice. A funding notice shall be furnished
within 9 months after the close of the plan year, unless the Internal
Revenue Service has granted an extension of time to file the annual
report, in which case such furnishing shall take place within 2 months
after the close of the extension period.
(e) Manner of furnishing notice. (1) Except as provided in
paragraph (e)(2) of this section, funding notices shall be furnished in
any manner consistent with the requirements of Sec. 2520.104b-1 of
this chapter, including paragraph (c) of that section relating to the
use of electronic media.
(2) Notice shall be furnished to the Pension Benefit Guaranty
Corporation in a manner consistent with the requirements of part 4000
of this title.
(f) Persons entitled to notice. Persons entitled to notice under
this section include:
(1) Each participant covered under the plan on the last day of the
plan year to which the notice relates;
(2) Each beneficiary receiving benefits under the plan on the last
day of the plan year to which the notice relates;
(3) Each labor organization representing participants under the
plan on the last day of the plan year to which the notice relates;
(4) Each employer that, as of the last day of the plan year to
which the notice relates, 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 pursuant to section 4203 of the
Act; and
(5) The Pension Benefit Guaranty Corporation.
(g) Model notice. The appendix to this section contains a model
notice that is intended to assist plan administrators in
[[Page 6312]]
discharging their notice obligations under this section. Use of the
model notice is not mandatory. However, use of the model notice will be
deemed to satisfy the requirements of paragraphs (b) and (c) of this
section, except with respect to information referenced in paragraph
(b)(9) of this section.
Appendix to Sec. 2520.101-4--Annual Funding Notice for [Insert name of
pension plan]
Introduction
This notice, which federal law requires all multiemployer plans
to send annually, includes important information about the funding
level of [insert name, number, and EIN of plan] (Plan). This notice
also includes information about rules governing 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] (Plan Year).
Plan's Funding Level
The Plan's ``funded current liability percentage'' for the Plan
Year was [insert percentage--see instructions below]. In general,
the higher the percentage, the better funded the plan. The funded
current liability percentage, however, is not indicative of how well
a plan will be funded in the future or if it terminates.
(Instructions: For purposes of computing the ``funded current
liability percentage,'' insert ratio of actuarial value of assets to
current liability, expressed as a percentage. If the percentage is
equal to or greater than 100 percent, you may insert ``at least 100
percent.'')
Plan's Financial Information
The market value of the Plan's assets as of [insert valuation
date] was [insert amount]. The total amount of benefit payments for
the Plan Year was [enter amount]. The ratio of assets to benefit
payments is [enter amount calculated by dividing the value of plan
assets by the total benefit payments]. This ratio suggests that the
Plan's assets could provide for approximately [enter amount
calculated above] years of benefit payments in annual amounts equal
to what was paid out in the Plan Year. However, the ratio does not
take into account future changes in total benefit payments or plan
assets.
Rules Governing Insolvent Plans
The law has special rules governing insolvent multiemployer
pension plans. 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.
Benefit Payments Guaranteed by the PBGC
The PBGC guarantees only vested benefits. Specifically, it
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 maximum guaranteed payment for a vested
retiree, therefore, is $35.75 per month times each year 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).
In calculating a person's monthly payment, the PBGC will
disregard any benefit increases that were made under the plan within
60 months before insolvency. Similarly, the PBGC does not guarantee
pre-retirement death benefits to a spouse or beneficiary (e.g., a
qualified pre-retirement survivor annuity), 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.
Where To Get More Information
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]. For
more information about the PBGC and multiemployer benefit
guarantees, go to PBGC's Web site, http://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).
Signed at Washington, DC, this 31st day of January, 2005.
Ann L. Combs,
Assistant Secretary, , Employee Benefits Security Administration,
Department of Labor.
[FR Doc. 05-2151 Filed 2-3-05; 8:45 am]
BILLING CODE 4150-29-P