[Federal Register Volume 75, Number 222 (Thursday, November 18, 2010)]
[Proposed Rules]
[Pages 70625-70653]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-28890]
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
29 CFR Part 2520
RIN 1210-AB18
Annual Funding Notice for Defined Benefit Plans
AGENCY: Employee Benefits Security Administration, Labor.
ACTION: Proposed rule.
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SUMMARY: This document contains a proposed regulation that, on
adoption, would implement the annual funding notice requirement in the
Employee Retirement Income Security Act of 1974 (ERISA), as amended by
the Pension Protection Act of 2006 (PPA) and the Worker, Retiree, and
Employer Recovery Act of 2008 (WRERA). As amended, section 101(f) of
ERISA generally requires the administrators of all defined benefit
plans, not just multiemployer defined benefit plans, to furnish an
annual funding notice to the Pension Benefit Guaranty Corporation
(PBGC), participants, beneficiaries, and certain other persons. A
funding notice must include, among other information, the plan's
funding target attainment percentage or funded percentage, as
applicable, over a period of time, as well as other information
relevant to the plan's funded status. This document also contains
proposed conforming amendments to other regulations under ERISA, such
as the summary annual report regulation, which became
[[Page 70626]]
necessary when the PPA amended section 101(f) of ERISA. The proposed
regulation would affect plan administrators and participants and
beneficiaries of defined benefit pension plans, as well as labor
organizations representing participants and beneficiaries and
contributing employers of multiemployer plans.
DATES: Written comments on the proposed regulation should be received
by the Department of Labor on or before January 18, 2011.
ADDRESSES: You may submit comments, identified by RIN 1210-AB18, by one
of the following methods:
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
E-mail: [email protected]. Include RIN 1210-AB18 in the
subject line of the message.
Mail: Office of Regulations and Interpretations, Employee
Benefits Security Administration, Room N-5655, U.S. Department of
Labor, 200 Constitution Avenue, NW., Washington, DC 20210, Attention:
Annual Funding Notice for Defined Benefit Plans.
Instructions: All submissions received must include the agency name
and Regulation Identifier Number (RIN) for this rulemaking. Comments
received will be posted without change to http://www.regulations.gov
and http://www.dol.gov/ebsa, and made available for public inspection
at the Public Disclosure Room, N-1513, Employee Benefits Security
Administration, 200 Constitution Avenue, NW., Washington, DC 20210,
including any personal information provided. Do not include any
personally identifiable information (such as name, address, or other
contact information) or confidential business information that you do
not want publicly disclosed. Comments posted on the Internet can be
retrieved by most Internet search engines. Comments may be submitted
anonymously. Persons submitting comments electronically are encouraged
not to submit paper copies.
FOR FURTHER INFORMATION CONTACT: Thomas M. Hindmarch or 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
In 2004, the Pension Funding Equity Act (PFEA '04), Public Law 108-
218, amended title I of the Employee Retirement Income Security Act of
1974 (ERISA) by adding section 101(f), which required multiemployer
defined benefit plans to furnish a plan 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 (PBGC).\1\
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\1\ On January 11, 2006, the Department of Labor published a
final regulation implementing the requirements of section 101(f) of
ERISA as amended by PFEA '04. See 29 CFR 2520.101-4.
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In 2006, section 501(a) of the Pension Protection Act of 2006,
Public Law 109-280 (PPA), significantly amended section 101(f) of
ERISA. For example, section 101(f) of ERISA now 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 enhanced the notice content requirements. These changes 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.\2\
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\2\ Prior to the applicability date of the PPA amendments to
section 101(f) of ERISA, a multiemployer plan was required to
furnish a funding notice consistent with Sec. 2520.101-4 (for plan
years beginning prior to January 1, 2008). For plan years beginning
after December 31, 2007, multiemployer plans must comply with
section 101(f) as amended, and when final, the regulations under
Sec. 2520.101-5, rather than Sec. 2520.101-4. The Department will
remove Sec. 2520.101-4 from the Code of Federal Regulations in
conjunction with the promulgation of a final rule.
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On February 10, 2009, the Department issued Field Assistance
Bulletin 2009-01 (FAB 2009-01) as interim guidance under section 101(f)
of ERISA in order to assist plan administrators in discharging their
obligations under the new annual funding notice requirements. FAB 2009-
01 provides question and answer guidance on a number of issues under
section 101(f) of ERISA. It also includes model funding notices. Much
of the guidance in FAB 2009-01 has been incorporated into the proposed
regulation contained in this document. That guidance remains in effect
until the Department adopts final regulations under section 101(f) of
ERISA (or if the Department were to publish any other guidance under
section 101(f) other than final regulations).\3\
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\3\ FAB 2009-01 is available on the Department's Web site at
http://www.dol.gov/ebsa/regs/fab2009-1.html.
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B. Overview of Proposed 29 CFR 2520.101-5--Annual Funding Notice for
Defined Benefit Pension Plans
1. Scope
Paragraph (a) of the proposed regulation implements the
requirements set forth in section 101(f) of ERISA. This section in
general requires the administrator of a defined benefit plan to which
title IV of ERISA applies to furnish annually a funding notice to the
PBGC, to each plan participant and beneficiary, to each labor
organization representing such participants or beneficiaries, and, in
the case of a multiemployer plan, to each employer that has an
obligation to contribute to the plan. Those persons entitled to the
funding notice are further clarified in paragraph (f) of the proposed
regulation.
Paragraphs (a)(2) and (3) of the proposed regulation provide
limited exceptions to the requirement to furnish a funding notice.
Under the exception in paragraph (a)(2)(i) of the proposal, the
plan administrator of an insolvent multiemployer plan that is in
compliance with the insolvency notice requirements of sections 4245(e)
or 4281(d)(3) of ERISA before the due date of the funding notice for a
plan year is not, for such year, required to furnish the funding notice
to the parties otherwise entitled to such notice. This exception is
effectively the same as the exception that currently exists in Sec.
2520.101-4(a)(2) for multiemployer plans receiving financial assistance
from the PBGC. The rationale for the exception was articulated in the
final regulation under Sec. 2520.101-4.\4\ The exception in the
proposal is phrased slightly differently than the exception in Sec.
2520.101-4 at the request of the PBGC. Inasmuch as this exception is
predicated on sufficient alternative notification under sections
4245(e) and 4281(d)(3), the exception would cease to be available with
respect to a plan that emerges from insolvency or ceases to comply with
the insolvency notice requirements under title IV of ERISA.
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\4\ The annual funding notice would be of little, if any, value
to recipients in light of the PBGC's authority and responsibility
under title IV of ERISA with respect to insolvent multiemployer
plans. See 71 FR 1904, n.1 (Jan. 11, 2006). See also 70 FR 6306, n.1
(Feb. 4, 2005).
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Under the exception in paragraph (a)(2)(ii) of the proposal, the
plan administrator of a single-employer plan is not required to furnish
a funding notice for a plan year if the due date for such notice is on
or after the date the PBGC is appointed trustee of the plan pursuant to
section 4042 of ERISA, or the plan has distributed assets in
[[Page 70627]]
satisfaction of all benefit liabilities in a standard termination
pursuant to section 4041(b) or in a distress termination pursuant to
section 4041(c)(3)(B)(i), or of all guaranteed benefits in a distress
termination pursuant to section 4041(c)(3)(B)(ii) of ERISA. The
Department believes, because of the separate disclosure requirements
applicable to such plans under title IV of ERISA, a funding notice may
be unnecessary or confusing to participants where the PBGC is appointed
trustee of a terminated single-employer plan or where a terminated
single-employer plan has already satisfied all benefit liabilities or
all guaranteed benefits.\5\
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\5\ For example, under a standard termination, participants are
provided a notice of intent to terminate 60 to 90 days prior to the
proposed termination date (29 CFR 4041.23), a notice of plan
benefits by the time PBGC Form 500 is filed with the PBGC (29 CFR
4041.24), and a notice of annuity information in the notice of
intent to terminate or, in certain cases, 45 days prior to the
distribution date (29 CFR 4041.23(b)(5) and 29 CFR 4041.27).
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Under the exception in paragraph (a)(3) of the proposal, relief is
provided in the case of a merger or consolidation of two or more plans.
In such circumstances, the plan administrator of the plan that has
legally transferred control of its assets to a successor plan
(hereafter the ``non-successor plan'') shall not be required to furnish
a funding notice for its final plan year that ends coincident with or
immediately prior to the merger. Thus, for example, if plan A were to
merge with plan B in 2010 and plan B is the successor plan (i.e., the
plan to which control of the assets of plan A was legally transferred),
then the plan administrator of plan A is not required to furnish a
funding notice for plan A for its final plan year that ends upon the
occurrence of the merger in 2010. However, the funding notice of plan B
(i.e., the plan to which control of the assets of plan A was legally
transferred) must satisfy the general content requirements in paragraph
(b) of the proposed regulation and, in addition, contain a general
explanation of the merger. The general explanation must include the
effective date of, and identify each plan involved with, the merger or
consolidation. Given that participants and beneficiaries will look to
the successor plan for their pension benefits following the merger or
consolidation, rather than the plan whose assets and liabilities were
transferred to the successor plan, the Department believes that
participants and beneficiaries would realize little, if any, benefit
from receiving a funding notice from the non-successor plan. In
addition, including an explanation of the merger in the funding notice
of the successor plan should abate any participant confusion that might
exist by virtue of not receiving a funding notice from the non-
successor plan.
2. Content Requirements
a. Identifying Information (Proposed Sec. 2520.105-1(b)(1))
Paragraph (b)(1) of the proposed regulation provides that a funding
notice must include the name of the plan and the name, address and
telephone number of the plan administrator (and the name, address and
phone number of the plan's principal administrative officer if the
principal administrative officer is different from the plan
administrator). A funding notice also must include each plan sponsor's
name and employer identification number and the plan number. For
purposes of this requirement, employer identification numbers, name of
plan sponsor, and plan numbers are the same as those used in the annual
report filed in accordance with section 104(a) of ERISA.
b. Funding Percentage (Proposed Sec. 2520.105-1(b)(2))
Paragraph (b)(2) of the proposed regulation requires disclosure of
a plan's funding percentage. Specifically, in the case of a single-
employer plan, paragraph (b)(2)(i) of the proposal provides that a
notice must include a statement as to whether the plan's funding target
attainment percentage for the plan year to which the notice relates
(the ``notice year''), and for each of the two preceding plan years, is
at least 100 percent (and, if not, the actual percentages). The term
``funding target attainment percentage'' is defined in section
303(d)(2) of ERISA, which corresponds to Internal Revenue Code (Code)
section 430(d)(2). Guidance issued by the Department of the Treasury
under Code section 430 also applies for purposes of section 303 of
ERISA. Treasury regulations under Code section 430 provide that the
funding target attainment percentage of a plan for a plan year is a
fraction (expressed as a percentage), the numerator of which is the
value of plan assets for the plan year (determined under the rules of
26 CFR 1.430(g)-1) after subtraction of the prefunding balance and the
funding standard carryover balance under section 430(f)(4)(B) of the
Code and Sec. 1.430(f)-1(c) and the denominator of which is the
funding target of the plan for the plan year (determined without regard
to the at-risk rules of section 430(i) of the Code and Sec. 1.430(i)-
1).\6\ Thus, this percentage for a plan year is calculated by dividing
the value of the plan's assets for that year (after subtracting the
prefunding and funding standard carryover balances, if any) by the
funding target of the plan for that year (disregarding the at-risk
rules).
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\6\ See 26 CFR 1.430(d)-1(b)(3)(i); 74 FR 53004, 53036 (Oct. 15,
2009).
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Similarly, in the case of a multiemployer plan, paragraph
(b)(2)(ii) of the proposed regulation provides that a notice must
include a statement as to whether the plan's funded percentage for the
notice year, and for each of the two preceding plan years, is at least
100 percent (and, if not, the actual percentages). The term ``funded
percentage'' is defined in section 305(i) of ERISA, which corresponds
to section 432(i) of the Code. Guidance issued by the Department of the
Treasury under section 432 of the Code also applies for purposes of
section 305 of ERISA. Proposed Treasury regulations under Code section
432 provide that the funded percentage of a plan for a plan year is a
fraction (expressed as a percentage), the numerator of which is the
actuarial value of the plan's assets as determined under section
431(c)(2) of the Code and the denominator of which is the accrued
liability of the plan, determined using the actuarial assumptions
described in section 431(c)(3) of the Code and the unit credit funding
method.\7\ Thus, this percentage for a plan year is calculated by
dividing the plan's assets for that year by the accrued liability of
the plan for that year, determined using the unit credit funding
method.
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\7\ See proposed Treasury regulation 26 CFR 1.432(a)-1(b)(7); 73
FR 14417, 14423 (March 18, 2008).
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c. Assets and Liabilities (Proposed Sec. 2520.101-5(b)(3))
(i) Single-Employer Plans--Assets and Liabilities as of the Valuation
Date
In the case of a single-employer plan, paragraph (b)(3)(i)(A) of
the proposed regulation requires that a funding notice include a
statement of the total assets (separately stating the prefunding
balance and the funding standard carryover balance) and liabilities of
the plan for the notice year and each of the two preceding plan years.
Like the statute, under section 101(f)(2)(B)(ii)(I)(aa), the proposed
regulation provides that assets and liabilities are to be determined
``in the same manner as under section 303'' of ERISA. The Department
interprets this reference to mean the assets and liabilities used to
determine a plan's
[[Page 70628]]
funding target attainment percentage (as well as the plan's ``at-risk''
liabilities pursuant to section 303(i) of ERISA, taking into account
section 303(i)(5), if the plan is in ``at-risk'' status). This approach
makes transparent the assets and liabilities used to determine the
funding target attainment percentage of the plan, as well as the plan's
liabilities (i.e., funding target) actually used for funding purposes.
(ii) Single-Employer Plans--Assets and Liabilities as of the Last Day
of the Plan Year
Section 101(f)(2)(B)(ii)(I)(bb) of ERISA states that a funding
notice must include, in the case of a single-employer plan, ``the value
of the plan's assets and liabilities for the plan year to which the
notice relates as of the last day of the plan year to which the notice
relates determined using the asset valuation under subclause (II) of
section 4006(a)(3)(E)(iii) and the interest rate under section
4006(a)(3)(E)(iv)[.]''
Based on the foregoing, paragraph (b)(3)(i)(B) of the proposed
regulation provides that a single-employer plan must include a
statement of the value of the plan's assets and liabilities determined
as of the last day of the notice year. For purposes of this statement,
plan administrators must report the fair market value of assets as of
the last day of the plan year. In addition, a plan's liabilities as of
the last day of the plan year are equal to the present value, as of the
last day of the plan year, of benefits accrued as of that same date.
With the exception of the interest rate assumption, the present value
should be determined using the assumptions used to determine the
funding target under section 303. The interest rate assumption is the
segment interest rate provided under section 4006(a)(3)(E)(iv) of ERISA
in effect for the last month of the notice year rather than the rate in
effect for the month preceding the first month of the notice year.
The Department recognizes that in their funding notices some plans
may need to estimate their year-end liability for the notice year. In
this regard, the statute does not specifically set forth any standards
to govern such estimations. Therefore, pending further guidance, plan
administrators may, in a reasonable manner, project liabilities to
year-end using standard actuarial techniques. The Department, however,
specifically invites comment on this issue.
(iii) Multiemployer Plans--Assets and Liabilities as of the Valuation
Date
In the case of a multiemployer plan, paragraph (b)(3)(ii)(A) of the
proposed regulation requires a statement of the value of the plan's
assets (determined in the same manner as under section 304(c)(2) of
ERISA) and liabilities (determined in the same manner as under section
305(i)(8) of ERISA, using reasonable actuarial assumptions as required
under section 304(c)(3) of ERISA) for the notice year and each of the
two plan years preceding the notice year. The assets and liabilities
are to be measured as of the valuation date in each of these three
years. These are the same assets and liabilities used to determine the
plan's funded percentage required to be disclosed under paragraph
(b)(2)(ii) of the proposed regulation. Thus, the recipients of a
funding notice will receive not only their plans' funded percentage,
pursuant to paragraph (b)(2)(ii) of the proposal, but, pursuant to
paragraph (b)(3)(ii)(A), they also will receive the numbers behind that
percentage. Under section 305(i)(8) of ERISA, liabilities are
determined using the unit credit funding method whether or not that
actuarial method is used for the plan's actuarial valuation in general.
(iv) Multiemployer Plans--Assets as of the Last Day of the Plan Year
In the case of a multiemployer plan, paragraph (b)(3)(ii)(B) of the
proposed regulation requires a statement of the fair market value of
plan assets as of the last day of the notice year, and as of the last
day of each of the two preceding plan years as reported in the annual
report filed under section 104(a) of ERISA for each such preceding plan
year.\8\
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\8\ See Joint Committee on Taxation Technical Explanation (JCX
85-08, Dec. 11, 2008) of H.R. 7327, the ``Worker, Retiree, and
Employer Recovery Act of 2008'' explaining that section 105 of this
Act amended section 101(f)(2)(B)(ii)(II) of ERISA to conform the
asset and liability information provided for a multiemployer plan to
the information that must be provided for a single-employer plan.
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(v) Year-End Statement of Plan Assets
As discussed above, all funding notices must contain a statement of
the fair market value of plan assets as of the last day of the notice
year. Plans may receive contributions for the notice year after the
close of that year but before the funding notice is sent to recipients.
In such circumstances, these contributions may be included in the fair
market value of assets. Inclusion is permissive; the proposed
regulation does not require these contributions to be included in the
year-end asset statement. If they are included, however, they may be
included only if they are attributable to the notice year for funding
purposes.
In the case of a single-employer plan, such contributions must be
discounted back to the last day of the notice year using the effective
interest rate. The effective interest rate is defined under section
303(h)(2)(A) of ERISA (section 430(h)(2)(A) of the Code). This approach
ensures consistency with section 303(g)(4) of ERISA (section 430(g)(4)
of the Code) relating to prior year contributions.\9\ For example: Plan
X is a calendar year plan. The plan's funding notice for 2011 was
timely furnished in 2012. The year-end statement of assets was based on
December 31, 2011, fair market value. The plan administrator included
the present value of contributions made to the plan on February 14,
2012, in the year-end statement of assets. The ``effective interest
rate'' for the plan was five percent in 2011 and four percent in 2012.
The contributions would be discounted from February 14, 2012, to
December 31, 2011, using a discount rate of five percent per annum,
which was the ``effective interest rate'' for 2011.
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\9\ This approach is consistent with the position taken by the
PBGC regarding the treatment of subsequent contributions in
determining the fair market value of assets under section
4006(a)(3)(E)(iii). See page 18 of the PBGC's 2010 Comprehensive
Premium Payment Instructions.
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In the case of a multiemployer plan, section 304(c)(8) of ERISA
provides that contributions made by an employer for the plan year after
the last day of the plan year, but not later than two and one-half
months after such day (which may be extended for not more than six
months under regulations prescribed by the Secretary of the Treasury),
shall be deemed made on the last day of the plan year. Section
304(c)(8) of ERISA corresponds to section 431(c)(8) of the Code.
Section 431(c)(8) of the Code is the post-PPA counterpart to former
section 412(c)(10)(B) of the Code. Pursuant to the Treasury regulations
under former section 412(c)(10)(B) of the Code (26 CFR 11.412(c)-12),
contributions for a plan year that are made within eight and one-half
months after the end of a plan year are deemed to have been made on the
last day of that plan year. Therefore, consistent with section
304(c)(8) of ERISA and the corresponding section 431(c)(8) of the Code,
and Treasury regulations under the former section 412(c)(10)(B) of the
Code, it is not necessary for a multiemployer plan to discount such
contributions for interest when stating its year-end asset value in a
funding notice.
[[Page 70629]]
d. Demographic Information (Proposed Sec. 2520.101-5(b)(4))
Paragraph (b)(4) of the proposed regulation provides for disclosure
of a plan's participant population based on the employment status of
those participants. Specifically, it requires a statement of the number
of participants who, as of the valuation date of the notice year, are:
(i) Retired or separated from service and receiving benefits; (ii)
retired or separated and entitled to future benefits (but currently not
receiving benefits); or (iii) active participants under the plan. Plan
administrators must state the number of participants in each of these
categories and the sum of all such participants. For purposes of this
statement, the terms ``active'' and ``retired or separated'' in
relation to participants shall have the same meaning given to those
terms in instructions to the latest annual report filed under section
104(a) of the Act (currently, instructions relating to lines 5 and 6 of
the 2009 Form 5500 Annual Return/Report).
Neither section 101(f) of ERISA nor paragraph (b)(4) of the
proposed regulation specifically address whether, or how, to account
for deceased participants who have one or more beneficiaries who are
receiving or are entitled to receive benefits under a plan. For
purposes of the annual funding notice requirements, however, these
participants would appear to be similar to retired or separated
participants who are themselves receiving, or are entitled to receive,
benefits under the plan in that the plan retains liability for benefits
accrued by such deceased participants. Accordingly, the Department
solicits comments on whether such individuals should be reflected in
the participant count required under paragraph (b)(4) of the proposal
and, if so, how. For example, such individuals could be included in the
respective ``retired or separated'' categories under paragraph (b)(4)
of the proposal or in a stand-alone category.\10\
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\10\ See, e.g., line 6(e) of the 2009 Form 5500 Annual Return/
Report (for listing the number of deceased participants whose
beneficiaries are receiving or entitled to receive benefits).
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The statute does not specify the date for counting the participants
required by paragraph (b)(4) of the proposed regulation. The Department
has chosen the valuation date of the notice year to provide consistency
with the measurement date of the plan's funding target attainment
percentage or funded percentage, as applicable. The Department solicits
comments on whether a different date would be more appropriate, such as
the last day of the notice year. Comments should explain why a
different date would be more appropriate.
As explained above, the demographic information required by
paragraph (b)(4) of the proposal is limited to the notice year. The
Department solicits comments on whether, and to what extent, notice
recipients would benefit from demographic information covering a longer
period of time, such as the notice year and two preceding plan years.
Commentary is requested on whether such information, in conjunction
with other information required by section 101(f) and the proposed
regulation would assist notice recipients in fully understanding the
financial health and condition of the plan.
e. Funding and Investment Policies; Asset Allocation (Proposed Sec.
2520.101-5(b)(5))
Section 101(f)(2)(B)(iv) of ERISA provides that a funding notice
must include ``a statement setting forth the funding policy of the plan
and the asset allocation of investments under the plan (expressed as
percentages of total assets) as of the end of the plan year to which
the notice relates[.]'' Paragraph (b)(5) of the proposal directly
incorporates these requirements. See paragraphs (b)(5)(i) and (ii) of
the proposal. Paragraph (b)(5) of the proposal adds the requirement
that a notice also must set forth a general description of any
investment policy of the plan as it relates to the funding policy and
the asset allocation. See paragraph (b)(5)(iii) of the proposal. The
purpose of this addition is to provide participants and beneficiaries
with contextual information not explicitly required by section 101(f)
of ERISA so that they may better understand and appreciate the plan's
approach to funding benefits.\11\ Use of the word ``any'' in paragraph
(b)(5)(ii) reflects that the maintenance of a written statement of
investment policy is not specifically required under ERISA, although
the Department expects that it would be rare for a plan subject to
section 101(f) of ERISA not to have such a policy. The Department
specifically requests comment on the costs and benefits associated with
the disclosure of such additional information.
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\11\ A requisite feature of every employee benefit plan is a
procedure for establishing a funding policy to carry out plan
objectives. See section 402(b)(1) of ERISA. The maintenance by an
employee benefit plan of a statement of investment policy is
consistent with the fiduciary obligations set forth in ERISA section
404(a)(1)(A) and (B). A statement of investment policy is a written
statement that provides the fiduciaries who are responsible for plan
investments with guidelines or general instructions concerning
various types or categories of investment management decisions. A
statement of investment policy is distinguished from directions as
to the purchase or sale of a specific investment at a specific time.
See 29 CFR 2509.08-2(2) (formerly 29 CFR 2509.94-2).
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A plan administrator may satisfy the asset allocation requirement
in paragraph (b)(5)(ii) of the proposal by using the table of asset
classes set forth in the model notice published in the appendices to
this proposal. The asset classes identified in the model are based on
the asset classes listed in Part 1 of the Asset and Liability Statement
of the latest Schedule H of the Form 5500 Annual Return/Report (see
Lines 1a, 1c(1)-(15), 1d(1)-(2) and 1(e) of the 2009 Schedule H).\12\
With respect to each asset class, plan administrators should insert an
appropriate percentage. For this purpose, a plan administrator should
use the same valuation and accounting methods as for Form 5500 Schedule
H reporting purposes. The master trust investment account (MTIA),
common/collective trust (CCT), pooled separate account (PSA), and 103-
12 investment entity (103-12IE) investment categories have the same
definitions as for the Form 5500 instructions. In addition, if a plan
held at year-end an interest in one or more direct filing entities
(DFEs), i.e., MTIAs, CCTs, PSAs, or 103-12IEs, the plan administrator
should include in the model notice a statement apprising recipients how
to obtain more information regarding the plan's DFE investments (e.g.,
a plan's Schedule D and R and/or the DFE's schedule H). For this
purpose, the model notice provides a statement immediately following
the asset allocation table for contact information, which a plan
administrator should complete and include if the plan held an interest
in one or more DFEs, in order to inform participants how to get
additional investment information. The Department specifically requests
comment on whether this approach (i.e., based on the Schedule H) to
stating the asset allocation of a plan's investments as of the last day
of the notice year provides sufficient information to participants
regarding the plan's investments, or whether there is a more effective
way of communicating this required information in the funding notice,
and if so, how.
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\12\ The asset classes identified in the models do not include
any receivables reportable on Schedule H of the Form 5500 (see lines
1b(1)-(3) of the 2009 Schedule H).
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f. Endangered or Critical Status (Proposed Sec. 2520.101-5(b)(6))
Paragraph (b)(6) of the proposed regulation, which is limited to
multiemployer plans, requires that the
[[Page 70630]]
funding notice for such plans indicate whether the plan was in
endangered or critical status for the notice year. For this purpose,
``endangered or critical status'' is determined in accordance with
section 305 of ERISA, which corresponds to section 432 of the Code.
Pursuant to paragraph (b)(6)(i) of the proposal, if the plan was in
endangered or critical status for the notice year, the funding notice
must describe how a person may obtain a copy of the plan's funding
improvement or rehabilitation plan, as appropriate, and the actuarial
and financial data that demonstrate any action taken by the plan toward
fiscal improvement. Pursuant to paragraph (b)(6)(ii) of the proposal,
if the plan was in endangered or critical status for the notice year,
the notice must contain a summary of the plan's funding improvement or
rehabilitation plan. This summary is required to include, when
applicable, a description of any updates or modifications to such
funding improvement or rehabilitation plan adopted during the notice
year. Paragraph (b)(6)(ii) clarifies that a summary is required not
only for the notice year in which the funding improvement or
rehabilitation plan was adopted, but for every plan year thereafter
until the funding improvement or rehabilitation plan ceases to be in
effect. This proposed clarification resolves any ambiguity in section
101(f)(2)(B)(v)(II) regarding whether a summary is only required to be
included for the notice year in which the funding improvement or
rehabilitation plan is first adopted and then again if subsequently
modified, as opposed to every plan year the funding improvement or
rehabilitation plan is in effect.
g. Material Effect Events (Proposed Sec. 2520.101-5(b)(7))
Paragraph (b)(7) of the proposed regulation directly incorporates
the requirements of section 101(f)(2)(B)(vi) of ERISA. That section of
ERISA requires an explanation of any plan amendment, scheduled benefit
increase or reduction, or other known event taking effect in the
current plan year and having a material effect on plan liabilities or
assets for the year, as well as a projection to the end of such plan
year of the effect of the amendment, scheduled increase or reduction,
or event on plan liabilities. The Department believes there is
ambiguity with respect to the term ``current plan year'' in section
101(f)(2)(B)(vi) of ERISA. The question is whether this term refers to
the notice year or the plan year following the notice year. The
proposed regulation adopts the view that such term means the plan year
following the notice year (i.e., the plan year in which the notice is
due). Thus, for a calendar year plan that must furnish its 2010 annual
funding notice no later than the 120th day of 2011, the ``notice year''
is the 2010 plan year and the ``current plan year'' for purposes of
paragraph (b)(7) of the proposal is the 2011 plan year. It is difficult
to find meaning in the phrase ``a projection to the end of such year''
if ``current plan year'' is interpreted to mean the notice year because
the notice year has already ended. On the other hand, the Department is
interested in ensuring that the proposal results in all material effect
events being disclosed and, therefore, specifically requests comments
on the approach taken in the proposal.
Section 101(f)(2)(B)(vi) of ERISA also provides that the Department
will define by regulations when an event (i.e., plan amendment,
scheduled benefit increase or reduction, or other known event) has a
material effect on plan liabilities or assets for the year. Pursuant to
this provision, paragraph (g)(1) of the proposed regulation provides
that a plan amendment, scheduled benefit increase (or reduction), or
other known event has a material effect on plan liabilities or assets
for the current plan year if it results, or is projected to result, in
an increase or decrease of five percent or more in the value of assets
or liabilities from the valuation date of the notice year. For example,
if the liabilities of a calendar year plan were $100 million on January
1, 2010, (the valuation date for the 2010 notice year), a scheduled
increase in benefits taking effect in 2011 will have a material effect
if the present value of the increase, determined using the same
actuarial assumptions used to determine the $100 million in
liabilities, equals or exceeds $5 million. Alternatively, an event has
a material effect on plan liabilities or assets for the current plan
year if, in the judgment of the plan's enrolled actuary, the event is
material for purposes of the plan's funding status under section 430 or
431 of the Code, without regard to an increase or decrease of five
percent or more in the value of assets or liabilities from the prior
plan year. Paragraph (g)(3) of the proposal provides that, for purposes
of paragraph (g)(1), assets and liabilities should be measured in the
same manner that assets and liabilities are measured for purposes of
establishing the plan's funding target attainment percentage or funded
percentage under paragraph (b)(2) of the proposal.
Paragraph (g)(2) of the proposal provides guidance on the type of
events that could constitute an ``other known event'' for purposes of
paragraph (b)(7) of the regulation. Such events include, but are not
limited to, an extension of coverage under the existing terms of the
plan to a new group of employees; a plan merger, consolidation, or
spinoff pursuant to regulations under section 414(l) of the Code; a
shutdown of any facility, plant, store, or such other similar corporate
event that creates immediate eligibility for benefits that would not
otherwise be immediately payable for participants separating from
service; an offer by the plan for a temporary period to permit
participants to retire at benefit levels greater than that to which
they would otherwise be entitled; or a cost-of-living adjustment for
retirees.
In FAB 2009-01 (February 10, 2009), the Department provided interim
guidance under section 101(f) of ERISA in the form of an enforcement
policy. With respect to the material effect event provision in section
101(f)(2)(B)(vi) of ERISA, the Department, in addressing when an
amendment, scheduled increase, or other known event would have a
``material effect'' on plan liabilities or assets, stated that ``as
part of this enforcement policy, if an otherwise disclosable event
first becomes known to the plan administrator 120 days or less before
the due date for furnishing the notice, such event is not required to
be included in the notice.'' See Question 12 of FAB 2009-01. The
rationale behind this policy is that at some close point in time before
the due date for furnishing the notice, it becomes impracticable for,
and unreasonable to expect, plan administrators to satisfy the detailed
material effect provisions even though an otherwise disclosable event
is known. In addition, the event's effect on the plan's assets and
liabilities will in any event be reflected in the next annual funding
notice. While the Department has not included this policy in the
proposed regulation, the Department nonetheless requests comments on
whether it or a similar approach should be included in the final
regulation.
h. Rules on Termination, Reorganization or Insolvency (Proposed Sec.
2520.101-5(b)(8))
Paragraph (b)(8) of the proposed regulation requires a summary of
the rules under title IV of ERISA relating to plan termination,
reorganization, or insolvency, as applicable. Specifically, in the case
of single-employer plans, the proposal provides that a notice shall
[[Page 70631]]
include a summary of the rules governing termination of single-employer
plans under subtitle C of title IV of ERISA. See proposed Sec.
2520.101-5(b)(8)(i). In the case of multiemployer plans, the proposed
regulation provides that a notice shall include a summary of the rules
governing reorganization or insolvency, including limitations on
benefit payments. See proposed Sec. 2520.101-5(b)(8)(ii).
i. PBGC Guarantees (Proposed Sec. 2520.101-5(b)(9))
Paragraph (b)(9) of the proposed regulation requires a funding
notice to include a general description of the benefits under the plan
that are eligible to be guaranteed by the PBGC, and an explanation of
the limitations on the guarantee and the circumstances under which such
limitations apply.
j. Annual Report Information (Proposed Sec. 2520.101-5(b)(10))
Paragraph (b)(10) of the proposed regulation provides that a
funding notice shall include a statement that a person, including, in
the case of a multiemployer plan, any labor organization representing
plan participants and beneficiaries and any employer that has an
obligation to contribute to the plan, may obtain a copy of the annual
report of the plan filed under section 104(a) of ERISA upon request,
through the Internet Web site of the Department of Labor
(http:[sol][sol]www.efast.dol.gov), or through any Intranet Web site
maintained by the applicable plan sponsor (or plan administrator on
behalf of the plan sponsor). Under paragraph (b)(10), a plan
administrator must furnish, on request, only copies of filed annual
reports. Thus, for example, if, following the receipt of a funding
notice in April 2011 for the 2010 plan year a plan participant requests
a copy of the plan's 2010 annual report, which is completed, but not
yet filed, the plan administrator is not required under section 101(f)
of ERISA to furnish the 2010 report to the requesting participant.
Consistent with paragraph (b)(12) of the proposed regulation, plans may
include language in a funding notice explaining that the annual report
for the plan for the notice year has not yet been filed and when such
report is expected to be filed.
k. Information Disclosed to PBGC (Proposed Sec. 2520.101-5(b)(11))
Paragraph (b)(11) of the proposed regulation, which applies only to
single-employer plans, provides that, if applicable, a funding notice
must include a statement that the contributing sponsor of the plan, and
each member of the contributing sponsor's controlled group (other than
an exempt entity within the meaning of 29 CFR 4010.4(c)), was required
to provide to the PBGC the information under section 4010 of ERISA for
the notice year. However, if the contributing sponsor of the plan is
itself an exempt entity within the meaning of 29 CFR 4010.4(c),
paragraph (b)(11) instead requires a statement that each member of the
contributing sponsor's controlled group (other than an exempt entity)
was required to provide the information under section 4010 of ERISA for
the notice year. Section 4010 of ERISA generally requires sponsors (and
each member of their controlled group) of certain underfunded plans
(e.g., a plan with a funding target attainment percentage of less than
80 percent, a plan with a minimum funding waiver in excess of $1
million any portion of which is still outstanding, or a plan that has
met the conditions for imposition of a lien for failure to make
required contributions (including interest) with an unpaid balance in
excess of $1 million) to report identifying, financial, and actuarial
information about themselves and their plans to the PBGC. The statement
required by paragraph (b)(11) of the proposed regulation is required
only if there was a reporting obligation under section 4010 of ERISA
for the notice year. In this regard, the Department specifically
requests comment on whether, and to what extent, the differences in the
timing requirements under sections 4010 and 101(f) of ERISA present any
compliance problems for plan administrators, e.g., circumstances where,
because of the potential differences between a plan year and an
information year, as defined in 29 CFR 4010.5, a plan administrator
will not know of the plan sponsor's 4010 reporting obligation for a
particular information year by the deadline for furnishing the annual
funding notice for a plan year that ends within such information year.
Commenters are encouraged to provide specific examples of any
compliance problems presented by paragraph (b)(11) of the proposal, as
well as suggestions on how to address such problems.
l. Additional Information (Proposed Sec. 2520.101-5(b)(12))
Paragraph (b)(12) of the proposed regulation permits the plan
administrator to include in a funding notice any additional information
that the administrator determines would be necessary or helpful to
understanding the information required to be contained in the notice.
Paragraph (b)(12) of the proposal does not include the rule in 29 CFR
2520.101-4(b)(9) (the Department's regulation implementing the pre-PPA
annual funding notice requirements for multiemployer plans, which
ceased being effective for plan years beginning after December 31,
2007) that required additional information, even if necessary or
helpful, to be posted at the end of the funding notice under the
heading ``Additional Explanation.'' This rule is not being included in
the proposed regulation because of negative feedback received by the
Department on the former rule following its promulgation.
Representatives of plans commented that placing additional or
explanatory information at the end of a funding notice disconnects the
information being explained from the explanation itself, often making
it more difficult, instead of making it easier, for participants to
understand the information being explained. These individuals also
commented that the rule is being viewed by some as an obstruction to
furnishing a funding notice along with, or as part of, other plan
disclosures or communications, resulting in stand-alone disclosure of
the annual funding notice and increased administrative expenses to the
plan.
In addition to information that is ``necessary or helpful,''
paragraph (b)(12) of the proposed regulation also provides for
inclusion of information that is ``otherwise permitted by law.'' This
clause reflects the fact that some plan administrators may elect to
satisfy the requirements of section 101(f) and other disclosure
requirements through a combined notification. For example, where a plan
elects the waiver described in 29 CFR 2520.104-46 (small pension plan
audit waiver regulation), the plan administrator must include specified
information about the waiver in the funding notice in order to satisfy
the requirements of Sec. 2520.104-46. See section C of this preamble
discussing Sec. 2520.104-46, as amended.
3. Form and Manner Requirements (Proposed Sec. 2520.101-5(c) and (e))
Paragraphs (c) and (e) of the proposed regulation, respectively,
set forth the style and format requirements and the manner of
furnishing requirements relating to the funding notice. Paragraph (c)
of the proposed regulation provides that funding notices shall be
written in a manner that is consistent with the style and format
requirements of 29 CFR 2520.102-2. Thus, notices shall be written in a
manner calculated to be understood by the average plan participant and
in a format that does not have the effect of misleading or misinforming
recipients.
[[Page 70632]]
Paragraph (e) of the proposal relates to how annual funding notices
must be furnished to recipients, with paragraph (e)(1) addressing how
notices must be furnished to participants and beneficiaries and
paragraph (e)(2) addressing how notices must be furnished to the PBGC.
The Department, however, has decided to reserve paragraph (e)(1) of the
proposal for the same reason the Department reserved the manner of
furnishing requirements in the recently published final participant-
level disclosure regulation, Sec. 2550.404a-5 (75 FR 64910, October
20, 2010). In the preamble to the final participant-level disclosure
regulation, the Department explained that, given the differing views on
the use of and standards for electronic disclosure, it would be
undertaking a review of the safe harbor applicable to the use of
electronic media for furnishing information to plan participants and
beneficiaries (29 CFR 2520.104b-1(c)). The Department further indicated
that, in the very near future, it will be publishing a Federal Register
notice requesting public comments, views, and data relating to the
electronic distribution of plan information to plan participants and
beneficiaries.
Accordingly, as with the final participant-level disclosure
regulation, pending the completion of its review and the issuance of
further guidance, the general disclosure regulation at 29 CFR
2520.104b-1 applies to annual funding notices required to be furnished
to participants and beneficiaries, including the safe harbor for
electronic disclosures at paragraph (c) of the general disclosure
regulation. The Department anticipates that resolution of the issues
involved with the electronic disclosure of plan information will
directly affect the manner in which the annual funding notice may be
furnished to participants and beneficiaries. Accordingly, interested
persons are encouraged to participate in the Department's forthcoming
solicitation of comments on the use of electronic media for furnishing
plan information.
Paragraph (e)(2) of the proposal provides that funding notices
shall be furnished to the PBGC consistent with the requirements of 29
CFR part 4000. The PBGC has advised the Department that it will accept
electronic or hard copies of funding notices at the following postal
and e-mail addresses: (1) For single-employer plans, hard copies of
funding notices may be mailed to Pension Benefit Guaranty Corporation,
ATTN: Single-Employer AFN Coordinator, 1200 K Street, NW., Suite 270,
Washington, DC 20005-4026. Electronic copies of funding notices may be
e-mailed to [email protected]. (2) For multiemployer plans,
hard copies of funding notices may be mailed to Pension Benefit
Guaranty Corporation, ATTN: Multiemployer Data Coordinator, 1200 K
Street, NW., Suite 930, Washington, DC 20005-4026. Electronic copies of
funding notices may be e-mailed to [email protected].
4. Timing Requirements (Proposed Sec. 2520.101-5(d))
Paragraph (d) of the proposed regulation describes when a funding
notice must be furnished to recipients. Paragraph (d)(1) of the
proposal provides that notices generally must be furnished not later
than 120 days after the end of the notice year. However, paragraph
(d)(2) of the proposal provides that in the case of small plans,
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. See section 101(f)(3)(B) of ERISA
(referencing section 303(g)(2)(B) of ERISA). Although section
303(g)(2)(B) of ERISA relates to single-employer plans only, the
Department interprets section 101(f)(3)(B) of ERISA as applying the 100
or fewer participant standard in section 303(g)(2)(B) of ERISA to both
single-employer and multiemployer plans.
5. Persons Entitled to Notice (Proposed Sec. 2520.101(5)(f))
Paragraph (f) of the proposed regulation defines a person entitled
to receive a funding notice as: 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
pursuant to section 4203 of ERISA.
6. Model Notices (Proposed Sec. 2520.101-5(h))
The appendices to Sec. 2520.101-5 include two model notices (one
for single-employer plans and one for multiemployer plans) that may be
used by plan administrators for section 101(f) of ERISA purposes. The
model in Appendix A is for single-employer plans (including multiple
employer plans) and the model in Appendix B is for multiemployer plans.
These models are intended to assist plan administrators in discharging
their notice obligations under section 101(f) of ERISA and the
regulation. Use of a model notice is not mandatory. However, the
proposed regulation provides that use of a model notice will be deemed
to satisfy the content requirements in paragraph (b) of the regulation,
as well as the style and format requirements in paragraph (c) of the
regulation. To the extent a plan administrator elects to include in a
model notice additional information described in paragraph (b)(12) of
the proposed regulation, such additional information must be consistent
with the style and format requirements in paragraph (c) of the proposed
regulation. Thus, such additional information should not have the
effect of misleading or misinforming recipients.
In drafting the models, the Department attempted to develop and
organize the models in a manner that will help the average plan
participant understand and comprehend the information mandated by
section 101(f) of ERISA, some of which is technical in nature.
Nonetheless, the Department solicits comments on whether, and if so,
how, the organization of the proposed models could be improved to
enhance understandability and comprehensibility. For example, if a
plan's funding percentage is the most important information for
participants, does the chart format of the model adequately highlight
this information or could other presentation techniques more
effectively highlight this information?
7. Limited Alternative Method of Compliance for Furnishing Notice to
PBGC (Proposed Sec. 2520.101-5(i))
Section 101(f)(1) of ERISA provides that a plan administrator of a
defined benefit plan to which title IV of ERISA applies shall, for each
plan year, provide a funding notice to the PBGC, to each plan
participant and beneficiary, to each labor organization representing
such participants or beneficiaries, and, in the case of a multiemployer
plan, to each employer with an obligation to contribute to the plan.
Pursuant to section 110 of ERISA, paragraph (i) of the proposed
regulation includes an alternative method of compliance pertaining to
the requirement to furnish
[[Page 70633]]
notice to the PBGC. Under this alternative, the plan administrator of a
single-employer plan with liabilities that do not exceed plan assets by
more than $50 million is not required to furnish a funding notice to
the PBGC provided that the administrator furnishes the latest available
funding notice to the PBGC within 30 days of receiving a written
request from the PBGC. In determining whether a plan's liabilities
exceed its assets by more than $50 million, the proposed regulation
provides that plan administrators should subtract the plan's total
assets from its liabilities, using the assets and liabilities disclosed
in the funding notice in accordance with paragraph (b)(3)(i)(A) of this
proposed regulation.
The Department has created this alternative method of compliance
after consulting with the PBGC. The PBGC has determined that, in light
of the extended funding notice due date for small plans, it will have
electronic access to the information included on the funding notice for
most single-employer plans as a result of ERISA's annual reporting
requirement under section 104(a) on or around the time it would receive
a copy of a funding notice under section 101(f) of ERISA and the
proposed regulation. In addition, under the PBGC's Reportable Events
regulation (29 CFR part 4043), the PBGC typically would receive
information about certain events that might indicate increased exposure
or risk before it would receive information under either ERISA section
101(f) or 104(a). Also, the Department believes the alternative method
of compliance will reduce administrative burden for plans that meet the
conditions of paragraph (i) of the proposed regulation.
At the request of the PBGC, the Department has limited the scope of
the alternative method of compliance to single-employer plans. Because
multiemployer plans are not subject to ERISA section 4043 and because
very few multiemployer plans will qualify for the extended annual
funding notice due date, the annual funding notice will provide a
useful and non-duplicative source of information to the PBGC. The
alternative method of compliance does not have any effect on the plan
administrator's obligation to furnish notices to parties other than the
PBGC.
Section 110 of ERISA permits the Department to prescribe
alternative methods of complying with any of the reporting and
disclosure requirements of ERISA if it finds: (1) That the use of the
alternative is consistent with the purposes of ERISA and that it
provides adequate disclosure to plan participants and beneficiaries and
to the Department; (2) that application of the statutory reporting and
disclosure requirements would increase the costs to the plan or impose
unreasonable administrative burdens with respect to the operation of
the plan; and (3) that the application of the statutory reporting and
disclosure requirements would be adverse to the interests of plan
participants in the aggregate. Based on the discussion above, the
Department finds these three conditions to be satisfied in this
context.
8. Plans Not Immediately Subject to New Funding Rules or to Which
Special Funding Rules Apply
Sections 104, 105, and 106 of the PPA defer the effective date of
the amendments made by title I of the PPA for certain plans described
in those sections, i.e. certain plans of cooperatives, plans affected
by settlement agreements with the PBGC, and plans of government
contractors.\13\ Section 402 of the PPA applies special funding rules
to certain plans of commercial passenger airlines and airline caterers.
Section 402 of the PPA was amended by the U.S. Troop Readiness,
Veterans' Care, Katrina Recovery, and Iraq Accountability
Appropriations Act, 2007, Public Law 110-28. None of these provisions
affects the applicability of the PPA amendments to section 101(f) of
ERISA. Accordingly, the funding notice requirements of section 101(f)
of ERISA apply to these plans for plan years beginning on or after
January 1, 2008. These plans should disclose their funding target
attainment percentage (and related asset and liability information) in
accordance with guidance provided by the Secretary of the Treasury. For
example, for a plan described in section 104, 105, or 106 of the PPA,
the funding target attainment percentage of such plan is determined in
accordance with paragraph (b)(2)(i) of the proposed regulation, except
that the value of plan assets is determined without subtraction of the
funding standard carryover balance or prefunding balance (credit
balance under the funding standard account). See 26 CFR 1.430(d)-
1(b)(3)(ii). The model in Appendix A is available to such plans, but
the portions of the model entitled ``Credit Balances'' and ``At-Risk
Status'' should be deleted from the model before use for notice years
beginning prior to the delayed effective date.
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\13\ Section 202(b) of the Preservation of Access to Care for
Medicare Beneficiaries and Pension Relief Act of 2010, Public Law
111-192, amended section 104 of the Pension Protection Act of 2006,
Public Law 109-280, by expanding the group of plans that is eligible
for a deferred effective date under section 104 to include eligible
charity plans.
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The Department requests comment on whether, and to what extent,
these plans would need special rules under section 101(f) of ERISA, if
applicable, to reflect the delayed effective dates (in sections 104,
105, or 106 of the PPA) or special funding rules (in section 402 of the
PPA). Comments on this issue should explain why the delayed effective
dates or special funding rules under the PPA necessitate a special rule
or rules under section 101(f) of ERISA and the regulation being adopted
herein, and whether, and how, the model notices in the appendices to
the regulation could be modified for use by these plans.
9. Multiemployer Plans Terminated by Mass Withdrawal
The proposed regulation does not provide an exemption or other
relief for multiemployer plans that terminate by mass withdrawal
pursuant to section 4041A(a)(2) of ERISA. Section 4041A(a)(2) provides
that the termination of a multiemployer plan occurs 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.
Plans that terminate in this fashion typically continue to pay
benefits from a declining trust as payments come due and have no new
contributions other than withdrawal liability payments. Therefore, the
Department recognizes that some information required by the regulation
may not be relevant (e.g., the plan's funded percentages) for plans
that have terminated by mass withdrawal. Other mandated information,
such as PBGC benefit guarantee levels, assets and liabilities, numbers
and status of participants, and insolvency information, however, may be
very important to participants and beneficiaries receiving benefits
from such plans. Accordingly, the Department solicits comment on
whether the final regulation should provide special rules for such
plans. Comments should be specific regarding what, if any, information
otherwise required by the regulation should not be included in the
funding notice, and why, and what, if any, alternative information
might be disclosed in its place. Comments should provide any data that
would demonstrate cost savings to such plans as a result of alternative
reporting under special rules.
10. Code Section 412(e)(3) Insurance Contract Plans
The proposed regulation does not provide an exemption or any other
relief
[[Page 70634]]
for certain insurance contract plans to which section 412(e)(3) of the
Code applies. ``Code section 412(e)(3) insurance contracts'' are
contracts that provide retirement benefits under a plan that are
guaranteed by an insurance carrier. In general, such contracts must
provide for level premium payments over the individual's period of
participation in the plan (to retirement age), premiums must be timely
paid as currently required under the contract, no rights under the
contract may be subject to a security interest, and no policy loans may
be outstanding. If a plan is funded exclusively by the purchase of such
contracts, the otherwise applicable minimum funding requirements of
section 412 of the Code and section 302 of ERISA do not apply for the
year and neither the Schedule MB nor the Schedule SB is required to be
filed.\14\
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\14\ See the Instructions to the latest Form 5500 Annual Return/
Report of Employee Benefit Plan.
---------------------------------------------------------------------------
Therefore, the Department recognizes that information regarding a
plan's funded status required in the proposed regulation (e.g., the
plan's funding target attainment percentage or funded percentage) may
not be applicable to certain of these plans. Other required
information, such as PBGC benefit guarantee levels, termination rules,
fair market value of assets, and numbers and status of participants,
however, may be important to participants and beneficiaries receiving
benefits from such plans. Other information not required by section
101(f) of ERISA and this proposed regulation could be important to
persons receiving the funding notice of these plans. Accordingly, the
Department solicits comment on whether the final regulation should
provide special rules for such plans. Comments should be specific
regarding what information otherwise required by the proposed
regulation should not be included in the funding notice, and why, and
what, if any, alternative information might be disclosed in its place.
Comments should explain the benefit to plan participants and provide
any data that would demonstrate cost savings to such plans as a result
of alternative reporting under special rules.
11. Multiple Employer Pension Plans
After the Department issued FAB 2009-01, a number of plan
administrators of multiple employer plans raised questions regarding
whether, and how, the new annual funding notice requirements apply to
such plans. The central question was whether all participants in such a
plan must receive the same funding notice containing funding data at
the plan level or whether each participant must receive a notice that
reflects funding information relevant to his employer. It is the view
of the Department that if all assets of the multiple employer pension
plan are, on an ongoing basis, available to pay benefits to all plan
participants and beneficiaries covered under the plan, then the
information in the funding notice should be reflective of the plan as a
whole. The plan administrator need not create a separate funding notice
for the employees of each participating employer in the multiple
employer plan containing the funding information (assets, liabilities,
etc.) pertaining to that employer in the case of a multiple employer
plan to which section 413(c)(4)(A) of the Code applies. Based on the
foregoing, the proposal does not contain any special rules for multiple
employer pension plans. Nonetheless, comments are requested on whether
funding notices for such plans should alert participants to the fact
that some funding rules under the Code, e.g., benefit restrictions
under Code section 436, may apply on an employer-by-employer basis.
Thus, a participant in a multiple employer pension plan could have his
benefits restricted even though the plan as a whole has a funding
target attainment percentage well above what one would consider to be
close to a percentage that would trigger a benefit restriction under
Code section 436.
C. Overview of Amendments to 29 CFR 2520.104-46--Waiver of Examination
and Report of an Independent Qualified Public Accountant for Employee
Benefit Plans With Fewer Than 100 Participants
Department of Labor regulation 29 CFR 2520.104-46 governs the
circumstances under which small pension plans (plans with fewer than
100 participants at the beginning of the plan year) are exempt from the
requirements to engage an independent qualified public accountant
(IQPA) and to include a report of the accountant as part of the plan's
annual report under title I of ERISA. The waiver of the requirement to
engage an accountant is conditioned on, among other things, the
disclosure of certain information to participants and beneficiaries. A
requirement of Sec. 2520.104-46 is that such disclosure must be
included in the summary annual report (SAR) of a plan electing the
waiver. However, section 503(c) of the PPA amended section 104(b)(3) of
ERISA by repealing the SAR requirement for defined benefit plans to
which the annual funding notice requirements of section 101(f) of ERISA
apply.\15\ Therefore, in conjunction with the annual funding notice
regulation (29 CFR 2520.101-5), discussed in section B of this
preamble, above, the Department is adopting conforming amendments to
Sec. 2520.104-46 to enable plans subject to section 101(f) of ERISA to
elect to use the waiver provision in Sec. 2520.104-46. Under Sec.
2520.104-46, as amended, a plan subject to section 101(f) of ERISA must
include the information in Sec. 2520.104-46(b)(1)(i)(B)(1)-(4) in the
plan's annual funding notice. Model language is included in the
Appendix to Sec. 2520.104-46 and provided on the Department's Web site
at http://www.dol.gov/ebsa/faqs/faq_auditwaiver.html.
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\15\ The repeal is effective for plan years beginning after
December 31, 2007.
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D. Overview of Amendments to 29 CFR 2520.104b-10--Summary Annual Report
As discussed in section C of this preamble, the PPA repealed the
summary annual report (SAR) requirement for plans subject to section
101(f) of ERISA, effective for plan years beginning after December 31,
2007. The Department, therefore, is making technical conforming
amendments to the SAR regulation (Sec. 2520.104b-10) to give effect to
the repeal. Specifically, a new paragraph (g)(9) is being added to
provide that an SAR is not required to be furnished with respect to a
plan to which title IV of ERISA applies. In this rulemaking, the
Department is not making conforming changes to the form prescribed in
paragraph (d)(3) of Sec. 2520.104b-10, or to the appendix of the
regulation, to reflect paragraph (g)(9), because such form and appendix
continue to be applicable for plans not subject to title IV of ERISA.
Nonetheless, the Department recognizes that some items and language in
the form and appendix became irrelevant on and after the effective date
of the repeal and, therefore, is requesting comments on how best to
revise the form and appendix to eliminate unnecessary information.
E. Regulatory Impact Analysis
Summary
The proposed rule contains a model notice and other guidance
necessary to implement section 101(f) of ERISA as amended by PPA and
WRERA. Section 101(f) and the proposed rule increase the transparency
of information about the funding status of plans, affording all parties
interested in the financial viability of these plans with a greater
opportunity to monitor their funding
[[Page 70635]]
status and take action where necessary. In addition, the rule offers a
model notice to administrators of single-employer and multiemployer
defined benefit pension plans, which is expected to mitigate burden and
contribute to the efficiency of compliance. Another benefit is that the
rule would afford plan administrators greater certainty that they have
discharged their notice obligation under section 101(f) by clarifying
certain terms used in the statute. The Department has concluded that
the benefits of the rule justify their costs. These benefits--increased
transparency, greater efficiency, certainty, and clarity--are expected
to be substantial, but cannot be specifically quantified.
The cost of the proposed rule is expected to amount to $57.2
million in the year of implementation, and $52.8 million in each
subsequent year.\16\ The total estimated cost includes the one-time
development of a notice by each plan and the annual preparation and
mailing of the notices to the required recipients.\17\ The first year
estimate is higher to account for the time required for plan
administrators to adapt and review the model notice. The Department
also makes the following additional estimates regarding the cost of the
proposal:
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\16\ All numbers used in this Regulatory Impact Analysis have
been rounded to the nearest thousand.
\17\ As discussed earlier in this preamble, this proposed
regulation, when finalized, will implement the statutory requirement
for defined benefit pension plan administrators to provide an annual
funding notice that meets the requirements of ERISA section 101(f).
Because plans were required to comply with ERISA section 101(f)
before the issuance of implementing regulations, and taking into
account guidance previously issued by the Department in Field
Assistance Bulletin 2009-01, this regulatory impact analysis
includes a small initial cost for plans to make adjustments that
would be necessary to ensure compliance with implementing
regulations. These estimates then take into account the ongoing
annual costs for plan administrators to create and send the annual
funding notices.
--The total mailing costs are estimated to be about $20.0 million
annually in the first three years;
--In addition to the mailing costs, the Department estimates that firms
will spend about $37.2 million in the year of implementation and $32.9
million in subsequent years on labor costs.\18\
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\18\ The total hour burden is estimated to be about 1,046,000
hours in the year of implementation and 1,003,000 hours in each
subsequent year.
The Department has attempted to provide guidance in the proposed
rule to assist administrators in meeting their responsibilities in the
most economically efficient manner possible. Because the costs of the
rule arise only from notice provisions in PPA, 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.
The cost estimates of the proposal are based on the informational
content requirements in paragraph (b) of the proposal. The Department
is accepting comment on whether there is information or indicators, not
already included in paragraph (b) of the proposal, that help explain a
plan's financial condition and that may be helpful to notice
recipients, e.g., the ratio of plan assets to the present value of
retired participants' benefits. Comments should be specific as to what
other information or indicators could be included in the funding
notice, the reasons why, and a cost/benefit analysis.
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
action is significant under section 3(f)(4) of the Executive Order;
therefore, OMB has reviewed this regulatory action 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 information
collection request (ICR) included in the Proposed Rule on the Annual
Funding Notice for Defined Benefit 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 rule 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 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. OMB requests that comments
be received within 30 days of publication of the proposed rule to
ensure their consideration.
PRA Addressee: Address requests for copies of the ICR to G.
Christopher Cosby, Office of Policy and Research, U.S. Department of
Labor, Employee Benefits Security Administration, 200 Constitution
Avenue, NW., Room N-5718, Washington, DC 20210. Telephone (202) 693-
8410; Fax: (202) 219-5333. These are not toll-free numbers. ICRs
submitted to OMB also are available at http://www.RegInfo.gov.
The proposed rule implements the disclosure requirements of section
[[Page 70636]]
101(f) of ERISA, as amended by section 501 of the PPA. As described
earlier in the preamble, section 101(f) of ERISA requires the
administrator of a defined benefit plan to which title IV of ERISA
applies to furnish an annual funding notice to the PBGC, each
participant and beneficiary, each labor organization representing
participants and beneficiaries, and for multiemployer plans only, each
employer with an obligation to contribute to the plan.
The information collection provisions of the proposed rule are
found in section 2520.101-5(b). Model notices are provided in the
appendices to the rule to facilitate compliance and moderate the burden
attendant to supplying notices to participants and beneficiaries, labor
organizations, contributing employers, and PBGC. 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. The proposed rule also is intended to clarify
several statutory requirements with respect to content, style and
format, manner of furnishing, and persons entitled to receive the
annual funding notice. Increasing the transparency of information about
the funding status of defined benefit plans for participants and
beneficiaries, labor organizations, contributing employers, and the
PBGC will afford all parties interested in the financial viability of
these plans greater opportunity to monitor their funding status.
In order to estimate the potential costs of the notice provisions
of section 101(f) of ERISA and the proposed rule, the Department
estimated the number of single-employer and multiemployer defined
benefit plans, and the numbers of participants, beneficiaries receiving
benefits, labor organizations representing participants, and employers
with an obligation to contribute to these plans.
The PBGC Pension Insurance Data Book 2008 indicates that there are
about 1,500 multiemployer defined benefit plans with approximately 10.1
million participants and beneficiaries receiving benefits. These
estimates are based on premium filings with PBGC for 2007, projected by
PBGC to 2008, generally the most recent information currently
available. This total has been adjusted slightly to reflect the
exception from the requirement to furnish annual funding notices to
plans that are receiving financial assistance from PBGC.\19\ The PBGC
Pension Insurance Data Book 2008 also indicates that there are
approximately 28,000 single-employer defined benefit plans with
approximately 33.8 million participants.
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\19\ According to the PBGC Pension Insurance Data Book 2008,
there were 1,513 multiemployer defined benefit plans in 2006. This
number was reduced by 42 in order to account for the 42 plans that
received financial assistance.
---------------------------------------------------------------------------
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 2008, 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
that could be entitled to receive notice is almost 18,500.
The Department also is 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 on the Form 5500.
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,\20\ 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 1987 PBGC premium filing data. As a result, the Department has used
300,000 for its conservative estimate of the number of contributing
employers to whom the required notice will be sent.
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\20\ See GAO-04-423 Private Pensions: Multiemployer Plans Face
Short- and Long-Term Challenges. U.S. General Accounting Office,
March 2004. The General Accounting Office's name changed to the
Government Accountability Office effective July 7, 2004.
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For purposes of its estimates of regulatory impact, the Department
has assumed that each plan will develop a notice, and that each year
approximately 44.3 million notices will be prepared and sent. The 44.3
million estimate breaks down as follows: 10.1 million notices to
participants and beneficiaries of close to 1,500 multiemployer defined
benefit plans; 33.8 million notices to participants and beneficiaries
of close to 28,000 single employer plans; 39,000 notices to labor
organizations; 300,000 notices to contributing employers of
multiemployer plans; and 30,000 notices to the PBGC.
Estimates of notice preparations are based on the assumption that
plan service providers, actuaries, lawyers, and financial professionals
will produce the notices. It is assumed that the availability of a
model notice will lessen the time otherwise required by a plan
administrator to draft a required notice. The Department has made the
following estimate regarding preparation of the notice: Actuaries will
spend three hours in the first year and two hours in each succeeding
year for single-employer plans and two hours in the first year and one
hour in each succeeding year for multiemployer plans making specific
calculations for information that must be provided in the notice; legal
professionals will spend one hour in the first year and 0.5 hours in
each succeeding year reviewing the notice; and financial professionals
will spend one hour in the first year and thereafter drafting the
notice for single-employer plans and two hours per year for
multiemployer plans. The final preparation and distribution of the
notice will be done by a clerical professional using an estimated two
minutes per notice mailed. The Department welcomes comments regarding
these estimates.
Assuming 44.3 million notices are distributed,\21\ the burden hours
for that initial year of implementation are 87,000 actuarial hours,
31,000 financial professional hours, and 29,000 legal professional
hours. Total clerical professional hours are calculated based on the
total number of notices mailed and the preparation time of 2 minutes
per notice resulting in 915,000 hours. The total hour burden for the
year of implementation is 1,061,000 hours.
[[Page 70637]]
Each subsequent year requires 57,000 actuarial hours, 915,000 clerical
hours, 31,000 financial professional hours, and 15,000 legal
professional hours for a total of 1,018,000 hours.\22\
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\21\ The Department assumes that 38 percent of notices are sent
electronically and result in only a de minimis cost.
\22\ The average Total Annual Burden Hours over the first three
years is 1,032,000.
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Hourly labor rates were calculated using the rates based on the
Bureau of Labor Statistics, National Occupational Employment Survey
(May 2008) and the Bureau of Labor Statistics, Employment Cost Index
(June 2009).\23\ Calculations of the 2010 hourly labor costs were
$26.14 for a clerical professional, $62.81 for a financial
professional, $91.56 for an actuary, and $119.03 for plan legal
counsel.
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\23\ EBSA estimates of labor rates include wages, other
benefits, and overhead.
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Based on the foregoing, the total equivalent cost for the initial
year is estimated at approximately $7,937,000 for actuarial services,
$23,915,000 for clerical services, $1,942,000 for financial
professional services, and $3,409,000 for legal professional services.
The total equivalent cost is approximately $37,203,000 in the initial
year.
The total equivalent cost in each subsequent year is estimated at
approximately $5,245,000 for actuarial services, $23,915,000 for
clerical services, $1,942,000 for financial professional services, and
$1,750,000 for legal professional services. The total equivalent cost
is estimated at approximately $32,852,000 in each subsequent year.
The cost of mailing the notices was based on the assumption that
each notice would be six pages for single-employer plans and five pages
for multiemployer plans, with printing costs of 5 cents per page and
postage of 44 cents resulting in an estimated 74 cent cost per paper
notice for single-employer plans and a 69 cent cost per paper notice
for multiemployer plans. It was further assumed that 38 percent of
notices would be sent electronically. The Department has not estimated
any additional burden for preparation or distribution of notices via
electronic means because the Department assumes that plans will utilize
pre-existing electronic communications systems and e-mail lists for
these purposes and the process of preparation and distribution involves
only a de minimis additional effort, e.g., a few computer key strokes
or the equivalent. This assumption will result in a total of
approximately 16.8 million notices being sent electronically by
multiemployer and single-employer plans. Single-employer plans will
mail out approximately 21.0 million paper notices and multiemployer
plans will mail out approximately 6.5 million paper notices. Total
annual paper mailing costs are estimated to be approximately $20.0
million.
These paperwork burden estimates are summarized as follows:
Type of Review: Revised collection.
Agency: Employee Benefits Security Administration, Department of
Labor.
Title: Annual Funding Notice for Defined Benefit Plans.
OMB Control Number: 1210-0126.
Affected Public: Business or other for-profit; not-for-profit
institutions.
Respondents: 29,000.
Responses: 44,269,000.
Frequency of Response: Annually.
Estimated Total Annual Burden Hours: 1,032,000 (average over first
three years); 1,061,000 (first year) (1,018,000 subsequent years).
Estimated Total Annual Burden Cost: $19,988,000 (first year and
subsequent years).
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 the head of 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.
For purposes of the RFA, the Department continues to consider a
small entity to be an employee benefit plan with fewer than 100
participants.\24\ Further, while some large employers may have small
plans, in general small employers maintain most small plans. Thus, the
Department 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.). The Department therefore requests comments
on the appropriateness of the size standard used in evaluating the
impact of this proposed rule on small entities.
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\24\ The basis for this definition is found in section 104(a)(2)
of the Act, which permits the Secretary of Labor to prescribe
simplified annual reports for pension plans that cover fewer than
100 participants.
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By this standard, data from the 2007 Form 5500 (the latest
available data) indicates that for over 88 percent of small affected
plans, the average per plan compliance cost would be $1,265 ($37
million/29,400 plans) plus plan specific mailing cost (74 cents per
participant, which cannot exceed $74 per plan because small plans have
less than 100 participants). This amount is less than one percent of
plan assets.
Based on the foregoing, the Department has preliminarily determined
that while the rule is likely to impact a substantial number of small
entities, the economic impact on such entities will not be significant.
Therefore, pursuant to section 605(b) of RFA, the Assistant Secretary
of the Employee Benefits Security Administration hereby certifies that
the proposed rule, if promulgated, will not have a significant economic
impact on a substantial number of small entities. The Department
invites comments on this certification and the potential impact of the
rule on small entities.
Congressional Review Act
The proposed rule is 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 transmitted to
Congress and the Comptroller General for review. The proposed 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 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, the proposed rule does not
include any Federal mandate that may result in expenditures by State,
local, or Tribal governments in the aggregate of
[[Page 70638]]
more than $100 million, adjusted for inflation, or increase
expenditures by the private sector of more than $100 million, adjusted
for inflation.
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, the relationship between the national government and States, or
on the distribution of power and responsibilities among the various
levels of government. The proposed 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 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 that
would be implemented in the proposed 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, Employee Retirement Income
Security Act, 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.
Sec. 2520.101-4 also issued under sec. 103 of Pub. L. 108-218, 118
Stat. 596. Sec. 2520.101-5 also issued under sec. 503 of Pub. L.
109-280, 120 Stat. 780 and sec. 105(a), Pub. L. 110-458, 122 Stat.
5104.
2. Add Sec. 2520.101-5 to subpart A to read as follows:
Sec. 2520.101-5 Annual funding notice for defined benefit pension
plans.
(a) In general. (1) Except as provided in paragraphs (a)(2) and (3)
of this section, pursuant to section 101(f) of the Act, the
administrator of a defined benefit plan to which title IV of the Act
applies 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--
(i) In the case of a multiemployer plan, for a plan year if the due
date for such notice is on or after the date the plan complies with the
insolvency notice requirements of section 4245(e) or 4281(d)(3) of the
Act and regulations thereunder.
(ii) In the case of a single-employer plan, for a plan year if the
due date for such notice is on or after the date:
(A) The Pension Benefit Guaranty Corporation is appointed as
trustee of the plan pursuant to section 4042 of the Act; or
(B) The plan has distributed assets in satisfaction of all benefit
liabilities in a standard termination pursuant to section 4041(b) or in
a distress termination pursuant to section 4041(c)(3)(B)(i) or of all
guaranteed benefits in a distress termination pursuant to section
4041(c)(3)(B)(ii) of the Act.
(3) In the case of a merger or consolidation of two or more plans--
(i) The plan administrator of a non-successor plan shall not be
required to furnish a funding notice for the plan year in which the
merger occurred, and
(ii) The funding notice of the successor plan, for the plan year in
which the merger occurred, must, in addition to the requirements of
paragraph (b) of this section, contain a general explanation, including
the effective date, of the merger and an identification of each plan
(e.g., name and plan number) involved in the merger or consolidation.
(b) Content of notice. A funding notice shall include the following
information:
(1) Identifying information. The name of the plan, the name,
address, and phone number of the plan administrator and the plan's
principal administrative officer (if different than the plan
administrator), each plan sponsor's name and employer identification
number, and the plan number.
(2) Funding percentage. (i) Single-employer plans. For single-
employer plans, a statement as to whether the plan's funding target
attainment percentage (as defined in section 303(d)(2) of the Act) for
the notice year, and for each of the two preceding plan years, is at
least 100 percent (and, if not, the actual percentages).
(ii) Multiemployer plans. For multiemployer plans, a statement as
to whether the plan's funded percentage (as defined in section 305(i)
of the Act) for the notice year, and for each of the two preceding plan
years, is at least 100 percent (and, if not, the actual percentages).
(3) Assets and liabilities. (i) Single-employer plans. For single-
employer plans--
(A) A statement of the total assets (separately stating the
prefunding balance and the funding standard carryover balance) and
liabilities of the plan, determined in the same manner as under section
303 of the Act as of the valuation date of the notice year and for each
of the two preceding plan years, as reported in the annual report filed
under section 104 of the Act for each such preceding plan year, and
(B) A statement of the value of the plan's assets and liabilities
determined as of the last day of the notice year. For purposes of this
statement, the value of the plan's assets is the fair market value of
plan assets. Plan liabilities are equal to the present value of
benefits accrued through the last day of the notice year determined in
the same manner as liabilities are calculated under section 303 of the
Act (including actuarial assumptions and methods), but using the
interest rate under section 4006(a)(3)(E)(iv) of the Act in effect for
the last month of the notice year.
(ii) Multiemployer plans. For multiemployer plans--
(A) A statement of the value of the plan's assets (determined in
the same manner as under section 304(c)(2) of the Act) and liabilities
(determined in the same manner as under section 305(i)(8) of the Act,
using reasonable actuarial assumptions as required under section
304(c)(3) of the Act) as of the valuation date of the notice year and
each of the two preceding plan years, and
(B) A statement of the fair market value of plan assets as of the
last day of the notice year, and as of the last day of each of the two
preceding plan years as reported in the annual report filed under
section 104(a) of the Act for each such preceding plan year.
(4) Demographic information. A statement of the number of
participants who, as of the valuation date of the notice year, are:
retired or separated from service and receiving benefits; retired or
separated from service and
[[Page 70639]]
entitled to future benefits (but currently not receiving benefits); and
active participants under the plan. The statement shall indicate the
number of participants in each such category and the sum of all such
participants. The terms ``active'' and ``retired or separated'' shall
have the same meaning given to those terms in instructions to the
annual report filed under section 104(a) of the Act.
(5) Funding policy. A statement setting forth--
(i) The funding policy of the plan;
(ii) The asset allocation of investments under the plan (expressed
as percentages of total assets) as of the end of the notice year; and
(iii) A general description of any investment policy of the plan as
it relates to the funding policy in paragraph (b)(5)(i) of this section
and the asset allocation of investments under paragraph (b)(5)(ii) of
this section.
(6) Endangered or critical status. In the case of a multiemployer
plan, a statement whether the plan was in endangered or critical status
under section 305 of the Act for the notice year and, if so--
(i) A statement describing how a person may obtain a copy of the
plan's funding improvement plan or rehabilitation plan, as appropriate,
adopted under section 305 of the Act and the actuarial and financial
data that demonstrate any action taken by the plan toward fiscal
improvement, and
(ii) A summary of the plan's funding improvement plan or
rehabilitation plan, including any update or modification of such
funding improvement or rehabilitation plan adopted under section 305 of
the Act during the notice year.
(7) Events having a material effects on liabilities or assets. In
the case of any plan amendment, scheduled benefit increase or
reduction, or other known event taking effect in the current plan year
and having a material effect on plan liabilities or assets for the year
(as defined in paragraph (g) of this section), an explanation of the
amendment, scheduled increase or reduction, or event, and a projection
to the end of such plan year of the effect of the amendment, scheduled
increase or reduction, or event on plan liabilities.
(8) Rules on termination, reorganization or insolvency. (i) Single-
employer plans. In the case of a single-employer plan, a summary of the
rules governing termination of single-employer plans under subtitle C
of title IV of the Act.
(ii) Multiemployer plans. In the case of a multiemployer plan, a
summary of the rules governing reorganization or insolvency, including
the limitations on benefit payments.
(9) PBGC guarantees. 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.
(10) Annual report information. A statement that a person entitled
to notice under paragraph (f) of this section may obtain a copy of the
annual report of the plan filed under section 104(a) of the Act upon
request, through the Internet Web site of the Department of Labor, or
through any Intranet Web site maintained by the applicable plan sponsor
(or plan administrator on behalf of the plan sponsor).
(11) Information disclosed to PBGC. In the case of a single-
employer plan, if applicable, a statement that the contributing sponsor
of the plan, and each member of the contributing sponsor's controlled
group (other than an exempt entity within the meaning of 29 CFR
4010.4(c)), was required to provide the information under section 4010
of the Act for the notice year. If the contributing sponsor of the plan
is itself an exempt entity within the meaning of 29 CFR 4010.4(c), in
lieu of the preceding sentence, a statement that each member of the
contributing sponsor's controlled group (other than an exempt entity
within the meaning of 29 CFR 4010.4(c)) was required to provide the
information under section 4010 of the Act for the notice year.
(12) Additional information. 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, or is otherwise permitted by law.
(c) Style and format of notice. Funding notices shall be written in
a manner that is consistent with the style and format requirements of
Sec. 2520.102-2 of this chapter.
(d) When to furnish notice. (1) Except as provided in paragraph
(d)(2) of this section, a funding notice shall be provided not later
than 120 days after the end of the notice year.
(2) In the case of a small plan, a funding notice shall be provided
not later than the earlier of the date on which the annual report is
filed under section 104(a) of the Act or the latest date the annual
report must be filed under that section (including extensions). For
this purpose, a single-employer plan is a small plan if it meets the
exception in section 303(g)(2)(B) of the Act, and a multiemployer plan
is a small plan if it had 100 or fewer participants on each day during
the plan year preceding the notice year.
(e) Manner of furnishing notice. (1) [Reserved].
(2) A funding notice must be furnished to the Pension Benefit
Guaranty Corporation in a manner consistent with the requirements of
part 4000 of this title. The date that the notice is furnished to the
Pension Benefit Guaranty Corporation is determined consistent with that
part.
(f) Persons entitled to notice. Persons entitled to a funding
notice under this section are:
(1) Each participant covered under the plan on the last day of the
notice year;
(2) Each beneficiary receiving benefits under the plan on the last
day of the notice year;
(3) Each labor organization representing participants under the
plan on the last day of the notice year;
(4) 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 pursuant to section
4203 of the Act; and
(5) The Pension Benefit Guaranty Corporation.
(g) Material effect definition. (1) For purposes of paragraph
(b)(7) of this section, a plan amendment, scheduled benefit increase
(or reduction), or other known event has a material effect on plan
liabilities or assets for the current plan year (i.e., plan year
following the notice year) if such amendment, benefit increase (or
reduction), or event--
(i) Results, or is projected to result, in an increase or decrease
of five percent or more in the value of assets or liabilities from the
valuation date of the notice year; or
(ii) In the judgment of the plan's enrolled actuary, is material
for purposes of the plan's funding status under section 430 or 431, as
applicable, of the Internal Revenue Code, without regard to paragraph
(g)(1)(i) of this section.
(2) For purposes of paragraph (b)(7) of this section, the term
``other known event'' includes, but is not limited to--
(i) An extension of coverage under the existing terms of the plan
to a new group of employees;
(ii) A plan merger, consolidation, or spinoff pursuant to
regulations under section 414(l) of the Internal Revenue Code;
(iii) A shutdown of any facility, plant, store, or such other
similar corporate event that creates immediate eligibility for benefits
that would not otherwise be
[[Page 70640]]
immediately payable for participants separating from service;
(iv) An offer by the plan for a temporary period to permit
participants to retire at benefit levels greater than that to which
they would otherwise be entitled; or
(v) A cost-of-living adjustment for retirees.
(3) For purposes of paragraph (g)(1)(i) of this section, calculate
assets and liabilities in the same manner as under paragraph (b)(2) of
this section.
(h) Model notices. (1) The appendices to this section contain a
model notice for single-employer plans and a model notice for
multiemployer plans. These models are intended to assist plan
administrators in discharging their notice obligations under this
section. Use of a model notice is not mandatory. However, subject to
paragraph (h)(2) of this section, use of a model notice will be deemed
to satisfy the requirements of paragraphs (b)(1) through (11) and
paragraph (c) of this section.
(2) To the extent a plan administrator elects to include in a model
notice information described in paragraph (b)(12) of this section, such
additional information must be consistent with the style and format
requirements in paragraph (c) of this section.
(i) Limited alternative method of compliance for furnishing notice
to PBGC. Notwithstanding any other provision of this section, the plan
administrator of a single-employer plan is not required to furnish a
notice to the Pension Benefit Guaranty Corporation annually if, based
on the data described in paragraph (b)(3)(i)(A) of this section for the
notice year, plan liabilities do not exceed total plan assets by more
than $50 million, provided that the plan administrator furnishes the
latest available funding notice to the Pension Benefit Guaranty
Corporation within 30 days of a written request.
(j) Notice year. For purposes of this section, the term ``notice
year'' means the plan year to which the notice relates. For example,
for a calendar year plan that must furnish its 2010 funding notice no
later than the 120th day of 2011, the ``notice year'' is the 2010 plan
year.
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3. Amend Sec. 2520.104-46 by revising paragraph (b)(1)(i)(B)
introductory text to read as follows:
Sec. 2520.104-46 Waiver of examination and report of an independent
qualified public accountant for employee benefit plans with fewer than
100 participants.
* * * * *
(b) * * *
(1) * * *
(i) * * *
(B) The summary annual report (described in Sec. 2520.104b-10) or,
in the case of plans subject to section 101(f) of the Act, the annual
funding notice (described in Sec. 2520.101-5), includes, in addition
to any other required information:
* * * * *
4. Amend Sec. 2520.104b-10, by revising paragraphs (g)(7) and
(g)(8) and adding paragraph (g)(9) to read as follows:
Sec. 2520.104b-10 Summary Annual Report.
* * * * *
(g) * * *
(7) A dues financed welfare plan which meets the requirements of 29
CFR 2520.104-26;
(8) A dues financed pension plan which meets the requirements of 29
CFR 2520.104-27; and
(9) A plan to which title IV of the Act applies.
* * * * *
Signed at Washington, DC, on November 8, 2010.
Phyllis C. Borzi,
Assistant Secretary, Employee Benefits Security Administration,
Department of Labor.
[FR Doc. 2010-28890 Filed 11-17-10; 8:45 am]
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