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5500 Preparer's Manual for 2012 Plan Years
The premier resource in the field of Form 5500 preparation, 5500 Preparer's Manual will help you handle the required annual Form 5500 filings for both pension benefits and welfare benefit plans.
The Employee Benefits Security Administration (EBSA) has issued a Field Assistance Bulletin clarifying defined benefit plan disclosure requirement changes mandated by the Pension Protection Act of 2006 (PPA; P.L. 109-280). The FAB addresses a need for interim guidance pending the adoption of regulations or other guidance under ERISA §101(f) by announcing a “good faith” enforcement policy. The FAB also includes technical assistance in the form of questions and answers and several model annual funding notices. According to the Labor Department, an estimated 1,500 multiemployer plans covering approximately 10 million participants and beneficiaries plus 29,000 single-employer plans covering approximately 33.8 million participants and beneficiaries are subject to the new disclosure requirements. Many of these plans must furnish their first annual funding notice under the PPA no later than April 30, 2009.
Background
Prior to the PPA, ERISA §101(f) , which sets forth requirements applicable to furnishing annual funding notices, applied only to multiemployer defined benefit plans. However, the PPA made significant changes to the annual funding notice requirements, requiring administrators of all defined benefit plans that are subject to Title IV of ERISA, not only multiemployer plans, to provide an annual funding notice to the Pension Benefit Guaranty Corporation (PBGC), to each plan participant and beneficiary, and to each labor organization representing such participants or beneficiaries. Multiemployer plans must also provide an annual funding notice to each employer that has an obligation to contribute to the plan. An annual funding notice must include, among other things, the plan’s funding percentage, a statement of the value of the plan’s assets and liabilities and a description of how the plan’s assets are invested as of specific dates, and a description of the benefits under the plan that are eligible to be guaranteed by the PBGC.
The PPA amendments to ERISA §101(f) apply to plan years beginning after December 31, 2007, with special rules for disclosing “funding target attainment percentage” or “funded percentage” with respect to any plan year beginning before January 1, 2008. Under the PPA, the DOL was required to develop a model annual funding notice within one year of the date of enactment of the PPA. Recently, concerns have been expressed about the imminent compliance date of the new annual funding notice requirements, as well as the absence of regulatory guidance from the DOL and the cost and burdens arising from annual funding notice compliance efforts prior to the adoption of annual funding notice regulations. As a result, EBSA is providing this FAB to offer guidance to its national and regional offices concerning good faith compliance with the new annual funding notice requirements.
Good faith compliance
Pending further guidance, the Labor Department indicates that, as a matter of enforcement policy, it will treat a plan administrator as satisfying the requirements of ERISA §101(f) , if the administrator has complied with the guidance contained in the FAB and has acted in accordance with a good faith, reasonable interpretation of those requirements with respect to matters not specifically addressed by the guidance.
The FAB contains two model notices and related questions and answers. The model in Appendix A is for single-employer defined benefit plans and the model in Appendix B is for multiemployer defined benefit plans. Use of the models is not mandatory and plans may use other notice forms to satisfy the new annual funding notice content requirements. However, pending further guidance, use of an appropriately completed model notice, as a matter of EBSA enforcement policy, will satisfy the content requirements of ERISA §101(f) , according to the DOL.
Timing of new annual funding notice requirements compliance
The new annual funding notice requirements apply to plan years beginning on or after January 1, 2008. Plans generally must furnish funding notices no later than 120 days after the close of each plan year. As a result, many plans are required to furnish their first annual funding notice no later than April 30, 2009 (120 days after the close of their 2008 plan year). ERISA §101(f)(3)(B) provides a timing exception for small plans. For these small plans, notices must be provided not later than the earlier of the date on which the annual report is filed under ERISA §104(a) or the latest date the annual report must be filed under that section (including extensions). A plan is a small plan if it is described in ERISA §303(g)(2) (B) (generally, if it had 100 or fewer participants on each day during the plan year preceding the year to which the notice relates) regardless of whether it is a single-employer or multiemployer plan.
Plan administrators of multiemployer plans may not use the model in the Appendix to ERISA Reg. §2520.101-4 for purposes of compliance with ERISA §101(f) for plan years beginning on or after January 1, 2008. Consistent with the effective date of the new annual funding notice requirements, the model in the Appendix to ERISA Reg. §2520.101-4 may be used only for plan years beginning on or before December 31, 2007. For plan years beginning on or after January 1, 2008, administrators of multiemployer plans may instead use the model in Appendix B of the FAB to discharge their notice obligations under ERISA §101(f). EBSA intends to remove ERISA Reg. §2520.101-4 when it issues final rules under ERISA §101(f) , as amended.
DOL clarifies enforcement actions under FAB
ERISA §101(f)(1) requires that DB plan administrators must furnish a plan funding notice to the PBGC for each plan year. However, pending further guidance, the DOL indicates that it will not take any enforcement action regarding the failure to furnish an annual funding notice to the PBGC for a single-employer plan with liabilities that do not exceed plan assets by more than $50 million, provided that the administrator furnishes the latest available annual funding notice to the PBGC within 30 days of receiving a written request from the PBGC. The PBGC has informed the DOL that, in light of the extended annual funding notice due date for small plans, it will have electronic access to the information included on the annual funding notice for most single-employer plans as a result of ERISA’s annual reporting requirement under ERISA §104(a) at or around the time it would receive a copy of an annual funding notice under ERISA §101(f) . In addition, under the PBGC’s Reportable Events regulation, the PBGC typically would receive information about certain events that might indicate increased exposure or risk before it would receive information under either section ERISA §101(f) or ERISA §104(a).
The new requirements apply to any defined benefit plan to which Title IV of ERISA applies. However, the DOL will not take enforcement action in the case of a multiemployer plan that is insolvent and that, as of the due date for the annual funding notice, is in compliance with the insolvency notice requirements under Title IV of ERISA. In such cases, disclosure of information under ERISA §101(f) may be redundant given the notice requirements under Title IV of ERISA. The annual funding notice would be of little, if any, value to recipients in light of the PBGC’s authority and responsibility under Title IV of ERISA with respect to insolvent multiemployer plans. According to the DOL, a plan that emerges from insolvency or ceases to comply with the insolvency notice requirements under Title IV of ERISA is not thereafter entitled to the relief provided in the FAB.
The DOL has determined, as a matter of enforcement policy and pending further guidance, that a plan amendment, scheduled benefit increase, or other known event has a material effect on plan liabilities or assets for the current plan year if the amendment, scheduled increase, or other known event results, or is projected to result, in either a change of five percent or more in plan liabilities or a change of five percent or more in the value of plan assets, from the prior plan year. Assets and liabilities should be measured in the same manner that they are measured when calculating the plan’s funding target attainment percentage or funded percentage. In addition, an amendment, scheduled benefit increase, or other known 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 Code Secs. 430 or 431 , as applicable, without regard to the five percent threshold. The term “current plan year” means the plan year following the plan year to which the notice relates (e.g., the plan year in which the annual funding notice is furnished to recipients). In addition, as part of this enforcement policy, if an otherwise disclosable event first becomes known to the plan administrator 120 days or less before the due date of the notice, such event is not required to be included in the notice.
The FAB also clarifies various rules governing the calculation of a plan’s funding target attainment percentage for purposes of the model notice.
Adding additional or explanatory information to a model
According to the DOL, plan administrators may add additional or explanatory information to a model. ERISA §101(f)(2)(C)(ii) permits plan administrators to include in a notice “any additional information which the plan administrator elects to include to the extent not inconsistent with regulations prescribed by the Secretary.” Accordingly, pending further guidance, a plan administrator who decides to use a model may elect to add to the model any additional information that is necessary or helpful to understanding the mandatory information and that does not have the effect of misleading or misinforming participants. Plans are not required to add such information at the end of the model under a separate heading, as is the case under ERISA Reg. §2520.101-4(b)(9) for multiemployer plans with respect to notices relating to plan years beginning on or before December 31, 2007. In addition, a plan administrator may furnish other notices required by ERISA along with the model. For example, a plan administrator may include the notice of endangered or critical status as required by ERISA §305(b)(3)(D)(i) in the same mailing as the annual funding notice and explain the relationship between these two notices in the annual funding notice.
Furnishing annual funding notice to recipients electronically
The annual funding notice may be furnished to recipients electronically, according to the DOL. ERISA §101(f) (4)(c) provides that an annual funding notice may be provided in written, electronic, or other appropriate form to the extent such form is reasonably accessible to persons to whom the notice is required to be provided. The DOL has issued a regulation, Reg. §2520.104b-1(c) , setting forth a safe harbor under which plan administrators will be deemed to satisfy their disclosure requirements. While compliance with this safe harbor would constitute good faith compliance with ERISA §101(f)(4)(c) , the DOL notes that the safe harbor is not the exclusive means by which plan administrators could, in the absence of other guidance, satisfy their obligation to furnish information to participants and beneficiaries. This guidance does not foreclose the use of other means by which documents may, consistent with ERISA and the E-SIGN Act, be furnished to participants and beneficiaries electronically.
Disclosure of prior year plan funding information clarified
ERISA §101(f) requires the disclosure of plan funding information not only for the plan year to which the notice relates, but also for the two plan years preceding that year. Thus, for example, an annual funding notice for the 2008 plan year must include PPA funding information pertaining to the 2007 and 2006 plan years (both pre-PPA years). In the FAB, the DOL has clarified which funding information for these pre-PPA years a plan administrator should include in its model.
For a plan year beginning in 2006, the notice must include the funded current liability percentage (as defined in ERISA §302(d)(8) , as in effect prior to the PPA) of the plan for such plan year. Pending further guidance, for a plan year beginning in 2007, in the case of a single-employer plan, the notice should include the plan’s funding target attainment percentage determined in accordance with IRS proposed regulations. In the case of a multiemployer plan, for a plan year beginning in 2007, the IRS has advised the DOL that the plan’s funded current liability percentage (as defined in ERISA §302(d)(8) , as in effect prior to the PPA), is treated as the plan’s estimated funded percentage. Pending further guidance, the notice with respect to a multiemployer plan should therefore include the plan’s funded current liability percentage for the plan year beginning in 2007.
The models in Appendix A and Appendix B of the FAB reflect PPA funding concepts, not transitional data, and thus, for plan years 2008 and 2009, plans using a model should insert “not applicable” in the relevant cells in the Funding Target Attainment Percentage chart (single-employer plans) or the Funded Percentage chart (multiemployer plans) and also complete and include in the model the additional model language set forth in Appendix C. The language in Appendix C, entitled “Transition Data,” should be inserted in the model directly below the Funding Target Attainment Percentage chart or the Funded Percentage chart.
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