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Annual Funding Notice For Defined Benefit Plans For Plan Years Beginning in 2008

March 4, 2009
Employee Benefits Advisory

The Pension Protection Act of 2006 ("PPA") requires the sponsors of defined benefit plans covered by ERISA to provide an "annual funding notice" to plan participants and other parties within 120 days after the end of each plan year beginning after 2007. This annual notice replaces the "summary annual report" that administrators had been required to distribute to participants within nine months after the end of the plan year. The annual funding notices have to be distributed earlier than summary annual reports (by April 30, 2009 for calendar year plans) and include more information than the summary annual reports.

The purpose of the annual funding notice is to inform participants (and their labor unions where applicable) and the PBGC of the funding status of the plan, that is, the percentage of the plan's liabilities that can be paid by the plan's assets. The notice must include information about the guarantees provided by the federal agency known as the PBGC and the impact on the participants if the plan sponsor became insolvent and the PBGC took over the Plan. The PBGC guarantees normal retirement benefits up to certain limits, but not early retirement supplements and other ancillary benefits provided by many pension plans.

In addition to the funding status of the plan, the annual funding notice must include a summary of the funding policy for the plan, a summary of the investment policy for the plan, information about the assets held by the plan and the manner in which those assets are invested, and the number of persons covered by the plan as active participants, retirees, and other beneficiaries.

The information required for the annual funding notice must be reported as of the end of the previous plan year. This means that the actuaries will have to determine the liabilities of the plan much more rapidly than in years past so that the notice can be given within 120 days after the end of the plan year. Employers or administrators will have to gather information on assets and investments, and prepare summaries of their funding and investment policies for the plan. These summaries do not have to be elaborate, but should provide a clear picture of the policies for the plan.

The Employee Benefit Security Administration of the U.S. Department of Labor ("DOL") has published "model" annual funding notices for single employer and multi-employer plans. Plan administrators are not required to use these model forms, but we have reviewed the model forms and recommend that our clients use them. You may supplement the model forms with additional information if you think that is appropriate.

Use of the model forms will satisfy your disclosure requirements under ERISA. You can furnish the annual funding notice by first-class mail or by personal delivery. You can also furnish it electronically to participants who have access to a computer terminal at their work stations as long as you advise them that they are entitled to a paper copy at their request. Regardless of the method you use for distribution of the notice, we recommend that you prepare a memorandum for the file showing the method or methods used for distribution and the persons or parties on the distribution list.

Action Steps

If you have a calendar year plan, you need to get busy gathering the information required to complete the notice so that it can be distributed by April 30, 2009. You will need information from your actuaries and accountants to complete the numerical portions of the notice. You may also need assistance in preparing summaries of your funding and investment policies. We recommend you get started right away on these tasks so that you are not scrambling on April 30.

We can furnish you with copies of the model forms prepared by the DOL and assist you in preparing your notices. Please contact a member of our Employee Benefits Practice Team for assistance.

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