Annual Funding Notice

AFN Checklist Line items General Information 1. Plan Name 2a. Plan Year Begin Date 2b. Plan Year End Date 2c. First Plan Year for this Plan 3. Plan Type 4a. AFN Instructions 4b. Custom instructions Single-Employer Funding percentages - 2016 9. Current Year Valuation Date 10. Current Year Total Plan Assets 11. Current Year Funding Standard Carryover Balance 12. Current Year Prefunding balance 13. Current Year Plan Liabilities 14. Current Year At Risk Liabilities 15. Current Year Funding Target Attainment Percentage 16. Select whether the values are measured as fair market values (instead of actuarial) Single-Employer Funding percentages - 2015 17. Prior Year Valuation Date 18. Prior Year Total Plan Assets 19. Prior Year Funding Standard Carryover Balance 20. Prior Year Prefunding balance 21. Prior Year Plan Liabilities 22. Prior Year At Risk Liabilities 23. Prior Year Funding Target Attainment Percentage Single-Employer Funding percentages - 2014 24. Valuation Date 2 years prior 25. Total Plan Assets 2 years prior 26. Funding Standard Carryover Balance 2 years prior 27. Prefunding balance 2 years prior 28. Plan Liabilities 2 years prior 29. At Risk Liabilities 2 years prior 30. Funding Target Attainment Percentage 2 years prior Multiemployer Funding Percentages - 2016 50. Current Year Valuation Date 51. Current Year Funded percentage 52. Current Year Value of Assets 53. Current Year Value of liabilities Multiemployer Funding Percentages - 2015 54. Prior Year Valuation Date 55. Prior Year Funded percentage 56. Prior Year Value of Assets 57. Prior Year Value of liabilities Multiemployer Funding Percentages - 2014 58. Valuation Date 2 years prior 59. Funded percentage 2 years prior 60. Value of Assets 2 years prior 61. Value of liabilities 2 years prior Assets and Liabilities 75a. Asset FMV as of last day of plan year 75b. Liabilities as of last day of the plan year - Single-Employer plan only 76a. Multiemployer only - last day of the preceding plan year 76b. Asset FMV as of last day of prior plan year 77a. Multiemployer only - last day of the plan year 2 years preceding 77b. Asset FMV as of last day of plan year 2 years preceding Number of Participants - as of the Valuation Date 80. Total number of participants 81. Number of current employees 82. Number of retired participants and receiving benefits 83. Number of retired participants entitled to benefits Funding and Investment Policies 85. Funding Policy 86. Investment policy 89 - 109. Types and Value of plan assets Multiemployer - Endangered, Critical or Critical and Declining 110a. Plan's funding status 110b. Projected insolvent year, if Critical and Declining 110c. Date trustee adopted rehabilitation plan, if Critical and Declining 110d. Insolvency prevention action? 110e. Summary of insolvency action 110f. Summary of status based on statutory factors 110g. Summary of funding improvement strategy 110h. Intranet address for more information Events with Material Effect on Assets/Liabilities 120a. Event with material effect on assets/liabilities? 120b. Beginning of Current Plan Year (year after plan year to which this notice relates) 120c. End of Current Plan Year (year after plan year to which this notice relates) 120d. Explanation of the event Single-Employer Plan Information 122a. Indicate if benefits may commence before age 65 122b. Indicate if the plan includes an early retirement benefit 122c. Indicate if the plan includes disability benefits 122d. Indicate if the plan includes vesting schedule 122e. Indicate if there have been benefit increases or new benefits in the past 5 years 122f. Indicate if reporting under section 4010 was required Contact Information 125. Plan Administrator's Contact Name 126. Intranet address for annual report Small Plan Audit Waiver 130. Is plan eligible for waiver of the audit? 131. Include name of surety, if applicable 132. Financial institution information, if applicable Custom language 135. Custom language HATFA Supplement 140. Does the AFN require a HATFA supplement? HATFA Supplement - 2016 141a. Funding Target Attainment Percentage with HATFA Interest Rates 141b. Funding Target Attainment Percentage without HATFA Interest Rates 141c. Funding Shortfall with HATFA Interest rates 141d. Funding Shortfall without HATFA Interest rates 141e. Minimum Required Contribution with HATFA Interest Rates 141f. Minimum Required Contribution without HATFA Interest Rates HATFA Supplement - 2015 142a. Funding Target Attainment Percentage with HATFA Interest Rates 142b. Funding Target Attainment Percentage without HATFA Interest Rates 142c. Funding Shortfall with HATFA Interest rates 142d. Funding Shortfall without HATFA Interest rates 142e. Minimum Required Contribution with HATFA Interest Rates 142f. Minimum Required Contribution without HATFA Interest Rates HATFA Supplement - 2014 143a. Funding Target Attainment Percentage with HATFA Interest Rates 143b. Funding Target Attainment Percentage without HATFA Interest Rates 143c. Funding Shortfall with HATFA Interest rates 143d. Funding Shortfall without HATFA Interest rates 143e. Minimum Required Contribution with HATFA Interest Rates 143f. Minimum Required Contribution without HATFA Interest Rates Print Settings 160. Select the font type 161. Select the font size 162. Select the line spacing 163. Select the left margin in inches 164. Select the right margin in inches 165. Select the top margin in inches 166. Select the bottom margin in inches

DOL Guidance 2/2/2015 Final Rule - Annual Funding Notice for Defined Benefit Plans Appendix A - Model Annual Funding Notice for a Single-Employer Plan Appendix B - Model Annual Funding Notice for a Multiemployer Plan HATFA Supplement:  Field Assistance Bulletin No. 2013-01 Field Assistance Bulletin No. 2015-01 Appendix A to FAB 2015-01: Model Supplement Where to send AFN: 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 alternate payee 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, For a multiemployer plan, each employer, as of the last day of the notice year, that 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 The Pension Benefit Guaranty Corporation (PBGC): Single-Employer Plans for plans that have at least $50 million in assets: Email: single-employerAFN@pbgc.gov, or Mail: PBGC ATTN: Single Employer AFN Coordinator 1200 K Street NW., Suite 270 Washington, DC 20005-4026 Multiemployer plans: Email: multiemployerprogram@pbgc.gov, or Mail: PBGC ATTN: Multiemployer Program Division 1200 K Street NW Washington, DC 20005-4026 When to Furnish: 120 days after the end of the notice year For small plans, 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.

1. Plan Name. Top

2a-b. Plan Year Begin and End Dates Top

The Plan Year begin and end dates will pre-populate from the Form 5500/SF, Part I at the time the AFN checklist is added. If the user changes the Plan Year dates on the Form 5500/SF after the AFN has been added, the user can delete and re-add the AFN checklist to see the user's changes.

2c. First Plan Year. Top

Select whether the first Plan Year for this Plan is "Current", "Prior" or "At least three years old". If the Plan was created in the Current year (2016), the AFN will not require information for the 2015 or 2014 Plan Years. If the Plan was created in the Prior year (2015), the AFN will not require information for the 2014 Plan Year. If the Plan is at least three years old, then the AFN will require information to be entered for the 2014, 2015 and 2016 Plan Years.

3. Plan Type. Top

4a. AFN Instructions. Top

4b. Custom Instructions. Top

Items 9-30. Single-Employer Funding Percentages Top

Single-Employer Plans Only

The Funding Target Attainment Percentage Table (Line items 10-30) will pre-populate information from the Schedule SB. The following chart describes how the table is pre-populated:

NOTE: The Schedule SB requires the Funding Target Attainment Percentage to be corrected for interest if the valuation date is not the first of the year and further requires plans in at-risk status to report a funding target attainment percentage with the at-risk liabilities as the denominator. Plans can instead calculate the funding target attainment percentage by dividing net plan assets by plan liabilities.

See Funding Percentage (Sec. 2520.101-5(b)(2) under the Final Rule for more information.

Item 16. Fair Market Values Top

Select whether the values are measured as fair market values (instead of actuarial) (pursuant to section 303(g)(3) of ERISA). "No" is the default for this item. If "Yes" is selected, the paragraph of the AFN that would generally discuss how actuarial and market values differ would omit this discussion and will instead simply state the market values and liabilities on the last day of the plan year as entered in 75a and 75b.

The following language will be placed in the annual funding notice of Line item 16 is No:

The asset values in the chart above are measured as of the first day of the Plan Year. They also are “actuarial values.” Actuarial values differ from market values in that they do not fluctuate daily based on changes in the stock or other markets. Actuarial values smooth out those fluctuations and can allow for more predictable levels of future contributions. Despite the fluctuations, market values tend to show a clearer picture of a plan’s funded status at a given point in time. As of [Line item 2b], the fair market value of the Plan’s assets was [Line item 75a]. On this same date, the Plan’s liabilities, determined using market rates, were [Line item 75b].

The following language will be placed in the annual funding notice of Line item 16 is Yes:

The asset values in the chart above are measured as of the first day of the Plan Year. As of [Line item 2b], the fair market value of the Plan’s assets was [Line item 75a]. On this same date, the Plan’s liabilities, determined using market rates, were [Line item 75b].

Items 50 - 61 Multiemployer Funding Percentages Top

Multiemployer Plans Only

	2016 Plan Year	2015 Plan Year	2014 Plan Year
Valuation Date	[Line 1a, MB]	[2015 AFN or Line 1a, 2015 MB]	[2014 AFN or Line 1a, 2014 MB]
Funded Percentage	[Line 4a, MB]	[2015 AFN or Line 4b, 2015 MB]	[2014 AFN or Line 4b, 2014 MB]
Value of Assets	[Line 1b(2), MB]	[2015 AFN or Line 1b(2), 2015 MB]	[2014 AFN or Line 1b(2), 2014 MB]
Value of Liabilities	[Line 1c(3), MB]	[2015 AFN or Line 1c(3), 2015 MB]	[2014 AFN or Line 1c(3), 2014 MB]

See Funding Percentage (Sec. 2520.101-5(b)(2) under the Final Rule for more information.

75a. Asset FMV as of last day of plan year Top

Enter the plan's Assets as of the last day of the plan year. The Fair Market Value of the plan's assets will pre-populate from Line 1l(b) of 2016 Schedule H; Line 1c(b) of 2016 Schedule I; or Line 7c(b) of the 2016 5500-SF.

Note: the user may (but is not required to) update the AFN for contributions for the notice year that are actually made after the end of the plan year. Single-Employer plans including these contributions must discount them back to the last day of the notice year, but multiemployer plans do not need to discount them. See Year-end Statement of Plan Assets--Contributions Receivable to the Final Rule for more information.

NOTE: Pre-populated information actually relates to the first day of the following plan year - figures may need to be adjusted back to the last day of the notice year.

75b. Liabilities as of last day of the plan year - Single-Employer plan only Top

Enter the plan's Liabilities as of the last day of the plan year.

See Assets and Liabilities under the Final Rule for more information.

76 - 77. Multiemployer - Asset FMV in prior plan years Top

Multiemployer plans must also enter asset information for the preceding plan year and the plan year two years preceding:

Plan year ends are imported from 2015 and 2014 Form 5500 to the extent available or calculated based on the current 5500 plan year ends.

The Fair Market Value of the plan's assets will be pre-populated from Line 1l(b) of Schedule H; Line 1c(b) of Schedule I; or Line 7c(b) of the 5500-SF (for each year) to the extent applicable/available.

NOTE: Pre-populated information actually relates to the first day of the following plan year - figures may need to be adjusted back to the last day of the applicable year.

80-83. Number of Participants - as of the Valuation Date Top

The information for these items will be pre-populated from the Form 5500, if this information has been entered.

Note: The 5500 information may not be accurate. The proposed regulation requires this information to be supplied as of the valuation date of the plan and may need to be adjusted if the valuation date is not the first of the plan year. See Demographic Information under the Final Rule for more information.

Total Number of participants:
Information will pre-populate from Line 6d of the prior year Form 5500 if the valuation date is the first day of the plan year. Otherwise, the information is pre-populated from Line 6d of the current year Form 5500.

Number of current employees:
Information will pre-populate from Line 6a(2) of the prior year Form 5500 if the valuation date is the first day of the plan year. Otherwise, the information is pre-populated from Line 6a(2) of the current year Form 5500.

Number of retired and receiving benefits:
Information will pre-populate from Line 6b of the prior Form 5500 if the valuation date is the first day of the plan year. Otherwise, the information is pre-populated from Line 6b of the current year Form 5500.

Number of retired participants entitled to benefits:
Information will pre-populate from Line 6c of the prior year Form 5500 if the valuation date is the first day of the plan year. Otherwise, the information is pre-populated from Line 6c of the current year Form 5500.

85 - 86. Funding and Investment Policies Top

Insert a summary statement of the plan's Funding and Investment policies.

89 - 109. Types and Value of plan assets Top

Plan assets and amounts for each asset type will pre-populate from Schedule H if a Schedule H has been completed, for Alternative 1. (This information is not available if a Schedule I/5500-SF was completed.) Or, if selected, asset information will pre-populate from the Schedule R if a Schedule R has been completed, for Alternative 2. The Annual Funding Notice will actually show a chart of asset allocation percentages calculated by dividing the asset allocations by the total assets of all amounts entered.

See Year-End Asset Allocation of Investments under the Final Rule for more information.

110. Multiemployer - Endangered, Critical or Critical and Declining Top

Multiemployer Plans only

The status will pre-populate to Endangered, Critical or Critical and Declining based on Line 4b of the Schedule MB.

If the plan is in endangered, critical or critical and declining status (Line 4b of the MB is not "N"), the user must include a summary description of why the plan was in this status and a funding improvement or rehabilitation plan.

See Endangered, Critical, or Critical and Declining Status (Sec. 2520.101-5(b)(6)) under the Final Rule for more information.

The following language will be placed in the annual funding notice depending on the answers to 110a-h of the checklist:

Endangered, Critical or Critical and Declining Status

[If Line item 110a is Not Applicable, Endangered, Critical or Critical and Declining:] Under federal pension law, a plan generally is in "endangered" status if its funded percentage is less than 80 percent. A plan is in “critical” status if the funded percentage is less than 65 percent (other factors also apply). A plan is in “critical and declining” status if it is in critical status and is projected to become insolvent (run out of money to pay benefits) within 15 years (or within 20 years if a special rule applies). If a pension plan enters endangered status, the trustees of the plan are required to adopt a funding improvement plan. Similarly, if a pension plan enters critical status or critical and declining status, the trustees of the plan are required to adopt a rehabilitation plan. Funding improvement and rehabilitation plans establish steps and benchmarks for pension plans to improve their funding status over a specified period of time. The plan sponsor of a plan in critical and declining status may apply for approval to amend the plan to reduce current and future payment obligations to participants and beneficiaries.

[Not Applicable:] The Plan was not in endangered, critical or critical and declining status in the Plan Year.

[Endangered or Critical:] The Plan was in [Line item 110a] status in the Plan Year ending [Form 5500/SF, Part I] because [Line item 110f]. In an effort to improve the Plan's funding situation, the trustees adopted [Line item 110g]. [If Line 110a is Endangered:] You may obtain a copy of the Plan's funding improvement, any update to such plan and the actuarial and financial data that demonstrate any action taken by the plan toward fiscal improvement.  [If Line 110a is Critical:] You may get a copy of the Plan's rehabilitation plan, any update to such plan and the actuarial and financial data that demonstrate any action taken by the plan toward fiscal improvement.  You may get this information by contacting the plan administrator. [If Line item 110h is not blank:] Or you may obtain this information at the following intranet address: [Line item 110h].

[Critical and Declining:] The Plan was in [Line item 110a] status in the Plan Year ending [Form 5500/SF, Part I] because [Line item 110f]. The Plan is projected to be insolvent in the [Line item 110b] Plan Year. Such insolvency may result in benefit reductions. In an effort to improve the Plan's funding situation, the trustees adopted a rehabilitation plan on [Line item 110c]. The rehabilitation plan [Line item 110g]. The plan sponsor has taken the following legally permitted actions to prevent insolvency [Line item 110e]. You may get a copy of the Plan's rehabilitation plan, any update to such plan and the actuarial and financial data that demonstrate any action taken by the Plan toward fiscal improvement. You may get this information by contacting the Plan administrator. [If Line item 110h is not blank:] Or you may obtain this information at the following intranet address: [Line item 110h].

[Not Applicable, Endangered, Critical or Critical and Declining:] If the Plan is in endangered, critical or critical and declining status for the plan year ending [Form 5500/SF, Part I + 1 year], separate notification of that status has or will be provided.

120. Events with Material Effect on Assets/Liabilities Top

See Material Effect Events (Sec. 2520.101-5(b)(7) and Sec. 2520.101- 5(g)) under the Final Rule for more information.

If "Yes" is selected, the following paragraph will appear in the Annual Funding Notice:

Events Having a Material Effect on Assets or Liabilities

By law this notice must contain a written explanation of new events that have a material effect on plan liabilities or assets. This is because such events can significantly impact the funding condition of a plan. For the plan year beginning on [Line item 120b] and ending on [Line item 120c], the Plan expects the following events to have such an effect: [Line item 120d].

122a-e. Single-Employer Plan Information Top

Single-Employer Plans only

Plan Features 122a-e. The answers to these Line items will pre-populate based on Defined Benefit or Cash Balance checklist answers for each plan type. More information about how each item is pre-populated and the corresponding annual funding notice language is provided below.

AFN Line item	Pre-populated answers
122a. Benefits may commence before age 65	Yes, if E.1b (NormRetireAge) OR E.10b (if EarlyRetireAge applies) is less than "65".
122b. Early retirement benefits	Yes, if E.9 (EarlyRetirement) is "Yes".
122c. Disability benefits	Yes, if E.13a (DisabilityBenefit) is not "None".
122d. Vesting	Yes, if D.20 (DB: ProfitSharingVesting OR CB: PPAProfitSharingVesting) is not "100%".
122e. Benefit increases/new benefits in last five years	No checklist response; defaults to "No".

If all responses are "Yes", the Annual Funding Notice will appear as follows (variable text is marked in bold):

Benefit Payments Guaranteed by the PBGC

When the PBGC takes over a plan, it pays pension benefits through its insurance program. Only benefits that you have earned a right to receive and that cannot be forfeited (called vested benefits) are guaranteed. Most participants and beneficiaries receive all of the pension benefits they would have received under their plan, but some people may lose certain benefits that are not guaranteed.

The amount of benefits that PBGC guarantees is determined as of the plan termination date. However, if a plan terminates during a plan sponsor’s bankruptcy and the bankruptcy proceeding began on or after September 16, 2006, then the amount guaranteed is determined as of the date the sponsor entered bankruptcy.

The PBGC maximum benefit guarantee is set by law and is updated each calendar year. For a plan with a termination date or sponsor bankruptcy date, as applicable in 2016 the maximum guaranteed benefit is $5,011.36 per month, or $60,136.32 per year, payable in the form of a straight life annuity, for a benefit paid to a 65-year-old retiree with no survivor benefit. If a plan terminates during a plan sponsor’s bankruptcy, the maximum guarantee is fixed as of the calendar year in which the sponsor entered bankruptcy. The maximum guarantee is lower for an individual who begins receiving benefits from PBGC before age 65. The maximum guarantee by age can be found on PBGC’s website, www.pbgc.gov. The guaranteed amount is also reduced if a benefit will be provided to a survivor of the plan participant.

The PBGC guarantees "basic benefits" earned before a plan is terminated, which includes:

• pension benefits at normal retirement age;
• most early retirement benefits;
• annuity benefits for survivors of plan participants; and
• disability benefits for a disability that occurred before the date the plan terminated or the date the sponsor entered bankruptcy, as applicable.

The PBGC does not guarantee certain types of benefits:

• The PBGC does not guarantee benefits for which you do not have a vested right, usually because you have not worked enough years for the company.
• The PBGC does not guarantee benefits for which you have not met all age, service, or other requirements.
• Benefit increases and new benefits that have been in place for less than one year are not guaranteed.  Those that have been in place for less than five years are only partly guaranteed.
• Early retirement payments that are greater than payments at normal retirement age may not be guaranteed. For example, a supplemental benefit that stops when you become eligible for Social Security may not be guaranteed.
• Benefits other than pension benefits, such as health insurance, life insurance, death benefits, vacation pay, or severance pay, are not guaranteed.
• The PBGC generally does not pay lump sums exceeding $5,000.

In some circumstances, participants and beneficiaries still may receive some benefits that are not guaranteed. This depends on how much money the terminated plan has and how much the PBGC recovers from employers for plan underfunding.

For additional information about the PBGC and pension insurance program guarantees, go to the “General FAQs about PBGC” on PBGC’s website at www.pbgc.gov/generalfaqs. Please contact your employer or plan administrator for specific information about your pension plan or pension benefits. PBGC does not have that information. See “Where to Get More Information About Your Plan”, below.

122f. Single-Employer Plan Information - 4010 Top

Single-Employer Plans only

4010 status. Select "Yes" if a reporting under section 4010 was required for the plan year.

See Information Disclosed to PBGC (Sec. 2520.101-5(b)(11)) under the Final Rule for more information.

If "Yes" is selected, the following paragraph will appear in the Annual Funding Notice:

Corporate and Actuarial Information on File with PBGC

A plan sponsor must provide the PBGC with financial information about itself and actuarial information about the plan under certain circumstances, such as when the funding target attainment percentage of the plan (or any other pension plan sponsored by a member of the sponsor’s controlled group) falls below 80 percent (other triggers may also apply). The sponsor of the Plan, [Form 5500/SF, Line 2a] , or a member of its controlled group, was subject to this requirement to provide corporate financial information and plan actuarial information to the PBGC. The PBGC uses this information for oversight and monitoring purposes.

125. Admin contact name Top

If left blank, the plan administrator shown on Line 2a or 3a of the Form 5500/SF will be the contact listed in the Annual Funding Notice. If the user wants another contact listed, enter the contact in Line item 125.

126. Intranet address Top

Insert an intranet Address where employees may access the annual report (if left blank, intranet address will not print)

130-132. Small Plan Audit Waiver Top

Information Regarding Plan Assets

The U.S. Department of Labor’s regulations require that an independent qualified public accountant audit the plan’s financial statements unless certain conditions are met for the audit requirement to be waived. This plan met the audit waiver conditions for the plan year beginning [Form 5500/SF, Part I] and therefore has not had an audit performed. Instead, the following information is provided to assist you in verifying that the assets reported on the Form 5500 were actually held by the plan.

[If Line item 132 is not blank:]

At the end of the plan year, the plan had the following assets, including qualifying plan assets:

[Line item 132]

The plan receives year-end statements from these regulated financial institutions that confirm the above information.

[The following will appear if at least one of the asset types are used:] The remainder of the plan’s assets were held in individual participant accounts with investments directed by participants and beneficiaries and with account statements from regulated financial institutions furnished to the participant or beneficiary at least annually [Form 5500/SF Pension Code 2G or 2H], loans to participants [Schedule I, Line 3e/Form 5500-SF, Line 10g] and other assets covered by a fidelity bond at least equal to the value of the assets and issued by [Line item 131], an approved surety company [if Line item 131 is not blank].

Plan participants and beneficiaries have a right, on request and free of charge, to get copies of the financial institution year-end statements and evidence of the fidelity bond. If you want to examine or get copies of the financial institution year-end statements or evidence of the fidelity bond, please contact [Line item 125 or if blank, Form 5500/SF Line 2a or 3a], who is a representative of the plan administrator at [Form 5500/SF, Line 2a or 3a] and phone number, [Form 5500/SF, Line 2c or 3c].

If you are unable to obtain or examine copies of the regulated financial institution statements or evidence of the fidelity bond, you may contact the regional office of the U.S. Department of Labor’s Employee Benefits Security Administration (EBSA) for assistance by calling toll-free 1.866.444.EBSA (3272). A listing of EBSA regional offices can be found at http://www.dol.gov/ebsa.

General information regarding the audit waiver conditions applicable to the plan can be found on the U.S. Department of Labor Web site at http://www.dol.gov/ebsa under the heading "Frequently Asked Questions."

Custom language Top

Information entered here will appear as text at the end of the AFN

HATFA Supplement Top

If item 140 is "Yes" (the AFN requires a HATFA supplement). The HATFA Information Table (items 141 - 143) will be populated as follows:

For more information about the Supplement, see the Field Assistance Bulletin 2015-1 and the Model Supplement.

2/2/2015 Final Rule - Annual Funding Notice for Defined Benefit Plans Top

Link to the final rule

3. Overview of Final Rule


1. In General Sec. 2520.101-5(a)
1. Scope
   
   Paragraph (a)(1) of the final regulation sets forth the general requirement that, unless otherwise exempted, all defined benefit plans subject to title IV of ERISA must furnish compliant funding notices to eligible recipients. Paragraphs (a)(2) and (3) of the final regulation provide limited exceptions for certain plans, and paragraphs (j), (k) and (l) provide alternative methods of compliance where exceptions are not appropriate. The limited exceptions are discussed immediately below and the alternative methods of compliance are discussed in subsection C.8 of this preamble.


2. Limited Exceptions for Certain Multiemployer Plans
   
   The exception to the annual funding notice requirement for insolvent multiemployer plans in paragraph (a)(2)(i) of the proposal was reordered as paragraph (a)(2)(i)(A) in the final regulation, but the substance is unchanged from the proposal. Under this exception, 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. Inasmuch as this exception is predicated on sufficient alternative notification under sections 4245(e) and 4281(d)(3) of ERISA, 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. The Department received no comments on this provision.
   
   Under paragraph (a)(2)(i)(B) of the final regulation, the plan administrator of a multiemployer plan that has terminated by mass withdrawal under section 4041A(a)(2) of ERISA 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 plan has distributed assets in satisfaction of all nonforfeitable benefit liabilities in accordance with section 4041A of ERISA and Subpart D of 29 CFR part 4041A. This new provision provides relief to multiemployer plans similar to the relief available under paragraph (a)(2)(ii)(C) for single-employer plans.


3. Limited Exceptions for Certain Single-Employer Plans
   
   Proposed paragraph (a)(2)(ii)(A) provided that 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. Proposed paragraph (a)(2)(ii)(B) provided for similar relief when a plan has distributed assets in satisfaction of all benefit liabilities 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's rationale for these exceptions was based on termination procedures and the disclosure regime under title IV of ERISA discussed in the preamble to the proposal.⁵ The Department received no negative comments on these provisions. They have been adopted as is from the proposal.
   
   Based in large part on the exceptions discussed immediately above, paragraph (a)(2)(ii)(B) of the proposal provided similar relief for a plan that distributed assets in satisfaction of all benefit liabilities in a standard termination pursuant to section 4041(b). One commenter requested that this exception be expanded to provide relief from the annual funding notice requirements for plan years after the plan's termination, but before the plan actually distributes assets in satisfaction of all benefit liabilities. Typically this occurs when a plan is waiting for a favorable determination letter from the Internal Revenue Service (IRS). Such plans, according to a commenter, ordinarily will not have the information they need to complete annual funding notices during this period. The funding target attainment percentage, value of assets and liabilities that determine the plan's funding target attainment percentage, and year-end liabilities will not be readily available because such plans are no longer subject to the minimum funding requirements in section 430 of the Code (ERISASec. 303) or the requirement to file a Schedule SB to the Form 5500 Annual Return/Report after the plan year of termination.⁶ Thus, in the absence of the exception in paragraph (a)(2)(ii) of the final regulation, such plans would have to hire an actuary as if the plan were subject to these requirements, solely to obtain the missing section 101(f) information. The commenter argues that valuable resources will be expended unnecessarily in this regard. The Department agrees with this commenter that such an outcome is not in the best interests of plan participants and beneficiaries in these limited circumstances. For these reasons, and after consulting with the PBGC, Treasury and the IRS, the Department adopts paragraph (a)(2)(ii)(C) of the final rule which exempts the plan administrator from providing a funding notice for a plan year if the due date for the funding notice is on or after the date the plan administrator files a standard termination notice (i.e., PBGC Form 500) pursuant to 29 CFR 4041.25, provided that the proposed termination date is on or before the due date of the funding notice and a final distribution of assets in satisfaction of the plan's benefit liabilities proceeds according to the requirements of section 4041(b) of ERISA. If, for some reason, the termination does not proceed according to the requirements of section 4041(b) of ERISA with a distribution of assets in satisfaction of all benefit liabilities and the plan again becomes subject to the minimum funding standards, the exception ceases to apply.
   
   The following example illustrates the exception in paragraph (a)(2)(ii)(C).
   
   Example: On March 1, 2017, the plan administrator furnishes to all affected parties a notice of intent to terminate, stating that Plan Y, a calendar year plan, will terminate on April 30, 2016. On April 15, 2017, the plan administrator files a standard notice of termination (PBGC Form 500) with the PBGC. Under the exception in paragraph (a)(2)(ii)(C) of the final rule, the funding notice for the 2015 notice year (due no later than April 30, 2016) is the final funding notice of Plan Y, since both the proposed termination date and the date the PBGC Form 500 is filed with the PBGC occur on or before the April 30, 2017, due date of the 2016 funding notice.
   
   Finally, one commenter recommended expanding the exception to excuse the plan administrator of a single-employer plan from furnishing a funding notice if the plan administrator reasonably believed that the PBGC would appoint itself trustee within the next 12 months. The same commenter also recommended excusing the plan administrator from furnishing a funding notice after commencement of the distribution of assets under a standard or distress termination instead of after the final distribution of all assets as set out in the proposal. Neither of these recommendations is adopted in the final rule. The first recommendation, without more, would give too much discretion to the plan administrator to determine whether or not to provide the funding notice. In addition, unlike the other exceptions in the final rule, the first recommendation is not grounded on a factor such as cost savings to the plan or an absence of information needed to complete the annual funding notice (for example, because the plan is no longer subject to the funding rules under the Code or ERISA's annual reporting requirements); nor does it appear to rest on any separate disclosure requirements applicable to such plans under title IV of ERISA. The commenter's second recommendation was not adopted for essentially the same reasons against the first recommendation, but also because the new exception in paragraph (a)(2)(ii)C), in the Department's view, provides substantially equivalent relief in the case of a standard termination.


4. Mergers and Consolidations
   
   Paragraph (a)(3) of the final regulation, like the proposal, provides relief in the case of a merger or consolidation of two or more plans. The final plan year of a plan that has legally transferred control of its assets to a successor plan (hereafter the "non- successor plan") ends upon the occurrence of the merger or consolidation. Under this exception, the plan administrator of a non- successor plan is not required to furnish a funding notice for its final plan year.
   
   For example, if plan A were to merge with plan B in 2017 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, which ends upon the occurrence of the merger in 2017. 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 final regulation and, in addition, contain a general explanation of the merger or consolidation. 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.
   
   One commenter requested clarification whether the funding notice of the successor plan for the year of the merger must reflect the funding percentages, assets, and liabilities of the non-successor plan for the two preceding plan years. Because the assets and liabilities of the non-successor plan were not assets and liabilities of the successor plan before the merger or consolidation, the successor plan's funding notice for the year of the merger would not have to reflect this information. The year-end data in this funding notice, however, would reflect the combined assets (both single and multiemployer plans) and liabilities (single-employer plans only). No changes to the operative text were needed for this clarification.


2. Content Requirements Sec. 2520.101-5(b)


1. Identifying Information (Sec. 2520.101-5(b)(1))
   
   Paragraph (b)(1) of the final regulation, like the proposal, provides that a funding notice must include the name of the plan, the plan number, name of each plan sponsor, the employer identification number of the plan sponsor, 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). For purposes of this requirement, employer identification numbers, name of plan sponsor, and plan numbers are the same as those used in the Form 5500 Annual Return/Report filed in accordance with section 104(a) of ERISA. The Department received no comments on this provision, as proposed, and it is adopted without change in the final rule.


2. Funding Percentage (Sec. 2520.101-5(b)(2))
   
   Paragraph (b)(2) of the final regulation, like the proposal, requires disclosure of a plan's funding percentage. Specifically, in the case of a single-employer plan, paragraph (b)(2)(i) of the final regulation provides that a notice must include a statement as to whether the plan's funding target attainment 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 "funding target attainment percentage" is defined in section 303(d)(2) of ERISA, which corresponds to 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 the plan's assets for the plan year (determined under the rules of 26 CFR 1.430(g)-1) after subtracting the prefunding balance and funding standard carryover balance (collectively the "credit balances") 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).⁷ Thus, this percentage for a plan year is calculated by dividing the value of the plan's assets for that year (after subtracting the credit balances, if any) by the funding target of the plan for that year (disregarding the at-risk rules).
   
   One commenter expressed concern with using the funding target attainment percentage calculated in the manner described above. This commenter believes there are circumstances when this percentage does not necessarily show the most accurate picture of the plan's funded status. For instance, this commenter believes it is misleading to subtract the credit balances discussed above when the plan otherwise is 100 percent funded. Such a subtraction, according to this commenter, could show a funding target attainment percentage of less than 80 percent when the plan is 100 percent or more funded before such subtraction and needlessly raise the concerns of participants regarding the application of the benefit restrictions and limitations of section 436 of the Code.⁸ ERISA section 101(f)(2)(B)(i), however, specifically requires a plan administrator to disclose the funding target attainment percentage determined by subtracting the credit balances from the value of the plan's assets.
   
   Paragraph (b)(12) of the final rule permits plan administrators to include additional information in funding notices if the additional information is either necessary or helpful to understanding the mandated information. The Department is of the view, however, that ordinarily a funding notice with more than one funding percentage for the same plan year would be very confusing to participants and beneficiaries. Thus, the Department strongly discourages this practice. One exception may be when the plan administrator concludes it is necessary or helpful to explain that a benefit restriction or limitation under Code section 436 has not been triggered despite the funding target attainment percentage disclosed in the funding notice being below 80 percent. Even in these circumstances, however, a narrative explanation ordinarily should suffice.
   
   In the case of a multiemployer plan, paragraph (b)(2)(ii) of the final regulation, like the proposal, 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.\9\ 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. The Department received no comments on this provision and it was adopted in the final rule without change.


3. Assets and Liabilities (Sec. 2520.101-5(b)(3))
   
   
   1. 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 final regulation, like the proposal, 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 section 101(f)(2)(B)(ii)(I)(aa) of the statute, the final regulation provides that assets and liabilities are to be determined "in the same manner as under section 303" of ERISA. The Department interprets the quoted statutory language to mean that the total assets and liabilities used for this purpose are the same as those used to determine a plan's 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). The Department received no comments on this provision, as proposed. It was adopted without change in the final regulation.
      
      
   2. 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 proposal provided 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 ERISA section 303. The interest rate assumption is the 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. For the reasons set forth below, this proposed provision is adopted without change.
      
      Some commenters expressed their concerns that this aspect of the proposal would lead to confusion. More specifically, they argued that participants and beneficiaries will be confused by seeing year-end figures that are calculated with different assumptions than those used to calculate beginning-of-the-year figures. To illustrate the confusing effect of the proposal, the commenters explained by way of example that a plan's assets and liabilities as of one second before midnight on December 31 could be dramatically different from that plan's assets and liabilities one second later on January 1, for no reason other than the different assumptions prescribed by paragraphs (b)(3)(i)(A) and (b)(3)(i)(B) of the proposal.
      
      The solution offered by one of these commenters is that the proposal should be revised to mandate use of identical assumptions for both dates. Thus, the same interest rate, mortality, and other actuarial assumptions would be used to determine the present value of both the year-end liabilities for the notice year and the valuation date liabilities of the next plan year. This would eliminate the December 31/January 1 difference described above. In this regard, the commenter suggested using the same assumptions used by the plan sponsor to determine pension liabilities in its SEC filings.
      
      The Department did not adopt this recommendation. Because the disclosure requirements in paragraph (b)(3)(i)(B) of the proposal track the statutory requirements in section 101(f)(2)(B)(ii)(I)(bb) of ERISA, adopting this commenter's recommendation would effectively read these requirements out of the statute. Whatever the differences that might exist between year-end assets and liabilities and the next year's valuation date assets and liabilities, such differences result from the actuarial assumptions and methods mandated by the statute.
      
      Other commenters recommended enhanced disclosure of the assumptions behind the year-end figures, including an explanation of how such assumptions differ from the assumptions used for the beginning-of-the- year (i.e., valuation date) figures. These commenters suggested that enhanced disclosure of this type could be helpful in explaining the December 31/January 1 difference described above. Because paragraph (b)(12) of the final regulation permits plan administrators to add additional or supplemental information to funding notices, if appropriate, the Department decided against mandating the specific disclosures suggested by these commenters.
      
      Finally, the Department, in the preamble to the proposal, recognized that some plans may need to estimate their year-end liabilities for the notice year. For instance, this would be necessary if the plan lacked up-to-date information (e.g., hours of service, compensation, eligibility status, etc.) to calculate year-end liabilities by the due date of the funding notice. The preamble discussion further provided that, inasmuch as section 101(f) of ERISA does not specifically set forth any standards to govern such estimations, pending guidance to the contrary, plan administrators may, in a reasonable manner, project liabilities to year-end using standard actuarial techniques. While the Department specifically solicited comments on this issue, none were received. Accordingly, the Department has no reason at this time to provide contrary guidance.
      
      One commenter noted that instructions to "round off all amounts in this notice to the nearest dollar" located under the "Funding Target Attainment Percentage" chart in Appendix A would be difficult in the context of estimating year-end liabilities. The commenter interpreted these instructions to mean plan administrators must estimate year-end liabilities to the nearest dollar. The Department intended for the rounding instruction to apply to valuation date liabilities used to determine the funding target attainment percentage because by the due date of the funding notice, the valuation date liabilities should be precise to the nearest dollar. Accordingly, no change was made to the rounding instruction in the final version of the model notice. With respect to year-end liabilities, however, the plan should use rounding conventions that are standard for estimating projected plan liabilities and are reasonable with regard to the plan. The Department recognizes that plans may not be able to achieve the same level of precision with respect to estimated year-end liabilities as with valuation date figures.
      
      
   3. Multiemployer Plans--Assets and Liabilities as of the Valuation Date
      
      In the case of a multiemployer plan, paragraph (b)(3)(ii)(A) of the final regulation, like the proposal, 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 final regulation. Thus, the recipients of a funding notice will receive not only their plans' funded percentage, pursuantto paragraph (b)(2)(ii), 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. There were no comments on this provision and it is adopted without change.
      
      
   4. 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 final regulation, like the proposal, 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. There were no comments on this provision and it is adopted in the final regulation without change.
      
      
   5. Year-end Statement of Plan Assets--Contributions Receivable
      
      As discussed above, 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, but only if they are attributable to the notice year for funding purposes. The regulation does not require these contributions to be included in the year-end asset statement.
      
      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 for the notice year. 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.¹⁰ For example: Plan X is a calendar year plan. The plan's funding notice for 2012 was timely furnished in 2013. The year- end statement of assets was based on December 31, 2012, fair market value. The plan administrator included the present value of contributions made to the plan on February 14, 2013, in the year-end statement of assets. The effective interest rate for the plan was five percent in 2012 and four percent in 2013. The contributions would be discounted from February 14, 2013, to December 31, 2012, using a discount rate of five percent per annum, which was the effective interest rate for 2012.
      
      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 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.
      
      The foregoing provisions were discussed in the preamble of the proposal. The Department received no negative commentary on them. They were adopted and codified at paragraph (b)(3)(iii) of the final regulation.
      
      
   6. Addressing Changes in Assets and Liabilities After the Notice Is Furnished
      
      One commenter requested clarification on whether a plan administrator would be required to issue a revised funding notice for a plan year if the funding percentage data (described by this commenter as valuation date assets and liabilities and the funding percentage derived therefrom) in the notice were to change between the date the notice was furnished to participants and the date of the filing of the plan's Form 5500 Annual Return/Report for that same year. The commenter stated that this might occur, for example, because of an error or mistake in preparing the notice or if a plan were to change its actuarial assumptions in the period between the respective due dates of the notice and the Form 5500. The view of the Department, generally, is that funding percentage data in the notice for a particular plan year should not differ from the funding percentage data that must be reported on that plan's Schedule SB or MB, as applicable, for that same plan year. However, in those rare circumstances where there is a difference because of a good faith error or changes in actuarial assumptions, for example, the view of the Department is that a plan administrator is not obligated by section 101(f) of ERISA to revise and restate the funding notice for that year. If the difference in the data in the notice and the data in the annual report is substantial, plan administrators should consider explaining the discrepancy in the funding notice for the next plan year.
   
   
4. Demographic Information (Sec. 2520.101-5(b)(4))
   
   Paragraph (b)(4) of the final regulation, like the proposal, 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 from service 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" 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 2013 Form 5500 Annual Return/Report).
   
   In response to one comment, the Department clarifies that beneficiaries of deceased participants should be accounted for in the disclosure of demographic information required under paragraph (b)(4) and should be reflected in the relevant "retired or separated" category based on whether the beneficiary of the deceased participant is receiving benefits or is entitled to receive benefits in the future (but currently is not receiving them). These beneficiaries are similar to retired or separated participants who are themselves receiving, or are entitled to receive, benefits under the plan in that the plan's liabilities include benefits accrued by such deceased participants.
   
   A few commenters asked the Department to enhance this disclosure requirement by mandating the disclosure of demographic information covering a longer period of time, such as the notice year and two preceding plan years, similar to disclosure of the plan's funding percentage over a three year period. Such information, they suggest, could help participants and, in the case of multiemployer plans, unions and contributing employers, draw a positive correlation between demographic trends and changes in funding status, e.g., a downward slope in active participants would offer a possible explanation of a declining funding percentage or, possibly, be indicative of such a decline in the future. Other commenters, however, questioned whether such information would be helpful to participants, even if the data allowed for a positive correlation, and pointed out that such information already is publicly available. They also noted that any new disclosure mandate would come at a cost. The Department notes that this data already is required to be reported in the Form 5500 Annual Return/Report, so there would be little cost associated with the commenter's suggested expansion. Nonetheless, the Department declined to adopt the requested expansion. The Department agrees with the commenters who question the value to participants of the additional information. A plan, for example, may have few active participants and a high funding percentage or many active participants and a low funding percentage. In addition, the statute affords no clear basis for imposing such a requirement. Congress was careful to specify a three- year period in other parts of section 101(f) of ERISA but failed to do so in section 101(f)(2)(B)(iii) of ERISA.


5. Funding and Investment Policies; Asset Allocation (Sec. 2520.101-5(b)(5))
   
   Paragraph (b)(5)(i) through (iii) of the proposal provided that a funding notice must include a statement setting forth the funding policy of the plan, the asset allocation of investments under the plan (expressed as percentages of total assets) as of the end of the notice year, and a general description of any investment policy of the plan as it relates to the funding policy and the asset allocation of investments. This provision is adopted without change.
   
   
   1. Investment Policy
      
      One commenter was opposed to the proposed requirement to include a "general description of any investment policy of the plan." The commenter argued that this requirement is not explicitly in the statute, that investment policies often can be complex and lengthy, and that such policies may be irrelevant to participants and beneficiaries.¹¹ Even though a particular plan's investment policy might be lengthy and complex in its totality, the final regulation requires only a "general description" of the policy. Thus, except in rare cases, the Department does not expect that a plan's entire investment policy would be restated in the annual funding notice. Further, to ensure relevance, the final regulation requires that the general description must relate to the funding policy and asset allocation of investments. The purpose of the requirement to include a "general description of any investment policy of the plan" simply is to provide participants and beneficiaries with contextual information to help them better understand and appreciate the plan's approach to funding benefits.¹² Use of the word "any" in paragraph (b)(5)(iii) 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.
   
   
   2. Year-End Asset Allocation of Investments
      
      Section 101(f)(2)(B)(iv) of ERISA, in relevant part, provides that a funding notice must include a statement setting forth "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[.]" Like the proposal, paragraph (b)(5)(ii) of the final regulation directly incorporates this statutory requirement. The Department anticipates that plan administrators may satisfy the requirements in paragraph (b)(5)(ii) in any number of ways.
      
      For example, one way a plan administrator may satisfy this requirement is by using the appropriate model notice in the appendices to the final rule. The asset classes in the models are based on the asset classes listed in Part 1 of the Asset and Liability Statement of Schedule H of the Form 5500 Annual Return/Report.¹³ Plan administrators who use the models must insert an appropriate percentage with respect to each asset class, using the same valuation and accounting methods as for Form 5500 Schedule H reporting purposes. For this purpose, 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. 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). 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. The reason for this special treatment for plans investing in DFEs is that such plans often do not know the precise year-end holdings of a DFE by the due date of the annual funding notice. One commenter questioned whether this special treatment is appropriate for single-employer plans that use MTIAs, on the theory that administrators of such plans have more control over and access to information about such investment arrangements than, say, CCTs. Given that plan fiduciaries have a duty not to misrepresent material information relating to the plan, plan administrators should not report a percentage interest in MTIAs if they know the MTIA's actual asset allocation sufficiently in advance of the due date of the annual funding notice. Instead, they should use the other asset categories in Schedule H.
      
      A number of commenters on the proposal favored the asset categories in Schedule R over the asset categories in the Schedule H. The Schedule R categories are stocks, investment-grade debt, high-yield debt, real estate, and other. These commenters suggested either replacing the Schedule H approach in the model notice with the categories in Schedule R, or perhaps establishing the Schedule R approach as an alternative to the Schedule H approach. In some cases the asset categories in Schedule R may better align with a plan's investment policy. In other cases, the asset categories in the Schedule R may be more informative to participants and beneficiaries. For these reasons, the Department has determined that the Schedule R asset categories are an acceptable alternative to the asset categories in the Schedule H for purposes of the model notices in the appendices to the final rule. Thus, the Department is of the view that a plan administrator may substitute the Schedule R categories for asset categories in Schedule H in the model notices, and remain eligible for the relief provided in paragraph (h) of the final regulation. Plan administrators who use the Schedule R alternative must insert an appropriate percentage with respect to each asset class.
      
      Another commenter suggested allowing the plan administrator discretion when using the model notice to break out the investments held in a DFE among the other Form 5500 Schedule H asset classes where the plan administrator knows the underlying make-up of the assets held by the DFE. The Department never intended to preclude plan administrators from breaking out the DFE's investments among the other asset classes, since the disclosure of such information will better inform participants about the plan's asset allocation of investments. To make this option clear, the final model notice instructions expressly permit plan administrators to break-out DFE investments in the notice, or to include a statement informing participants how to get additional information regarding DFE investments. See the model notice in appendices A and B.
      
      One commenter recommended deleting the phrase "Under the plan's investment policy" from the section of the model notice addressing the year-end percentage allocation of investments. The commenter believes this language implies that the allocation percentages reflect the investment policy. The commenter opposes this implication because the asset allocation percentages under paragraph (b)(5) of the regulation are a snapshot of information and may not accurately reflect the plan's long-term investment policy. The Department declined to adopt this recommendation. The commenter appears to be concerned with inferences of wrongdoing or investment imprudence that might be drawn by participants and others if their plan's asset allocation percentages do not precisely match the plan's investment policy, and believes those inferences would be less likely with the recommended deletion. The Department disagrees with the commenter that the quoted phrase would imply wrongdoing if the asset allocation differed from the investment policy. The objective of the disclosures under paragraph (b)(5), in the aggregate, is to help participants and other recipients understand that there is a relationship between funding, investment policies, and asset allocations. The commenter's recommendation appears to run contrary to that objective.
   
   
6. Endangered, Critical, or Critical and Declining Status (Sec. 2520.101-5(b)(6))
   
   Paragraph (b)(6) of the final regulation requires that the funding notice for a multiemployer plan indicate whether the plan was in endangered, critical, or critical and declining status for the notice year. For this purpose, "endangered, critical, or critical and declining status" is determined in accordance with section 305 of ERISA, which corresponds to section 432 of the Code. Paragraph (b)(6)(i) requires that the funding notice of a plan in endangered, critical, or critical and declining status 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. Paragraph (b)(6)(ii) requires that the funding notice of a plan in endangered, critical, or critical and declining status must contain a summary of the plan's funding improvement or rehabilitation plan and a description of any updates or modifications to such funding improvement or rehabilitation plan adopted during the notice year. A summary of the funding improvement or rehabilitation plan is required not only for the notice year in which such plan was adopted, but for every plan year thereafter until the funding improvement or rehabilitation plan ceases to be in effect. Paragraph (b)(6)(iii) requires that the funding notice of a plan in critical and declining status also must include the projected date of insolvency; a clear statement that such insolvency may result in benefit reductions; and a statement describing whether the plan sponsor has taken legally permitted actions to prevent insolvency. The requirements in paragraph (b)(6)(iii) were not part of the proposed regulation. These requirements were added to the final regulation to reflect recent amendments to section 101(f) of ERISA by the MPRA.¹⁴


7. Material Effect Events (Sec. 2520.101-5(b)(7) and Sec. 2520.101- 5(g))


1. The Statute and Proposed Rule
   
   Paragraph (b)(7) of the proposed regulation directly incorporated the requirements of section 101(f)(2)(B)(vii) of ERISA, which requires: "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 regulations by the Secretary), an explanation of the amendment, schedule 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 [.]" Beyond this direct incorporation, the Department took three other steps in the proposal to clarify and implement the material effect requirements.
   
   First, the preamble to the proposal noted ambiguity with respect to the term "current plan year" in the language quoted above. The question is whether this term refers to the notice year or the plan year following the notice year. The proposal adopted 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. The Department's rationale for this interpretation, as explained in the preamble of the proposal, was that 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. Comments were solicited on this issue specifically.
   
   Second, in an effort to bring clarity to the language "having a material effect on plan liabilities or assets for the year" in section 101(f)(2)(B)(vii) of ERISA, the proposal set forth two tests for determining whether an event has a material effect on assets or liabilities.
   
   The first test, at paragraph (g)(1)(i) of the proposal, provided 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. Under the second test, 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. The second test is in paragraph (g)(1)(ii) of the proposal.
   
   Third, the preamble to the proposal also specifically solicited comments on an issue addressed in the Department's Field Assistance Bulletin 2009-01 (February 10, 2009). In that Bulletin, the Department provided interim guidance under section 101(f) of ERISA in the form of an enforcement policy. Under this policy, if an otherwise disclosable event first became known to the plan administrator 120 days or less before the due date for furnishing the funding notice, the administrator did not have to disclose the event 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. This policy was not included in the operative text in the proposal. However, the preamble to the proposal solicited comments on whether this 120-day "rule" should be included in the final regulation.


2. Public Comments and Questions
   
   In general, the public comments on the material effect provisions focused on the 120-day policy articulated in FAB 2009-01 and its absence from the operative text of the proposal. One commenter, however, criticized the position of the Department on the "current plan year" language. This person is concerned that some material events would not be covered if "current plan year" means the plan year following the notice year. Another commenter believes the five percent test to determine materiality is unnecessary in light of the actuary judgment test. This commenter, therefore, recommends deleting the five percent test. This commenter also asked the Department to consider a third alternative based on Code section 436. These questions and comments are addressed in the context of explaining the final rule below.


3. The Final Rule
   
   The framework of the final rule is substantially the same as in the proposal. The general requirement to explain and project events that have a material effect on the assets and liabilities of the plan is in paragraph (b)(7) of the final regulation. As in the proposal, paragraph (b)(7) of the final rule simply incorporates the language from section 101(f)(2)(B)(vii) of ERISA. Paragraph (g) contains special rules and definitions related to the general requirement in paragraph (b)(7) of the final regulation. The substantive modifications to the proposal are in paragraph (g) of the final rule.
   
   General Requirement
   Paragraph (b)(7) of the final rule requires, "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, an explanation of the amendment, scheduled benefit increase or reduction, or event, and a projection to the end of such plan year of the effect of the amendment, scheduled benefit increase or reduction, or event on plan liabilities." The final regulation explicitly makes this requirement subject to the special rules and definitions in paragraph (g) of the final regulation.
   
   Special Rules and Example
   Paragraph (g) contains several special rules and definitions that collectively clarify, limit, and illustrate application of the material effect content requirement in paragraph (b)(7) of the final regulation. Paragraph (g)(1) provides that "current plan year" in paragraph (b)(7) means the plan year after the notice year. Paragraph (g)(2) of the final regulation states that "[a]n event described in paragraph (b)(7) is recognized as `taking effect' in the current plan year if the effect of the event is taken into account for the first time for funding under section 430 or 431 of the Internal Revenue Code, as applicable." Paragraphs (g)(3) and (g)(4) of the final regulation provide the standards for determining if an event described in paragraph (b)(7) has a "material effect." Paragraph (g)(3) states that such an event "has a `material effect' 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." Paragraph (g)(4) provides that an event also "has a `material effect' if, in the judgment of the plan's enrolled actuary, the effect of the event is considered 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)(3). . . ." Paragraph (g)(5) states that "[a]n event described in paragraph (b)(7) of this section is `known' only if it is known by the plan administrator prior to 120 days before the due date of the notice."
   
   The following example illustrates these requirements.
   Facts: Plan Y is a single-employer calendar year plan. Company X, the sponsor of Plan Y, adopts an amendment on June 1, 2017, offering a subsidized early retirement benefit to participants age 50 or older who retire on or after September 1, 2017 and before March 1, 2018. The amendment increases the liabilities of Plan Y by an amount greater than 5% of the value of Plan Y's liabilities on January 1, 2017. Company X does not make an election under Code section 412(d)(2) to accelerate recognition of the event for funding. The amendment is taken into account for the first time under section 430 of the Code as of the January 1, 2018, valuation date. The notice year is 2017.
   
   Conclusions: Pursuant to paragraph (g)(1) of the final rule, the "current plan year" is 2018 because the notice year is 2017. Pursuant to paragraph (g)(2) of the final rule, the amendment is recognized as "taking effect" in 2018 because it is first taken into account for funding purposes as of the January 1, 2018 valuation date. Pursuant to paragraph (g)(3) of the final rule, the event has a "material effect" on plan liabilities because it results in an increase of five percent or more in the value of liabilities. Pursuant to paragraph (g)(5), the amendment is "known" because it is adopted on June 1, 2017, which is more than 120 days prior to the April 30, 2018 due date of the 2017 funding notice. Therefore, an explanation of the amendment must be included in the 2017 funding notice.
   
   "Taking Effect" and "Current Plan Year"
   As mentioned above, one commenter raised a concern that by interpreting "current plan year" as the year after the notice year, as opposed to the notice year itself, the proposal effectively created a loophole that might result in a substantial number of events not being covered by the material effect disclosure provisions. To illustrate the commenter's point, assume the same facts as in the example above. Also assume the amendment was not known by the plan administrator before January 1, 2017. Applying the proposal, the early retirement amendment would not be explained in the 2017 notice because it does not take effect in the current plan year (i.e., 2018). Nor would the amendment be explained in the 2016 notice because it was not known by the plan administrator more than 120 days before the deadline of that notice.
   
   New paragraph (g)(2) of the final regulation addresses this loophole. Specifically, it states that "[a]n event described in paragraph (b)(7) is recognized as `taking effect' in the current plan year if the effect of the event is taken into account for the first time for funding under section 430 or 431 of the Internal Revenue Code, as applicable." Thus, a material effect event is recognized as "taking effect" in the first plan year that the effect of the event is taken into account for funding. Events occurring in the notice year, therefore, would not escape disclosure as feared by the commenter, if the effect of the event is taken into account for funding for the first time in a subsequent plan year. The term "taking effect" under the final regulation does not have the same meaning as "take effect" under Code sections 430 and 436 and the regulations promulgated thereunder.
   
   Materiality--the Five Percent Test
   As noted above, one commenter recommended eliminating the five percent materiality test on the grounds that it is unnecessary in light of the actuary judgment test. It is unnecessary, according to this commenter, because five percent events are the kind of events that also would be considered material to funding under the actuary judgment test. From this premise, the commenter argues that plans should not have to incur the cost of performing an unnecessary test. No data were provided regarding potential cost savings if the recommendation were adopted. The Department does not agree that the actuary judgment test makes the five percent test unnecessary. The five percent test is an objective test; it has all the certainty of a bright line, numerical test. It ensures that participants will be informed automatically of any event if its financial impact meets or exceeds this percentage. The plan has no discretion when the effect of an event is at or above the established numerical threshold. It effectively reflects the Department's determination of baseline materiality for purposes of section 101(f) disclosures, without regard to what a plan, or its enrolled actuary, may think of the significance of the event. The actuary judgment test in the proposal, by contrast, operates underneath the five percent ceiling. Below the ceiling, the plan has discretion and is not required to explain the effect of each and every event that has any effect on assets or liabilities. Instead, disclosure is required only if the plan's actuary determines the effect of the event is material for funding purposes. Even if, as is suggested by the commenter, there is some overlap in the two-test approach in the proposal, the framework recommended by the commenter would lack the certainty and consistency of the proposal and it would confer too much discretion on the plan to decide whether and what events are material under section 101(f) of ERISA. For these reasons, the Department declined to adopt this commenter's recommendation, and the final rule therefore continues to contain the five percent test.
   
   Materiality--the Actuary Judgment Test
   As mentioned above, if, in the judgment of the plan's enrolled actuary, the effect of an event is material for purposes of the plan's funding status under section 430 or 431 of the Code, paragraph (g)(1)(ii) of the proposal deemed the event to have a material effect under paragraph (b)(7). The final rule retains this provision. See paragraph (g)(4). The purpose of this "actuary judgment test" is to disclose any event that is not picked up by the five percent test which the actuary determines has a material effect on the funding status of the plan under section 430 or 431 of the Code (sections 303 and 304 of ERISA). Although the actuary's exercise of judgment under paragraph (g)(4) of the final regulation would not ordinarily rise to the level of fiduciary conduct, see 29 CFR 2509.75-5 D-1, it is expected that the plan's enrolled actuary will make a determination under paragraph (g)(4) in a manner that is consistent with the standards for performance of actuarial services set out in 20 CFR 901.20.
   
   Other Known Events
   Paragraph (g)(2) of the proposal contains a non-exclusive list of events that could constitute an "other known event" for purposes of paragraph (b)(7) of the regulation. Paragraph (g)(6) of the final rule retains this list with two noteworthy modifications. First, the examples in paragraph (g)(2)(iv) and (v) of the proposal, relating to a retirement window benefit and a cost-of-living increase for retirees, were eliminated because they describe events that typically do not happen in the absence of a plan amendment or scheduled benefit increase. Since such events constitute amendments or increases already covered by other language in the regulation, the Department, on reflection, determined that the two examples were not very helpful and possibly misleading. The second change clarifies that the Department does not view general market fluctuations (as compared to a fraud, such as a Ponzi scheme, or other similar event affecting the value of a specific investment) as an event contemplated by the material effect disclosure provision in section 101(f) of ERISA. Market fluctuations theoretically could result in numerous, yet offsetting, material effect disclosures all in the same funding notice. For instance, assume a precipitous decline in the equity market in a given month results in a 10 percent reduction in the value of a plan's assets. Also assume the decline is followed by a market correction in the next month and the correction results in a 10 percent increase in the fair market value of the plan's assets. Thus, although the plan has no net gain or loss over this two month period, its assets have changed more than five percent twice during this time. Such a decline and correction could happen over the course of two days rather than two months. The Department agrees with the commenters who believe that this kind of information is not likely to be very helpful or informative to participants in defined benefit plans, and possibly confusing to them. The Department also thinks it would be administratively burdensome for small plans to track and explain market fluctuations. Accordingly, the proposal was modified and paragraph (g)(6) of the final regulation clarifies that market fluctuations are not "other known events" for purposes of the material effect disclosure requirement in paragraph (b)(7), and are not required to be explained or projected in funding notices. The Department is of the view that a voluntary explanation of the effect of a market fluctuation could be added to the notice pursuant to paragraph (b)(12) of the final rule, if the plan administrator determined that the explanation would be helpful and the explanation is not misleading or confusing.
   
   Finally, we have been asked if changes in actuarial assumptions constitute a material event for this purpose. The Department is not prepared to conclude categorically that changes in actuarial assumptions should never be subject to the material event disclosure provisions. Minor changes in actuarial assumptions or methods sometimes can result in substantial increases or decreases in liabilities whether the change in assumptions arises by operation of law, from an election or action of the plan sponsor, or automatically under the terms of the plan. Disclosure of a change in actuarial assumptions or methods could help participants better understand a material increase or decrease in the value of the plan's liabilities. Consequently, such changes have not been given the same treatment as market fluctuations and, therefore, in deciding whether such changes trigger disclosure, plans must determine whether, in the aggregate, any change or changes in actuarial assumptions or methods are material under the applicable tests.
   
   Projection of Liabilities
   The Department received a number of inquiries regarding the requirement in section 101(f)(2)(B)(vii) of ERISA to project the effect of a material effect event on liabilities to the end of the current plan year. Section 101(f)(2)(B)(vii), in relevant part, requires "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 inquiries illustrated numerous approaches to carry out such projection and asked whether the Department contemplated a specific methodology. The Department does not contemplate a single projection method. The Department expects only that plan administrators act reasonably and in good faith when choosing a projection method. A reasonable interpretation of the projection requirement would be to show liabilities with and without the material effect event as of last day of the current plan year based on the interest rate as of the valuation date of the notice year, with the difference expressed as a percentage, dollar amount, or both. For example:
   
   

   Plan liabilities before the scheduled benefit increase	Plan liabilities after the scheduled benefit increase	Increase in liabilities	Percentage change
   $525 million	$557 million	$32 million	6%

   
   The projection requirement in section 101(f)(2)(B)(vii) of ERISA applies to any material effect event. However, paragraph (g)(7) of the final regulation gives plan administrators the option of foregoing projections in limited situations. Specifically, if an event is not expected to change the plan's liabilities by five percent or more, then a projection is not required, but the funding notice must contain an explanation of why the specific event is considered material. This special provision will reduce administrative burdens on plans because they will not have to perform projections, which may be complex and time consuming. At the same time, participants and beneficiaries will not be adversely affected by the special provision because they will receive an explanation of why the event is considered material. Knowing why an event is considered material may be significantly more helpful to participants and beneficiaries than the projection contemplated by section 101(f)(2)(B)(vii).


8. Rules on Termination or Insolvency (Sec. 2520.101-5(b)(8))
   
   Paragraph (b)(8) of the final regulation, like the proposal, requires a summary of the rules under title IV of ERISA relating to plan termination or insolvency, as applicable. Specifically, in the case of single-employer plans, the regulation provides that a notice shall include a summary of the rules governing termination of single- employer plans under subtitle C of title IV of ERISA. See paragraph (b)(8)(i). In the case of multiemployer plans, the regulation provides that a notice shall include a summary of the rules governing insolvency, including limitations on benefit payments. See paragraph (b)(8)(ii). The Department received no comments on this provision and it is adopted in the final regulation without change (except for modifications to update the rule for a statutory change).¹⁵


9. PBGC Guarantees (Sec. 2520.101-5(b)(9))
   
   Paragraph (b)(9) of the final regulation, like the proposal, 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. The requirement in paragraph (b)(9) directly incorporates the requirements of the statute. See section 101(f)(2)(B)(ix) of ERISA. One commenter observed that the information required under paragraph (b)(9) is somewhat similar to information that pension plans already must include in their summary plan descriptions pursuant to 29 CFR 2520.102-3, although the commenter also noted that the funding notice is an annual disclosure and the summary plan description is not. This commenter asked the Department to consider exercising its authority under section 110 of ERISA to establish an alternative method of compliance under which a plan administrator's obligation under paragraph (b)(9) of the regulation (and, therefore, section 101(f)(2)(B)(ix) of ERISA) would be considered satisfied if the plan administrator otherwise complied with summary plan description requirements under Sec. 2520.102-3. Section 110 of ERISA grants the Secretary of Labor authority to prescribe an alternative method of compliance for any requirement of part 1 of subtitle B of title I of ERISA, under certain circumstances, if the Secretary makes certain findings, including that the requirement would increase the costs to or impose unreasonable administrative burdens on the plan and be adverse to the interests of plan participants in the aggregate and that the alternative is consistent with the purposes of title I of ERISA and provides adequate disclosure to the participants and beneficiaries in the plan. The public record, however, does not contain sufficient information on whether, and to what extent, the specific content requirement of section 101(f)(2)(B)(ix) would increase the costs to plans or impose unreasonable administrative burdens. Nor does it contain sufficient information on whether, and to what extent, the specific content requirement of section 101(f)(2)(B)(ix) would be adverse to the interests of plan participants in the aggregate. In the absence of such information, and evidence that the proposed alternative method provides adequate disclosure to the participants and beneficiaries in the plan, the Department is unable to accommodate the commenter's request. Nothing in this final rule, however, precludes the commenter, or any other interested person, from pursuing this matter further with the Department in the future and supplying the information needed for the Department to make the requisite determinations under section 110 of ERISA.


10. Annual Report Information (Sec. 2520.101-5(b)(10))
    
    Paragraph (b)(10) of the final regulation, like the proposal, provides that a funding notice shall include a statement that any person entitled to notice under paragraph (f) 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 (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). The Department received no comments on this provision and it is adopted in the final regulation without change.


11. Information Disclosed to PBGC (Sec. 2520.101-5(b)(11))
    
    Paragraph (b)(11) of the proposal required funding notices to state whether the contributing sponsor or a controlled group member was subject to the reporting requirements under section 4010 of ERISA. Section 4010 of ERISA generally requires plan sponsors (and each member of their controlled group) to report identifying, financial, and actuarial information about themselves and their plans to the PBGC if one or more single-employer plans maintained by any member of the controlled group has a funding target attainment percentage of less than 80 percent, has a minimum funding waiver in excess of $1 million any portion of which is still outstanding, or 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. The Department received no comments on this provision.
    
    The requirement is adopted in the final rule with a slight technical adjustment in response to an issue raised by PBGC. PBGC advised that the section 4010 reporting obligation relates to the "information year" and not the "plan year." Generally, the information year is the fiscal year of the plan sponsor. However, if any two members of the controlled group report financial information on the basis of different financial years, the information year is the calendar year. Thus, "information year" does not necessarily align with the plan year or the notice year. Accordingly, the final regulation was modified to deal with possible misalignments such that the statement requirement under paragraph (b)(11) is triggered if an ERISA section 4010 report is required for the information year ending within the notice year.


12. Additional Information (Sec. 2520.101-5(b)(12))
    
    Paragraph (b)(12) of the final regulation, like the proposal, 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. The purpose of this provision is to limit the type of information that may be added to these notices so that recipients do not face confusion or distraction based on information lacking an appropriate nexus to the funding status of the plan. In addition, paragraph (b)(12) also permits information that is "otherwise permitted by law." This clause, by contrast, 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 where such combined notification is permitted by law. 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. 2520.104-46.¹⁶ No public comments were received on this provision as proposed and it is adopted without change in the final regulation.


3. Style and Format (Sec. 2520.101-5(c))
   Paragraph (c) of the final regulation sets forth the style and format requirements for the annual funding notice requirements. Specifically, it 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 (style and format requirements for summary plan descriptions). Thus, as with summary plan descriptions, funding 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. This means that plan administrators must, among other things, exercise considered judgment and discretion by taking into account such factors as the level of comprehension and education of typical participants in the plan.


4. Timing Requirements (Sec. 2520.101-5(d))
   
   Paragraph (d) of the final regulation, like the proposal, describes when a funding notice must be furnished to recipients. Paragraph (d)(1) provides that notices generally must be furnished not later than 120 days after the end of the notice year. Paragraph (d)(2) 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 required by section 104 of ERISA 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.
   
   One commenter recommended that the deadline for furnishing the funding notice for large plans be shortened from no later than 120 days after the end of the notice year to no later than 180 days after the valuation date of the notice year. This would accelerate the deadline by approximately 10 months for plans whose valuation date is January 1. The commenter favors timelier information. The Department also favors timely information for participants and beneficiaries. However, the statutory deadline is clear and unambiguous, thereby limiting the Department's authority to accept this comment under section 101(f) of ERISA. In addition, adopting the commenter's recommendation would make it impossible for many plan administrators to comply with other content requirements in section 101(f) of ERISA. For instance, section 101(f)(2)(B)(iv) of ERISA requires that funding notices contain a statement setting forth the asset allocation of investments under the plan as of the end of the plan year. For plans with a January 1 valuation date, the plan administrators could not comply with the foregoing requirement because the end of the plan year always would be after the 180-day deadline recommended by the commenter. Accordingly, the Department did not adopt this recommendation.


5. Manner of Furnishing (Sec. 2520.101-5(e))
   
   Paragraph (e) of the regulation relates to how 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. As with the proposal, paragraph (e)(1) of the final regulation is reserved. The reservation reflects the fact that the Department has not yet finished exploring whether, and possibly how, to expand or modify the standards in 29 CFR 2520.104b-1(c) applicable to the electronic distribution of required plan disclosures.¹⁷ Pending the completion of this review and issuance of further guidance, the Department notes that the general disclosure regulation at Sec. 2520.104b-1 applies to material furnished under this regulation, including the safe harbor for electronic disclosures at paragraph (c) of that regulation. Paragraph (e)(2) of the final regulation provides that funding notices shall be furnished to the PBGC consistent with the requirements of 29 CFR part 4000.


6. Persons Entitled to Notice (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.
   
   One commenter asked for clarification whether alternate payees must be furnished annual funding notices under this provision. The language in the proposal could be read as mandating disclosure to alternate payees only after they have entered pay status. We agree with the commenter that there is a need for further clarification on this issue. Section 206(d)(3)(J) of ERISA, in relevant part, explicitly states that ``a person who is an alternate payee under a qualified domestic relations order shall be considered for purposes of any provision of this Act a beneficiary under the plan.'' Section 101(f) of ERISA, in relevant part, states that for each plan year the plan administrator shall provide a funding notice to ``each plan participant and beneficiary.'' Unlike the summary plan description and summary annual report requirements of sections 104(b)(1) and 104(b)(3) of ERISA, respectively, the annual funding notice disclosures are not limited expressly to beneficiaries ``receiving benefits under the plan.'' Of course, the Department is concerned that furnishing annual funding notices to all beneficiaries could result in costs and burdens that outweigh the benefits. However, the Department agrees with the commenter that alternate payees, especially those who have a separate interest qualified domestic relations order, have an interest in the plan's funding status equal to the other categories of persons entitled to notices listed in paragraph (f) of the proposal. The Department, therefore, has provided the clarification requested by the commenter by adding ``[e]ach alternate payee under the plan on the last day of the notice year . . .'' to the list of persons entitled to a funding notice under paragraph (f) of the final regulation. See Sec. 2520.101- 5(f)(3).
   
   Another commenter suggested that plan administrators should have the option of using either the first or last day of the notice year to determine whether someone is entitled to a notice, subject to a consistency rule. According to this commenter, valuation date data may be the most up to date data available to a plan sponsor without additional cost and effort to the plan. In the Department's view, however, the identity of each participant and alternate payee covered under the plan and each beneficiary receiving benefits on the last day of the plan year should be readily available to the plan administrator by the due date of the funding notice. The commenter offers no empirical data showing a cost differential between valuation date determinations and determinations on the last day of the plan year. In addition, if, in accordance with the commenter's recommendation, the participant/beneficiary population were determined on the valuation date, which is generally the first day of the plan year, any individuals who become participants, alternate payees or beneficiaries receiving benefits during the notice year would not receive a notice for that year. For these reasons, the Department did not adopt the commenter's suggestion.


7. Model Notices (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 purposes of section 101(f) of ERISA. 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 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.
   
   The Department solicited comments on how the models could be improved to enhance understandability and comprehensibility. One commenter submitted an alternative to the Department's model for single-employer plans. This alternative essentially would move definitions and descriptions to a glossary at the end of the notice on the premise that it would help participants to focus on the funding status data located in the chart in the front of the notice. Another commenter subjected both notices to a passive sentences readability test, the Flesch Reading Ease Test, and the Flesch-Kincaid Grade Level Test. The tests were applied to both models and to each paragraph within the models. Both models are below the suggested readability scores according to the commenter. This commenter recommended improving readability by replacing much of the content in the models with a single sentence; for single-employer plans, the sentence would state whether the plan is or is not ``at risk;'' for multiemployer plans, the sentence would state whether the plan is a ``green, yellow, orange or red'' zone plan. Another commenter encouraged the Department to create a model notice that does not exceed a single page. This commenter would limit the content to the name of the plan, the funded percentage, the dollar amount of the shortfall, the risk of not being able to fund pension obligations, a description of the plan sponsor's plan to reduce such risk, and an explanation of how to get more information, in order to meet the one page standard. Other miscellaneous comments were made to improve the single-employer plan model. Many of these comments focused on emphasizing or deemphasizing certain information relative to other information, such as, for example, emphasizing the fact that the notice is ``required by law.''
   
   The Department retained the general framework of the proposed models. The Department was unable to accommodate the single page and single sentence approaches discussed above without eliminating statutorily mandated information. However, the models were revised to eliminate passive sentences where possible. Modifications to address the Flesch scores, on the other hand, were more difficult given the nature of the specific disclosure requirements under section 101(f) of ERISA. Nonetheless, where possible, lengthy sentences were made shorter and more concise, funding jargon was removed, and readability was improved determined using the same testing methods used by the commenter. The Department was not persuaded that the alternative with a glossary, submitted by one commenter, is any more user-friendly or understandable than the models appended to the final rule. Finally, the opening paragraph of the models now contains the following sentence: ``The notice is required by federal law.''
   
   The Department's intent behind models, in part, is to ease the burden on plan administrators by providing model language to satisfy applicable regulatory requirements. As noted above, use of a model notice is not mandatory. To the extent a plan administrator elects to include in a model notice additional information described in paragraph (b)(12) of the regulation, such additional information must be consistent with the style and format requirements in paragraph (c) of the regulation. Thus, such additional information should not have the effect of misleading or misinforming recipients.


8. Alternative Methods of Compliance
   
   The Department recognizes that there are situations in which some of the information to be provided in the annual funding notice is duplicative of other information sources or irrelevant. In the preamble to the proposed rule, the Department discussed and sought comments on whether there should be special rules with respect to (1) the furnishing of an annual funding notice to the PBGC in the case of certain single-employer plans; (2) the scope of the content of a notice for multiemployer plans terminated by mass withdrawal; and (3) the scope of the content of a notice for certain insurance contract plans to which Code section 412(e)(3) applies.
   
   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 the 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. The Department finds, for the reasons discussed below, these three conditions to be satisfied in each of the circumstances described above. Thus, it includes in paragraphs (j), (k), and (l) of this final regulation alternative methods of complying with the annual funding notice requirements under section 101(f) in these limited circumstances.
   
   
   1. Alternative Method of Compliance for Furnishing Notice to PBGC for Certain Single-Employer Plans (Sec. 2520.101-5(j))
      
      The final regulation includes an alternative method of compliance for single-employer plans to furnish their funding notices 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. To determine whether a plan's liabilities exceed its assets by more than $50 million, the plan administrator 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 regulation. 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.
      
      The Department explained the rationale for this alternative in the proposal. First, the PBGC has determined that, in light of the extended 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. Second, 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). Third, the Department believes the alternative method will reduce administrative burdens for plans that meet its conditions. Fourth, such an alternative should be limited to single-employer plans because PBGC does not have the same early access to this information in the case of multiemployer plans. For instance, multiemployer plans are not subject to ERISA section 4043 and very few multiemployer plans will qualify for the small plan extended annual funding notice due date. The Department received only positive comments on the proposed provision. The final regulation adopts the alternative, with only minor changes to improve readability.
   
   
   2. Alternative Method of Compliance for Multiemployer Plans That Terminate by Reason of Mass Withdrawal (Sec. 2520.101-5(k))
      
      The Department sought comments on whether a special rule should be provided for multiemployer plans that terminate by mass withdrawal pursuant to ERISA section 4041A(a)(2). 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. Specifically, the Department noted that while some information required by the regulation may not be relevant, other information, such as PBGC guarantee levels, assets and liabilities, participant status, and insolvency information may still be important to participants and beneficiaries receiving benefits from such plans. Specific comments were requested on whether a special rule should be provided, and if so, information that should be excluded from the notice as well as the information that should be included, and any data on cost savings as a result of a special rule.
      
      Commenters made the following observations about these plans. First, the minimum funding standards cease to apply to these plans and the Schedule MB of the Form 5500 is no longer required. Second, because of that, the Code's critical/endangered status rules become inoperable. Third, since the minimum funding and Schedule MB reporting requirements no longer apply, there is no reason for the plan's enrolled actuary to perform a funding valuation. Thus, information needed to satisfy section 101(f) and the requirements of the regulation is not readily available. Fourth, the actuarial and other costs needed to generate such information will be borne entirely by the participants and beneficiaries because there are no contributing employers to defray the costs. Fifth, participants in these plans might be better served with different or less information than is otherwise included in an annual funding notice.
      
      Based on the foregoing, the Department has adopted an alternative method of compliance in paragraph (k) of the final regulation for plans that terminate pursuant to section 4041A(a)(2) of ERISA. These plans no longer have any contributing employers and, therefore, typically have no cash in-flow other than investment return and, perhaps, withdrawal liability payments. Thus, such a plan exists merely to pay benefits to participants, until such time as the plan's trust runs out of money. This ``wasting trust'' period often can span several years depending on the particular plan.
      
      The rules in paragraph (k), on the one hand, acknowledge that such plans hardly ever have all the section 101(f) information because they are no longer required to comply with the minimum funding rules. At the same time, however, these rules acknowledge that participants and beneficiaries continue to have an interest in the funding status of the plan during the wasting trust period. Thus, instead of the specific funding information required by the regulation more generally, the final rule allows plan administrators of a plan terminated by mass withdrawal to comply with the annual funding notice rules under ERISA section 101(f) through this alternative method. The rules in paragraph (k) focus mainly on the plan's assets and benefit payments being made so that participants are able to draw a rough estimate of how long the plan will be able to pay benefits. Paragraph (k) also focuses on information about PBGC guarantees, insolvency and possible benefit reductions, i.e., the kind of information that is directly relevant to participants when their plan is in this situation. The rules do not require disclosure of this alternative notice to labor organizations representing participants, contributing employers, or the PBGC under paragraphs (f)(4), (5), and (6) of the final regulation.
   
   
   3. Alternative Method of Compliance for Code Section 412(e)(3) Insurance Contract Plans (Sec. 2520.101-5(l))
      
      During the development of the proposed regulation, concerns were expressed about the relevance of section 101(f) information to Code section 412(e)(3) insurance contract plans. Code section 412(e)(3) insurance contract plans are plans under which retirement benefits are provided through contracts 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. Consequently, the Department sought comments on whether a special rule should be adopted with respect to Code section 412(e)(3) plans and if so, what information should or should not be included in the annual funding notice for these plans.
      
      If a plan is funded exclusively by the purchase of such contracts, the minimum funding requirements of section 412 of the Code and section 302 of ERISA do not apply for the plan year and neither the Schedule MB nor the Schedule SB of the Form 5500 Annual Return/Report is required to be filed. Consequently, nearly all of the content requirements in section 101(f) are irrelevant to section 412(e)(3) plans. These content requirements are irrelevant because they reflect funding rules and concepts that simply are not applicable to these plans. For this reason, the final rule adopts an alternative method of compliance for section 412(e)(3) plans which is set forth in paragraph (l) of the final regulation. Specifically, the alternative method focuses on whether the premiums necessary to fund retirement benefits under these plans are being paid to the insurer in a timely manner and the consequences of a failure to do so. This alternative approach is needed so that participants in section 412(e)(3) plans do not receive information inapplicable to their plans and benefits, and so that plans do not incur the cost of providing such information.
   
   
9. Plans Not Immediately Subject to New Funding Rules or to Which Special Funding Rules Apply
   
   
   1. CSEC Plans
      
      On April 7, 2014, section 104(a)(1) of the Cooperative and Small Employer Charity Pension Plan Flexibility Act (CSEC Act), Public Law 113-97, 128 Stat. 1101 (as amended by the Consolidated and Continuing Appropriations Act, 2015, Public Law 113-235), added new disclosures to the funding notices of CSEC plans for plan years beginning after December 31, 2013.¹⁸ The additional disclosures relate to the CSEC plan funding rules of new section 306 of ERISA.¹⁹ A CSEC plan is a defined benefit pension plan (other than a multiemployer plan) that is either a multiple employer cooperative plan described in section 104 of the PPA, a plan that as of June 25, 2010, was maintained by more than one employer and all of the employers were Code section 501(c)(3) charitable organizations, or a plan, as of June 25, 2010, maintained by a Code section 501(c)(3) charitable organization chartered under part B of subtitle II of title 36 of the Code, with employees in at least 40 states, and whose primary exempt purpose is to provide services with respect to children.²⁰ A CSEC plan sponsor can elect out of CSEC plan status by the end of the first plan year beginning after December 31, 2013.²¹
      
      The final rule does not address the new disclosures required by the CSEC Act. Since the CSEC Act covers only a small number of plans subject to section 101(f) of ERISA, the Department decided it is better for the vast majority of defined benefit plans to proceed with the final rule now and subsequently address the disclosure requirements for CSEC plans. The final rule, therefore, reserves paragraph (m) to address CSEC plan disclosures in the future, if necessary. Pending further guidance, the Department, as a matter of enforcement policy, will treat a plan administrator as satisfying the requirements of section 101(f)(2)(E) (which contains the new CSEC disclosures), if the administrator acts in accordance with a good faith, reasonable interpretation of those requirements.
   
   
   2. PPA Section 104 and 402 Plans
      
      Section 104 of the PPA defers the effective date of the amendments to the funding rules made by the PPA for certain multiple employer plans of rural cooperatives and eligible charity plans.²² Generally, these plans will be CSEC plans, unless they elect out of CSEC status (or are maintained by charities that are under common control). In addition, section 402 of the PPA applies special funding rules to certain plans of commercial passenger airlines and airline caterers.²³ Neither section 104 nor section 402 of the PPA affected the application of section 101(f) of ERISA to such plans. Consequently, plans electing out of CSEC status, eligible charity plans that are not CSEC plans, and section 402 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 until such time as they become subject to the PPA funding rules. For example, the funding target attainment percentage of a plan described in section 104 is determined in accordance with paragraph (b)(2)(i) of the final regulation, except that the value of plan assets is determined without subtraction of the funding standard carryover balance or prefunding balance. See 26 CFR 1.430(d)-1(b)(3)(ii).


10. 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 did not contain any special rules for multiple employer pension plans. However, the Department requested comments 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. The Department received no comments in response to this request. The final rule contains no special rules for multiple employer plans.


4. 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 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.²⁴ Therefore, in conjunction with the annual funding notice regulation (29 CFR 2520.101-5), as set forth in the final rule and discussed in section C 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 that elects to use the waiver must include the information in Sec. 2520.104-46(b)(1)(i)(B)(1)-(4) in the plan's annual funding notice. The model audit waiver language in the Appendix to Sec. 2520.104-46, modified for the format of the annual funding notice, may be used to meet those information requirements.


5. Overview of Amendments to 29 CFR 2520.104b-10--Summary Annual Report
   
   As discussed in section D 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, the proposal added a new paragraph (g)(9) to provide that a SAR is not required to be furnished if the plan is subject to title IV of ERISA. The Department received no comments on this provision. The final regulation adopts paragraph (g)(9) of the proposal, without change.
   
   In the preamble of the proposal, the Department mentioned that some items and language in the form prescribed in paragraph (d)(3) and the appendix to Sec. 2520.104b-10 might be irrelevant on and after the effective date of the repeal and solicited comments regarding how best to revise the form and Appendix. The Department received no comments in response to this request. After reviewing the coverage requirements of titles I and IV of ERISA, the Department recognizes that not all defined benefit plans covered under title 1 of ERISA are subject to title IV.²⁵ Such plans would remain subject to the SAR requirements of Sec. 2520.104b-10. Accordingly, the Department is not making any changes to paragraph (d)(3) and the appendix of Sec. 2520.104b-10 at this time.


6. Removal of 29 CFR 2520.101-4
   
   n 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 PBGC. On January 11, 2006, the Department published a final regulation, 29 CFR 2520.101- 4, implementing the requirements of section 101(f) of ERISA as amended by PFEA `04. The final regulation published today implements changes to section 101(f) of ERISA, as amended by PPA, and supersedes and reserves 29 CFR 2520.101-4.

⁵ See 75 FR 70625, 70627 (explaining that 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. 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)).

⁶ See also the instructions to Schedule SB of the 2013 Form 5500 Annual Return/Report, which state: "For terminating plans, Rev. Rul. 79-237, 1979-2 C.B. 190 provides that minimum funding standards apply until the end of the plan year that includes the termination date. Accordingly, the Schedule SB is not required to be filed for any later plan year."

⁷ See 26 CFR 1.430(d)-1(b)(3)(i); 74 FR 53004, 53036 (Oct. 15, 2009).

⁸ Section 436(j)(3) of the Code states that if the funding target attainment percentage is 100% or more before the value of plan assets is reduced by the credit balances, the funding target attainment percentage is determined without regard to such reduction for purposes of calculating the adjusted funding target attainment percentage used to determine whether the benefit restrictions and limitations of Code section 436 apply.

⁹ See proposed Treasury regulation 26 CFR 1.432(a)-1(b)(7); 73 FR 14417, 14423 (March 18, 2008).

¹⁰ This approach is consistent with the position taken by the PBGC regarding the treatment of contributions made on account of the prior year in determining the fair market value of assets under section 4006(a)(3)(E)(iii). See page 17 of the PBGC's 2013 Comprehensive Premium Payment Instructions.

¹¹ 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[.]"

¹² 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).

¹³ See lines 1a, 1c, 1d and 1(e) of the 2013 Schedule H. 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 2013 Schedule H).

¹⁴ See section 201(a)(4) of the MPRA (adding new disclosure requirements to section 101(f)(2)(B)(vi) of ERISA and renumbering former clauses (vi) through (x) of section 101(f) as clauses (vii) through (xi)). See also section 201(a)(2) of this Act, which added section 305(b)(6) of ERISA to define "critical and declining" status. See also section 201(a)(1)(C) of this Act, adding new section 305 (a)(3)(A) to ERISA, which subjects a multiemployer plan in critical and declining status to the same requirements as a multiemployer plan in critical status.

¹⁵ The proposal also required the funding notices of multiemployer plans to include a summary of the reorganization rules. This requirement was deleted from the final rule as the result of the repeal of the reorganization rules of title IV of ERISA by section 108 of the MPRA.

¹⁶ Section D of this preamble discusses amendments to Sec. 2520.104-46.

¹⁷ The same reasoning was behind the reservation in the Department's final regulation on fiduciary requirements for disclosure in participant-directed individual account plans. See 29 CFR 2550.404a-5(g), 75 FR 64910, 64922 (October 20, 2010). See also Request for Information Regarding Electronic Disclosure by Employee Benefit Plans, 76 FR 19285 (April 7, 2011).

¹⁸ ERISA section 101(f)(2)(E).

¹⁹ Section 306 of ERISA and corresponding section 433 of the Code were added by sections 102 and 202 of the CSEC Act, respectively.

²⁰ ERISA section 210(f)(1). Section 210(f)(1) of ERISA and corresponding section 414(y)(1) of the Code were added by sections 101 and 201 of the CSEC Act, respectively. These provisions were amended by the Consolidated and Continuing Appropriations Act, 2015, Public Law 113-235, Division P, section 3 (2014).

²¹ ERISA section 210(f)(3). Section 210(f)(3) of ERISA and corresponding section 414(y)(3) of the Code were added by sections 103 and 203 of the CSEC Act, respectively.

²² 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, Pub. L. 109-280, by expanding the group of plans that are eligible for a deferred effective date under section 104 to include eligible charity plans.

²³ Section 402 of the PPA as amended by the U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and Iraq Accountability Appropriations Act, 2007, Public Law 110-28.

²⁴ The repeal is effective for plan years beginning after December 31, 2007.

²⁵ A plan established and maintained by a professional services employer which does not at any time after September 2, 1974 have more than 25 active participants is not covered by title IV. See section 4021(b)(13) of ERISA. Also, plans funded entirely by employee contributions are not covered by title IV. See section 4021(b)(5) of ERISA. There are no comparable provisions under section 4 of ERISA excluding such plans from title I.

Single-Employer Cross Reference Chart Top

Multiemployer Cross Reference Chart Top

Print Settings TOP

At the top of the AFN Checklist, the user has the option to update the SAR/AFN Print Settings on a Global Level. The SAR/AFN Print settings may be altered by the Master/Designated Admin users on a global level. The settings will apply when you add a new SAR/AFN to a plan. Existing SAR/AFNs will continue to have the previous print settings unless the SAR/AFN is deleted, then re-added. Note: If a prior year SAR/AFN exists and the SAR/AFN/8955-SSA Defaults have indicated to bring forward prior year defaults, the updated print settings will not apply. Instead, the system will bring forward the prior year print settings.