Vol. 80 Monday, 

No. 21 February 2, 2015 

Part II 

Department of Labor 

Employee Benefits Security Administration 

29 CFR Part 2520 

Annual Funding Notice for Defined Benefit Plans; Final Rule 

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5626 Federal Register / Vol. 80, No. 21 / Monday, February 2, 2015 / Rules and Regulations 

1This is approximately $6 million less than the 

total cost the Department estimated at the proposed 

rule stage. The cost reduction results primarily from 

a reduction in the clerical time required to prepare 

and distribute the notices based on a comment from 

an actuary. The Department has estimated minimal 

start-up costs (primarily to review and update the 

model notice), because plans have been complying 

with the annual funding notice requirement for 

several years. 

2 In 2004, the Pension Funding Equity Act, Public 

Law 108–218, amended title I of ERISA by adding 

section 101(f), which required multiemployer 

defined benefit plans to furnish a funding notice 

annually to each participant and beneficiary, to 

each labor organization representing such 

participants or beneficiaries, to each employer that 

has an obligation to contribute under the plan, and 

to the Pension Benefit Guaranty Corporation. 

DEPARTMENT OF LABOR 

Employee Benefits Security 

Administration 

29 CFR Part 2520 

RIN 1210–AB18 

Annual Funding Notice for Defined 

Benefit Plans 

AGENCY: Employee Benefits Security 

Administration, Labor. 

ACTION: Final rule. 

SUMMARY: This document contains a 

final rule implementing the annual 

funding notice requirement of section 

101(f) of the Employee Retirement 

Income Security Act of 1974, as 

amended (ERISA). The final rule 

requires the administrators of defined 

benefit plans (single-employer and 

multiemployer) to furnish an annual 

funding notice to participants, 

beneficiaries, the Pension Benefit 

Guaranty Corporation, and certain other 

persons. The rule enhances retirement 

security and increases pension plan 

transparency by ensuring that workers 

receive timely and accurate notification 

annually of the funded status of their 

defined benefit pension plans. This 

document also contains necessary 

conforming amendments to other 

regulations under ERISA, such as the 

summary annual report regulation. 

DATES: Effective date: March 4, 2015. 

Applicability date: The final rule is 

applicable to notices for plan years 

beginning on or after January 1, 2015. 

Prior to this applicability date, however, 

plan administrators may elect to comply 

with the requirements of the final 

regulation and the Department of Labor, 

as a matter of enforcement, will 

consider such compliance as satisfying 

the requirements of section 101(f) of 

ERISA. This temporary enforcement 

policy does not address the rights or 

obligations of other parties. 

FOR FURTHER INFORMATION CONTACT: 

Thomas M. Hindmarch or Stephanie 

Ward Cibinic, Office of Regulations and 

Interpretations, Employee Benefits 

Security Administration, (202) 693– 

8500. This is not a toll-free number. 

SUPPLEMENTARY INFORMATION: 

A. Executive Summary 

In accordance with Executive Order 

13563 (76 FR 3821), this section of the 

preamble contains an executive 

summary of the rulemaking in order to 

promote public understanding of the 

content of the final rule. Sections B 

through G of this preamble, below, 

contain a more detailed description of 

the final regulatory provisions and need 

for the rulemaking as well as its costs 

and benefits. 

1. Purpose of Regulatory Action 

This final rule implements the annual 

funding notice requirement of section 

101(f) of ERISA as amended by the 

Pension Protection Act of 2006 (PPA), 

Public Law 109–280, 120 Stat. 780. The 

PPA made significant changes to the 

existing funding notice requirement by 

enhancing the content of the notice, 

shortening the timeframe for providing 

notices, and expanding the requirement 

to provide funding notices from 

multiemployer defined benefit plans 

(which have been required to provide 

funding notices starting with plan years 

beginning in 2005) to all defined benefit 

plans. Section 501 of the PPA authorizes 

the Secretary of Labor to promulgate 

rules to implement the amendments to 

the annual funding notice requirement 

and to publish model notices. 

2. Summary of Major Provisions 

The final rule requires the plan 

administrator of a defined benefit 

pension plan that is subject to the 

Pension Benefit Guaranty Corporation’s 

Insurance Program to furnish a funding 

notice annually to participants, 

beneficiaries, labor organizations 

representing such participants or 

beneficiaries, employers obligated to 

make contributions to a multiemployer 

plan, and the Pension Benefit Guaranty 

Corporation (PBGC). Large plans must 

furnish the notice by the 120th day 

following the end of the plan year to 

which the notice relates (the ‘‘notice 

year’’). A small plan may furnish a 

funding notice on or before the due 

date, with extensions, of the plan’s 

Form 5500 Annual Return/Report filed 

with the Department of Labor (the 

Department). While the Department 

made some changes, the final rule is 

substantially the same as the proposal 

(published in November 2010) with 

respect to specific funding information 

disclosed in the notice. For example, the 

funding notice must show the plan’s 

funding percentage, the assets and 

liabilities that determine the funding 

percentage, the fair market value of the 

plan’s assets on the last day of the plan 

year, the plan’s funding and investment 

policies and allocation of assets, known 

events that are projected to have a 

material effect on the plan’s funding, 

and other information. Significant 

changes from the proposal include: 

exempting certain terminating singleemployer plans from furnishing their 

funding notices; establishing alternative 

methods of compliance for 

multiemployer pension plans that have 

terminated by mass withdrawal and for 

plans described in section 412(e)(3) of 

the Internal Revenue Code of 1986, as 

amended (hereinafter ‘‘Code’’); and 

including a rule of administrative 

convenience that if an otherwise 

disclosable material event first becomes 

known to the plan administrator 120 

days or less before the due date of the 

funding notice, the event is not required 

to be disclosed in the notice. 

3. Costs and Benefits 

The Department estimates that the 

costs attributable to the final rule will be 

approximately $51 million in the first 

year and $46.5 million in each 

subsequent year.1 The Department 

expects that the final rule will increase 

the transparency of information about 

the funding status of defined benefit 

plans, which benefits all parties 

interested in the financial viability of 

such plans by providing them with a 

greater opportunity to monitor the 

plans’ funding status and take action 

when necessary. In addition, the rule 

will benefit plan administrators by 

providing them with model notices, 

which should mitigate burden and 

contribute to the efficiency of 

compliance. The Department believes 

that these benefits justify the costs 

associated with the final rule. The 

Department’s full cost/benefit analysis 

is set forth below in Section G of this 

preamble, entitled ‘‘Regulatory Impact 

Analysis.’’ 

B. Background 

In 2006, section 501(a) of the PPA 

significantly amended section 101(f) of 

ERISA. Before the PPA, section 101(f) of 

ERISA only required multiemployer 

defined benefit pension plans to furnish 

a funding notice annually to plan 

participants and others.2 Now, section 

101(f) of ERISA, as amended by the 

PPA, requires administrators of all 

defined benefit plans that are subject to 

title IV of ERISA, not only 

multiemployer plans, to furnish annual 

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Federal Register / Vol. 80, No. 21 / Monday, February 2, 2015 / Rules and Regulations 5627 

3 75 FR 70625 (Nov. 18, 2010). 

4Because the MAP–21 and HATFA supplemental 

disclosures are temporary and otherwise have no 

effect on the permanent disclosure requirements in 

section 101(f) of ERISA, they are not addressed in 

this final rule. Instead, plan administrators may rely 

on FAB 2013–01 and FAB 2015–01 or any other 

guidance issued by the Department under section 

101(f) of ERISA until the expiration date. 

funding notices. In addition, the PPA 

shortened the time frame for providing 

funding notices and changed the 

content requirements. These changes 

and others are discussed in detail 

below. Pursuant to section 501(d) of the 

PPA, the amendments to section 101(f) 

apply to plan years beginning after 

December 31, 2007. 

In 2009, the Department issued Field 

Assistance Bulletin 2009–01 (FAB 

2009–01) to provide interim guidance to 

plan administrators in discharging their 

obligations under the new annual 

funding notice requirements. FAB 

2009–01 addresses a number of issues 

under section 101(f) of ERISA and 

includes model funding notices. Much 

of the guidance in FAB 2009–01 was 

incorporated into the proposed 

regulation and now into the final 

regulation contained in this document. 

The final rule supersedes FAB 2009–01 

as of the applicability date of the final 

rule. Until the applicability date, plan 

administrators may continue to rely on 

FAB 2009–01 or they may elect to 

comply with the requirements of the 

final regulation. 

In 2010, the Department published in 

the Federal Register a proposed rule 

under section 101(f) of ERISA and 

invited interested parties to comment.3

The Department received 11 written 

comments on the proposal. Copies of 

these comments are available to the 

public on the Department’s Web site at 

http://www.dol.gov/ebsa. 

In 2012, section 40211(b)(2)(A) of the 

Moving Ahead for Progress in the 21st 

Century Act (MAP–21), Public Law 

112–141, 126 Stat. 405, amended the 

annual funding notice requirements by 

adding a new paragraph (2)(D) to ERISA 

section 101(f). The additional MAP–21 

disclosures relate to the effect of the 

ERISA section 303(h)(2)(C)(iv) funding 

stabilization rules on single-employer 

plan liabilities and minimum required 

contributions to such plans for the 2012, 

2013, and 2014 plan years. Section 

40211(b)(2)(B) of MAP–21 directed the 

Department to modify the model annual 

funding notice required under section 

501(c) of the PPA to prominently 

include these new disclosures. On 

March 8, 2013, the Department issued 

Field Assistance Bulletin 2013–01 (FAB 

2013–01), which included a supplement 

to the model annual funding notice for 

single-employer defined benefit pension 

plans and a number of questions and 

answers providing guidance on how to 

comply with the MAP–21 requirements. 

In 2014, section 2003(b) of the 

Highway and Transportation Funding 

Act of 2014 (HATFA), Public Law 113– 

159, 128 Stat. 1839, modified the MAP– 

21 funding stabilization rules of section 

303(h)(2)(C)(iv) of ERISA and the 

disclosure requirements of section 

101(f)(2)(D) of ERISA and directed the 

Department to modify the MAP–21 

supplement to the model annual 

funding notice. To reflect the changes 

made to the funding stabilization rules, 

section 2003(b)(2)(A)(ii) of HATFA 

changed the plan years subject to 

disclosures required by section 

101(f)(2)(D) from plan years 2012 

through 2014 to plan years 2012 through 

2019. Section 2003(b)(2)(A)(i) of HATFA 

added a reference to HATFA in the 

disclosure statements required by 

sections 101(f)(2)(D)(i)(I) and (II) of 

ERISA. On January 14, 2015, the 

Department issued Field Assistance 

Bulletin 2015–01 (FAB 2015–01), 

providing guidance on how to comply 

with the HATFA requirements.4

The Multiemployer Pension Reform 

Act of 2014 (MPRA), Public Law 113– 

235 (2014), added new disclosure 

requirements to section 101(f)(2)(B) of 

ERISA relating to the new 

multiemployer funding classification of 

‘‘critical and declining status.’’ In 

addition to these new disclosures, other 

MPRA changes affect the model annual 

funding notice for multiemployer plans. 

After careful consideration of the 

issues raised by the written comments, 

the Department is adopting the final 

rule contained herein. While the 

Department has made some changes to 

the proposed rule, the final regulation, 

described below, is substantially the 

same as the proposal. 

C. Overview of Final Rule 

1. In General § 2520.101–5(a) 

a. 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. 

b. 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. 

c. Limited Exceptions for Certain SingleEmployer 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 

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5628 Federal Register / Vol. 80, No. 21 / Monday, February 2, 2015 / Rules and Regulations 

5See 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)). 

6See 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.’’ 

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 (ERISA§ 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. 

d. 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 ‘‘nonsuccessor 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 

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Federal Register / Vol. 80, No. 21 / Monday, February 2, 2015 / Rules and Regulations 5629 

7See 26 CFR 1.430(d)–1(b)(3)(i); 74 FR 53004, 

53036 (Oct. 15, 2009). 8Section 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. 

9See proposed Treasury regulation 26 CFR 

1.432(a)–1(b)(7); 73 FR 14417, 14423 (March 18, 

2008). 

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 § 2520.101– 

5(b) 

a. Identifying Information (§ 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. 

b. Funding Percentage (§ 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 § 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 § 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. 

c. Assets and Liabilities (§ 2520.101– 

5(b)(3)) 

(i) Single-Employer Plans—Assets and 

Liabilities as of the Valuation Date 

In the case of a single-employer plan, 

paragraph (b)(3)(i)(A) of the 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) 

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5630 Federal Register / Vol. 80, No. 21 / Monday, February 2, 2015 / Rules and Regulations 

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. 

(ii) Single-Employer Plans—Assets and 

Liabilities as of the Last Day of the Plan 

Year 

Section 101(f)(2)(B)(ii)(I)(bb) of ERISA 

states that a funding notice must 

include, in the case of a single-employer 

plan, ‘‘the value of the plan’s assets and 

liabilities for the plan year to which the 

notice relates as of the last day of the 

plan year to which the notice relates 

determined using the asset valuation 

under subclause (II) of section 

4006(a)(3)(E)(iii) and the interest rate 

under section 4006(a)(3)(E)(iv)[.]’’ 

Based on the foregoing, paragraph 

(b)(3)(i)(B) of the 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-ofthe-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 yearend 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. 

(iii) Multiemployer Plans—Assets and 

Liabilities as of the Valuation Date 

In the case of a multiemployer plan, 

paragraph (b)(3)(ii)(A) of the 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, pursuant 

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Federal Register / Vol. 80, No. 21 / Monday, February 2, 2015 / Rules and Regulations 5631 

10This 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. 

to 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. 

(iv) Multiemployer Plans—Assets as of 

the Last Day of the Plan Year 

In the case of a multiemployer plan, 

paragraph (b)(3)(ii)(B) of the 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. 

(v) 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 yearend 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 yearend 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. 

(vi) 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. 

d. Demographic Information 

(§ 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 

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5632 Federal Register / Vol. 80, No. 21 / Monday, February 2, 2015 / Rules and Regulations 

11Section 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[.]’’ 

12A 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). 

13See 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). 

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 threeyear period in other parts of section 

101(f) of ERISA but failed to do so in 

section 101(f)(2)(B)(iii) of ERISA. 

e. Funding and Investment Policies; 

Asset Allocation (§ 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. 

(i) 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. 

(ii) 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 

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Federal Register / Vol. 80, No. 21 / Monday, February 2, 2015 / Rules and Regulations 5633 

14See 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. 

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 yearend 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. 

f. Endangered, Critical, or Critical and 

Declining Status (§ 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

g. Material Effect Events (§ 2520.101– 

5(b)(7) and § 2520.101–5(g)) 

(i) 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. 

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5634 Federal Register / Vol. 80, No. 21 / Monday, February 2, 2015 / Rules and Regulations 

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. 

(ii) 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. 

(iii) 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 

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Federal Register / Vol. 80, No. 21 / Monday, February 2, 2015 / Rules and Regulations 5635 

‘‘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. 

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5636 Federal Register / Vol. 80, No. 21 / Monday, February 2, 2015 / Rules and Regulations 

15The 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. 

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). 

h. Rules on Termination or Insolvency 

(§ 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 singleemployer 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

i. PBGC Guarantees (§ 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 

§ 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 

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Federal Register / Vol. 80, No. 21 / Monday, February 2, 2015 / Rules and Regulations 5637 

16Section D of this preamble discusses 

amendments to § 2520.104–46. 

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. 

j. Annual Report Information 

(§ 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. 

k. Information Disclosed to PBGC 

(§ 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. 

l. Additional Information (§ 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 § 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 (§ 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 (§ 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 

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5638 Federal Register / Vol. 80, No. 21 / Monday, February 2, 2015 / Rules and Regulations 

17The 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). 

recommended by the commenter. 

Accordingly, the Department did not 

adopt this recommendation. 

5. Manner of Furnishing (§ 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 § 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 

(§ 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 § 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 (§ 2520.101–5(h)) 

The appendices to § 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 

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Federal Register / Vol. 80, No. 21 / Monday, February 2, 2015 / Rules and Regulations 5639 

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 userfriendly 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 singleemployer 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. 

a. Alternative Method of Compliance for 

Furnishing Notice to PBGC for Certain 

Single-Employer Plans (§ 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 singleemployer 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. 

b. Alternative Method of Compliance for 

Multiemployer Plans That Terminate by 

Reason of Mass Withdrawal 

(§ 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 

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5640 Federal Register / Vol. 80, No. 21 / Monday, February 2, 2015 / Rules and Regulations 

18ERISA section 101(f)(2)(E). 

19Section 306 of ERISA and corresponding 

section 433 of the Code were added by sections 102 

and 202 of the CSEC Act, respectively. 

20ERISA 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). 

21ERISA 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. 

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. 

c. Alternative Method of Compliance for 

Code Section 412(e)(3) Insurance 

Contract Plans (§ 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 

a. 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. 

b. 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 

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Federal Register / Vol. 80, No. 21 / Monday, February 2, 2015 / Rules and Regulations 5641 

22Section 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. 

23Section 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. 

24The repeal is effective for plan years beginning 

after December 31, 2007. 

25A 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. 

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-byemployer basis. The Department 

received no comments in response to 

this request. The final rule contains no 

special rules for multiple employer 

plans. 

D. 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 § 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 

§ 2520.104–46 to enable plans subject to 

section 101(f) of ERISA to elect to use 

the waiver provision in § 2520.104–46. 

Under § 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 § 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 

§ 2520.104–46, modified for the format 

of the annual funding notice, may be 

used to meet those information 

requirements. 

E. 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 (§ 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 

§ 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 § 2520.104b–10. Accordingly, the 

Department is not making any changes 

to paragraph (d)(3) and the appendix of 

§ 2520.104b–10 at this time. 

F. Removal of 29 CFR 2520.101–4 

In 2004, the Pension Funding Equity 

Act (PFEA ’04), Public Law 108–218, 

amended title I of the Employee 

Retirement Income Security Act of 1974 

(ERISA) by adding section 101(f), which 

required multiemployer defined benefit 

plans to furnish a plan funding notice 

annually to each participant and 

beneficiary, to each labor organization 

representing such participants or 

beneficiaries, to each employer that has 

an obligation to contribute under the 

plan, and to the PBGC. On January 11, 

2006, the Department published a final 

regulation, 29 CFR 2520.101–4, 

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5642 Federal Register / Vol. 80, No. 21 / Monday, February 2, 2015 / Rules and Regulations 

26As discussed earlier in this preamble, this final 

regulation will implement the statutory requirement 

for defined benefit pension plan administrators to 

provide an annual funding notice that meets the 

requirements of ERISA section 101(f). Because 

plans were required to comply with ERISA section 

101(f) before the issuance of implementing 

regulations, and taking into account guidance 

previously issued by the Department in Field 

Assistance Bulletin 2009–01, this regulatory impact 

analysis includes a small initial cost for plans to 

make adjustments that would be necessary to 

ensure compliance with implementing regulations. 

These estimates then take into account the ongoing 

annual costs for plan administrators to create and 

send the annual funding notices. 

27The total hour burden is estimated to be about 

603,000 hours in the year of implementation and 

562,000 hours in each subsequent year. 

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. 

G. Regulatory Impact Analysis 

Summary 

The final rule contains a model notice 

and other guidance necessary to 

implement section 101(f) of ERISA as 

amended. Section 101(f) and the final 

rule increase the transparency of 

information about the funding status of 

plans, affording all parties interested in 

the financial viability of these plans 

with a greater opportunity to monitor 

their funding status and take action 

where necessary. In addition, the rule 

offers separate model notices to 

administrators of single-employer and 

multiemployer defined benefit pension 

plans, which are expected to mitigate 

burden and contribute to the efficiency 

of compliance. Another benefit is that 

the rule would afford plan 

administrators greater certainty that 

they have discharged their notice 

obligation under section 101(f) by 

clarifying certain terms used in the 

statute. The Department has concluded 

that the benefits of the rule justify their 

costs. These benefits—increased 

transparency, greater efficiency, 

certainty, and clarity—are expected to 

be substantial, but cannot be specifically 

quantified. 

The cost of the final rule is expected 

to amount to $51 million in the first 

year of implementation and $46.5 

million in each subsequent year. The 

total estimated cost includes the onetime development of a notice by each 

plan and the annual preparation and 

mailing of the notices to the required 

recipients.26 The first year estimate is 

higher to account for the time required 

for plan administrators to adapt and 

review the model notice. The 

Department also makes the following 

additional cost estimates regarding the 

components of the total estimated cost: 

—The total mailing costs are estimated 

to be about $22.6 million annually in 

the first three years; and 

—In addition to the mailing costs, the 

Department estimates that firms will 

spend about $28.4 million in the year 

of implementation and $23.9 million 

in subsequent years on labor costs.27

The Department has attempted to 

provide guidance in the final rule to 

assist administrators in meeting their 

responsibilities in the most 

economically efficient manner possible. 

Because the costs of the rule arise only 

from notice provisions in PPA, the data 

and methodology used in developing 

these estimates are more fully described 

in the Paperwork Reduction Act section 

of this analysis of regulatory impact. 

TABLE 1—ACCOUNTING TABLE

Qualitative Benefits 

Section 101(f) and the final rule increase the transparency of information about the funding 

status of plans, affording all parties interested in the financial viability of these plans with a 

greater opportunity to monitor their funding status and take action where necessary. In addition, the rule offers a model notice to administrators of single-employer and multiemployer 

defined benefit pension plans, which is expected to mitigate burden and contribute to the efficiency of compliance. Another benefit is that the rule would afford plan administrators greater certainty that they have discharged their notice obligation under section 101(f) by clarifying certain terms used in the statute. 

Primary 

estimate 

Low 

estimate 

High 

estimate 

Year 

dollar 

Discount rate 

(%) 

Period 

covered 

Annualized Monetized Costs ($millions/year) ...... 48.1 

48.0 

45.1 

45.0 

60.2 

60.0 

2014 

2014 

7 

3 

2015–2017 

2015–2017 

Discussion of Costs ............................................. Monetized costs are a result of labor hours in preparing the annual funding notice and from 

materials and mailing costs. 

Executive Order 12866 and 13563 

Under Executive Order 12866, the 

Department must determine whether a 

regulatory action is ‘‘significant’’ and 

therefore subject to review by the Office 

of Management and Budget (OMB). 

Executive Order 13563 reaffirms the 

principles set forth in Executive Order 

12866 by emphasizing, among other 

things, the importance of proposing or 

adopting regulations only upon a 

reasoned determination that their 

benefits justify their costs (recognizing 

that some benefits and costs are difficult 

to quantify), tailoring regulations to 

impose the least burden on society 

consistent with obtaining regulatory 

objectives, coordinating across agencies 

to reduce costs by simplifying and 

harmonizing rules, and encouraging 

public participation in the rulemaking 

process. 

Section 3(f) of Executive Order 12866 

defines a ‘‘significant regulatory action’’ 

as an action that is likely to result in a 

rule (1) having an annual effect on the 

economy of $100 million or more, or 

adversely and materially affecting a 

sector of the economy, productivity, 

competition, jobs, the environment, 

public health or safety, or State, local or 

tribal governments or communities (also 

referred to as ‘‘economically 

significant’’); (2) creating serious 

inconsistency or otherwise interfering 

with an action taken or planned by 

another agency; (3) materially altering 

the budgetary impacts of entitlement 

grants, user fees, or loan programs or the 

rights and obligations of recipients 

thereof; or (4) raising novel legal or 

policy issues arising out of legal 

mandates, the President’s priorities, or 

the principles set forth in the Executive 

Order. It has been determined that this 

action is significant under section 3(f)(4) 

of Executive Order 12866; therefore, 

OMB has reviewed this regulatory 

action pursuant to the Executive Order. 

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28According to the PBGC Pension Insurance Data 

Tables 2011, there were 1,454 multiemployer 

defined benefit plans in 2010. This number was 

reduced by 49 in order to account for the 49 plans 

that received financial assistance and are not 

required to furnish an annual funding notice. 

29PBGC, ‘‘Multiemployer Pension Plans: Report 

to Congress Required by the Pension Protection Act 

of 2006.) See page 13 table 3. http://www.pbgc.gov/ 

documents/pbgc-report-multiemployer-pensionplans.pdf. 

30The estimate of the number of hours needed for 

a legal professional is based on the average time 

required. While the Department acknowledges that 

more time could be required for each plan to draft 

its own notice, based on its conversations with 

industry groups, the Department believes that trade 

associations, service providers, or others would 

draft the first version of the notice using the 

provided model notice as a starting point, which 

could then be used by multiple plans. This 

economy of scale would result in a lower average 

hour burden than if every plan used a legal 

professional to create its own notice. The time 

estimate would still allow for plans to have a legal 

professional review the unique pieces of its notice. 

Paperwork Reduction Act 

In accordance with the requirements 

of the Paperwork Reduction Act of 1995 

(PRA) (44 U.S.C. 3506(c)(2)), the 

Department submitted an information 

collection request (ICR) to OMB 

regarding the ICRs contained in the final 

rule in accordance with 44 U.S.C. 

3507(d), for OMB’s review. OMB 

approved the ICR under OMB Control 

Number 1210–0126, which currently is 

scheduled to expire on January 31, 

2018. 

A copy of the ICR may be obtained by 

contacting the PRA addressee: G. 

Christopher Cosby, Office of Policy and 

Research, U.S. Department of Labor, 

Employee Benefits Security 

Administration, 200 Constitution 

Avenue NW., Room N–5718, 

Washington, DC 20210. Telephone (202) 

693–8410; Fax: (202) 219–5333. These 

are not toll-free numbers. ICRs 

submitted to OMB also are available at 

http://www.RegInfo.gov. 

The final rule implements the 

disclosure requirements of section 

101(f) of ERISA, as amended by section 

501 of the PPA and section 201(a)(4) of 

MPRA. As described earlier in the 

preamble, section 101(f) of ERISA and 

section 2520.101–5(a) of the final rule 

require the administrator of a defined 

benefit plan to which title IV of ERISA 

applies to furnish an annual funding 

notice to the PBGC, each participant and 

beneficiary, each labor organization 

representing participants and 

beneficiaries, and for multiemployer 

plans only, each employer with an 

obligation to contribute to the plan. The 

annual funding notice is an ICR subject 

to the 

Paperwork Reduction Act 

The content requirements for the ICR 

are contained in section 2520.101–5(b). 

Model notices are provided in the 

appendices to the rule to facilitate 

compliance and moderate the burden 

attendant to supplying notices to 

participants and beneficiaries, labor 

organizations, contributing employers, 

and PBGC. Use of the model notice is 

not mandatory; however, use of the 

model will be deemed to satisfy the 

requirements for content, style, and 

format of the notice, except with respect 

to any other information the plan 

administrator elects to include. The 

final rule also is intended to clarify 

several statutory requirements with 

respect to content, style and format, 

manner of furnishing, and persons 

entitled to receive the annual funding 

notice. Increasing the transparency of 

information about the funding status of 

defined benefit plans for participants 

and beneficiaries, labor organizations, 

contributing employers, and the PBGC 

will afford all parties interested in the 

financial viability of these plans greater 

opportunity to monitor their funding 

status. 

In order to estimate the potential costs 

of the notice provisions of section 101(f) 

of ERISA and the final rule, the 

Department estimated the number of 

single-employer and multiemployer 

defined benefit plans, and the numbers 

of participants, beneficiaries receiving 

benefits, labor organizations 

representing participants, and 

employers with an obligation to 

contribute to these plans. The 

Department lacks sufficient information 

to estimate the number of alternate 

payees. 

The PBGC Pension Insurance Data 

Tables 2011 indicates that there are 

1,454 multiemployer defined benefit 

plans with approximately 10.3 million 

participants and beneficiaries receiving 

benefits. These estimates are based on 

premium filings with PBGC for fiscal 

year 2011. This total has been adjusted 

slightly to reflect the exception from the 

requirement to furnish annual funding 

notices to plans that are receiving 

financial assistance from PBGC.28 The 

PBGC Pension Insurance Data Tables 

2011 also indicates that there are 25,607 

single-employer defined benefit plans 

with approximately 33.4 million 

participants. 

The Department is not aware of a 

direct source of information for the 

number of notices that must be sent to 

labor organizations that represent 

participants of multiemployer defined 

benefit plans and that would be entitled 

to receive notice under section 101(f). 

The Department has relied on data from 

the 1998 Form 5500 which collected 

information on plans that are 

collectively bargained to approximate 

the distribution of the number of unions 

per plan. This leads to an estimated 

1,834 labor organizations for the 1,454 

multiemployer plans and 34,263 labor 

organizations for the 25,607 singleemployer plans (a total of approximately 

36,100 labor organizations). 

There are 232,570 employers 

obligated to contribute to multiemployer 

defined benefit plans that are required 

to receive a funding notice.29

For purposes of its estimates of 

regulatory impact, the Department has 

assumed that each plan will develop a 

notice, and that each year 

approximately 44.0 million notices will 

be prepared and sent. The 44.0 million 

estimate breaks down as follows: 10.3 

million notices to participants and 

beneficiaries of approximately 1,454 

multiemployer defined benefit plans; 

33.4 million notices to participants and 

beneficiaries of close to 25,607 singleemployer plans; 36,100 notices to labor 

organizations; 232,570 notices to 

contributing employers of 

multiemployer plans; and 27,000 

notices to the PBGC. 

Estimates of notice preparations are 

based on the assumption that plan 

service providers, actuaries, lawyers, 

and financial professionals will produce 

the notices. It is assumed that the 

availability of a model notice will lessen 

the time otherwise required by a plan 

administrator to draft a required notice. 

The Department received one comment 

questioning the estimates of the time 

required to complete the notices. The 

Department did consult with an 

individual familiar with the industry 

and adjusted its estimates as 

recommended. The estimates are as 

follows: On average, actuaries will 

spend 3.5 hours in the first year and 2.5 

hours in each succeeding year preparing 

notices for single-employer plans and 

two hours in the first year and two 

hours in each succeeding year preparing 

notices for multiemployer plans making 

specific calculations for information 

that must be provided in the notice; on 

average legal professionals will spend 

one hour in the first year and 0.5 hours 

in each succeeding year reviewing the 

notice; 30 and financial professionals 

will spend on average one hour in the 

first year and thereafter drafting the 

notice for single-employer plans and 

two hours in the first year and one hour 

in each succeeding year preparing the 

notice for multiemployer plans. The 

final preparation and distribution of the 

notice will be done by a clerical 

professional using an estimate of one 

minute per notice mailed. 

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5644 Federal Register / Vol. 80, No. 21 / Monday, February 2, 2015 / Rules and Regulations 

31The Department assumes that 38 percent of 

notices are sent electronically resulting in a de 

minimis cost. 

32The average Total Annual Burden Hours over 

the first three years is 575,700. 

33EBSA estimates of labor rates include wages, 

other benefits, and overhead. 

34The Department received a comment from the 

public expressing concern that the wage estimate 

for legal professionals is low. While the Department 

acknowledges that the labor rate of an outsourced 

legal professional could be higher than the reported 

average, many plans, service providers, and trade 

associations have legal professionals on staff that 

have a much lower labor rate and that the 

Department believes would do most of the work. 

35The basis for this definition is found in section 

104(a)(2) of ERISA, which permits the Secretary of 

Labor to prescribe simplified annual reports for 

pension plans that cover fewer than 100 

participants. 

Assuming 44.0 million notices are 

distributed,31 the burden hours for that 

initial year of implementation are 

92,500 actuarial hours, 28,500 financial 

professional hours, and 27,100 legal 

professional hours. Total clerical 

professional hours are calculated based 

on the total number of notices mailed 

and the preparation time of one minute 

per notice resulting in 454,600 hours. 

The total hour burden for the year of 

implementation is 603,000 hours 

(rounded to the nearest thousand). Each 

subsequent year requires 66,900 

actuarial hours, 454,600 clerical hours, 

27,100 financial professional hours, and 

13,500 legal professional hours for a 

total of 562,100 hours.32

Hourly labor rates were calculated 

using the rates based on the Bureau of 

Labor Statistics, National Occupational 

Employment Survey (March 2013) and 

the Bureau of Labor Statistics, 

Employment Cost Index (September 

2013).33 Calculations of the 2014 hourly 

labor costs were $29.60 for a clerical 

professional, $68.68 for a financial 

professional, $103.15 for an actuary, and 

$126.56 for a legal professional.34

Based on the foregoing, the total 

equivalent cost for the initial year is 

estimated at approximately $9,545,000 

for actuarial services, $13,457,000 for 

clerical services, $1,958,000 for 

financial professional services, and 

$3,425,000 for legal professional 

services. The total equivalent cost is 

approximately $28,385,000 in the initial 

year. 

The total equivalent cost in each 

subsequent year is estimated at 

approximately $6,963,000 for actuarial 

services, $13,457,000 for clerical 

services, $1,859,000 for financial 

professional services, and $1,712,000 for 

legal professional services. The total 

equivalent cost is estimated at 

approximately $23,931,000 in each 

subsequent year. 

The cost of mailing the notices was 

based on the assumption that each 

notice would be seven pages for singleemployer plans and six pages for 

multiemployer plans, with printing 

costs of 5 cents per page and postage of 

49 cents resulting in an estimated 84 

cent cost per paper notice for singleemployer plans and a 79 cent cost per 

paper notice for multiemployer plans. It 

was further assumed that 38 percent of 

notices would be sent electronically. 

The Department has not estimated any 

additional burden for preparation or 

distribution of notices via electronic 

means, because the Department assumes 

that plans will utilize pre-existing 

electronic communications systems and 

email lists for these purposes and the 

process of preparation and distribution 

involves only a de minimis additional 

effort, e.g., a few computer key strokes 

or the equivalent. This assumption will 

result in a total of approximately 16.7 

million notices being sent electronically 

by multiemployer and single-employer 

plans. Single-employer plans will mail 

out approximately 20.7 million paper 

notices and multiemployer plans will 

mail out approximately 6.5 million 

paper notices. Total annual paper 

mailing costs are estimated to be 

approximately $22.6 million. 

Sensitivity Analysis 

There is uncertainty surrounding the 

estimates of the time required to prepare 

and review the notice. The Department 

has sought to model this uncertainty by 

varying the time estimates and creating 

a range around the estimates reported 

above. The Department reduced the 

actuarial, financial professional and 

legal professional time by 25 percent. 

This change lowered the total cost of the 

rule to $47.2 million in the first year 

and $43.9 million in the subsequent 

years. The Department is more 

concerned about the effect on costs if it 

underestimated the cost of the rule, so 

it doubled the time estimates as well 

and found that this increased the total 

costs of the rule to $65.9 million it the 

first year and $57.0 million in 

subsequent years. 

These paperwork burden estimates 

are summarized as follows: 

Type of Review: Revised collection. 

Agency: Employee Benefits Security 

Administration, Department of Labor. 

Title: Annual Funding Notice for 

Defined Benefit Plans. 

OMB Control Number: 1210–0126. 

Affected Public: Business or other forprofit; not-for-profit institutions. 

Respondents: 27,061. 

Responses: 43,996,000. Frequency of 

Response: Annually. 

Estimated Total Annual Burden 

Hours: 576,000 (average over first three 

years); 603,000 (first year) (562,000 

subsequent years). 

Estimated Total Annual Burden Cost: 

$22,586,000 (first year and subsequent 

years). 

Regulatory Flexibility Act 

The Regulatory Flexibility Act (5 

U.S.C. 601 et seq.) (RFA) imposes 

certain requirements with respect to 

Federal rules that are subject to the 

notice and comment requirements of 

section 553(b) of the Administrative 

Procedure Act (5 U.S.C. 551 et seq.) and 

which are likely to have a significant 

economic impact on a substantial 

number of small entities. Unless the 

head of an agency certifies that a final 

rule is not likely to have a significant 

economic impact on a substantial 

number of small entities, section 604 of 

the RFA requires that the agency present 

final regulatory flexibility analysis 

describing the rule’s impact on small 

entities and explaining how the agency 

made its decisions with respect to the 

application of the rule to small entities. 

For purposes of the RFA, the 

Department continues to consider a 

small entity to be an employee benefit 

plan with fewer than 100 participants.35

Further, while some large employers 

may have small plans, in general small 

employers maintain most small plans. 

Thus, the Department believes that 

assessing the impact of this final rule on 

small plans is an appropriate substitute 

for evaluating the effect on small 

entities. The definition of small entity 

considered appropriate for this purpose 

differs, however, from a definition of 

small business that is based on size 

standards promulgated by the Small 

Business Administration (SBA) (13 CFR 

121.201) pursuant to the Small Business 

Act (15 U.S.C. 631 et seq.). 

By this standard, data from the 2011 

Form 5500 indicates that for more than 

90 percent of small affected plans, the 

average per plan compliance cost is 

$1,030 ($27.8 million/27,061 plans) plus 

plan specific mailing cost (84 cents per 

participant in single-employer plans, 

and 79 cents in multiemployer plans, 

which cannot exceed $84 per plan 

because small plans have less than 100 

participants) is less than one percent of 

plan assets. 

Based on the foregoing, the 

Department has determined that while 

the rule is likely to impact a substantial 

number of small entities, the economic 

impact on such entities will not be 

significant for most small entities. 

Therefore, pursuant to section 605(b) of 

RFA, the Assistant Secretary of the 

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Federal Register / Vol. 80, No. 21 / Monday, February 2, 2015 / Rules and Regulations 5645 

Employee Benefits Security 

Administration hereby certifies that the 

final rule will not have a significant 

economic impact on a substantial 

number of small entities. 

Congressional Review Act 

The final rule is subject to the 

Congressional Review Act provisions of 

the Small Business Regulatory 

Enforcement Fairness Act of 1996 (5 

U.S.C. 801 et seq.) and will be 

transmitted to Congress and the 

Comptroller General for review. The 

final rule is not a ‘‘major rule’’ as that 

term is defined in 5 U.S.C. 804, because 

it is not likely to result in (1) an annual 

effect on the economy of $100 million 

or more; (2) a major increase in costs or 

prices for consumers, individual 

industries, or Federal, State, or local 

government agencies, or geographic 

regions; or (3) significant adverse effects 

on competition, employment, 

investment, productivity, innovation, or 

on the ability of United States-based 

enterprises to compete with foreignbased enterprises in domestic and 

export markets. 

Unfunded Mandates Reform Act 

For purposes of the Unfunded 

Mandates Reform Act of 1995 (Pub. L. 

104–4), as well as Executive Order 

12875, the final rule does not include 

any Federal mandate that may result in 

expenditures by State, local, or tribal 

governments in the aggregate of more 

than $100 million, adjusted for 

inflation, or increase expenditures by 

the private sector of more than $100 

million, adjusted for inflation. 

Federalism Statement 

Executive Order 13132 (August 4, 

1999) outlines fundamental principles 

of federalism, and requires the 

adherence to specific criteria by Federal 

agencies in the process of their 

formulation and implementation of 

policies that have substantial direct 

effects on the States, the relationship 

between the national government and 

States, or on the distribution of power 

and responsibilities among the various 

levels of government. The final rule 

does not have federalism implications 

because it has no substantial direct 

effect on the States, on the relationship 

between the national government and 

the States, or on the distribution of 

power and responsibilities among the 

various levels of government. Section 

514 of ERISA provides, with certain 

exceptions specifically enumerated, that 

the provisions of titles I and IV of ERISA 

supersede any and all laws of the States 

as they relate to any employee benefit 

plan covered under ERISA. The 

requirements that would be 

implemented in the final rule do not 

alter the fundamental reporting and 

disclosure requirements of the statute 

with respect to employee benefit plans, 

and as such have no implications for the 

States or the relationship or distribution 

of power between the national 

government and the States. 

List of Subjects in 29 CFR Part 2520 

Accounting, Employee benefit plans, 

Employee Retirement Income Security 

Act, Pensions, Reporting and 

recordkeeping requirements. 

For the reasons set forth in the 

preamble, the Department of Labor 

amends 29 CFR part 2520 as follows: 

PART 2520—RULES AND 

REGULATIONS FOR REPORTING AND 

DISCLOSURE 

■ 1. The Authority citation for part 2520 

is revised to read as follows: 

Authority: 29 U.S.C. 1021–1025, 1027, 

1029–31, 1059, 1134 and 1135; and Secretary 

of Labor’s Order 1–2011 77 FR 1088 (Jan. 9, 

2012). Sec. 2520.101–2 also issued under 29 

U.S.C. 1132, 1181–1183, 1181 note, 1185, 

1185a–b, 1191, and 1191a–c. Secs. 2520.102– 

3, 2520.104b–1 and 2520.104b–3 also issued 

under 29 U.S.C. 1003, 1181–1183, 1181 note, 

1185, 1185a–b, 1191, and 1191a–c. Secs. 

2520.104b–1 and 2520.107 also issued under 

26 U.S.C. 401 note, 111 Stat. 788. Sec. 

2520.101–5 also issued under sec. 501 of 

Pub. L. 109–280, 120 Stat. 780 and sec. 

105(a), Pub. L. 110–458, 122 Stat. 5092. 

§ 2520.101–4 [Removed and Reserved] 

■ 2. Remove and reserve § 2520.101–4. 

■ 3. Add § 2520.101–5 to subpart A to 

read as follows: 

§ 2520.101–5 Annual funding notice for 

defined benefit pension plans. 

(a) In general. (1) Except as provided 

in paragraphs (a)(2) and (3) of this 

section, pursuant to section 101(f) of the 

Act, the administrator of a defined 

benefit plan to which title IV of the Act 

applies shall furnish annually to each 

person specified in paragraph (f) of this 

section a funding notice that conforms 

to the requirements of this section. 

(2) A plan administrator shall not be 

required to furnish a funding notice— 

(i) In the case of a multiemployer 

plan, for a plan year if the due date for 

such notice is on or after the earlier of: 

(A) The date the plan complies with 

the insolvency notice requirements of 

section 4245(e) or 4281(d)(3) of the Act 

and regulations thereunder; or 

(B) The date the plan has distributed 

assets in satisfaction of all 

nonforfeitable benefits under the plan 

pursuant to section 4041A of the Act 

and the regulations thereunder. 

(ii) In the case of a single-employer 

plan, for a plan year if the due date for 

the funding notice is on or after the 

date: 

(A) The Pension Benefit Guaranty 

Corporation is appointed as trustee of 

the plan pursuant to section 4042 of the 

Act; 

(B) The plan has distributed assets in 

satisfaction of all benefit liabilities in a 

distress termination pursuant to section 

4041(c)(3)(B)(i) of the Act or of all 

guaranteed benefits in a distress 

termination pursuant to section 

4041(c)(3)(B)(ii) of the Act; or 

(C) The plan administrator filed a 

standard termination notice with the 

Pension Benefit Guaranty Corporation 

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 all benefit liabilities 

proceeds in accordance with section 

4041(b) of the Act. 

(3) In the case of a merger or 

consolidation of two or more plans— 

(i) The plan administrator of a nonsuccessor plan shall not be required to 

furnish a funding notice for the plan 

year in which the merger or 

consolidation occurred; and 

(ii) The funding notice of the 

successor plan, for the plan year in 

which the merger or consolidation 

occurred, must, in addition to the 

requirements of paragraph (b) of this 

section, contain a general explanation, 

including the effective date, of the 

merger or consolidation and an 

identification of each plan (e.g., name 

and plan number) involved in the 

merger or consolidation. 

(b) Content of notice. A funding notice 

shall include the following information: 

(1) Identifying information. The name 

of the plan, the name, address, and 

phone number of the plan administrator 

and the plan’s principal administrative 

officer (if different than the plan 

administrator), each plan sponsor’s 

name and employer identification 

number, and the plan number. 

(2) Funding percentage—(i) Singleemployer plans. For single-employer 

plans, a statement as to whether the 

plan’s funding target attainment 

percentage (as defined in section 

303(d)(2) of the Act) for the notice year, 

and for each of the two preceding plan 

years, is at least 100 percent (and, if not, 

the actual percentages). 

(ii) Multiemployer plans. For 

multiemployer plans, a statement as to 

whether the plan’s funded percentage 

(as defined in section 305(i) of the Act) 

for the notice year, and for each of the 

two preceding plan years, is at least 100 

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5646 Federal Register / Vol. 80, No. 21 / Monday, February 2, 2015 / Rules and Regulations 

percent (and, if not, the actual 

percentages). 

(3) Assets and liabilities—(i) Singleemployer plans. For single-employer 

plans— 

(A) A statement of the total assets 

(separately stating the prefunding 

balance and the funding standard 

carryover balance) and liabilities of the 

plan, determined in the same manner as 

under section 303 of the Act, as of the 

valuation date of the notice year and for 

each of the two preceding plan years, as 

reported in the annual report filed 

under section 104 of the Act for each 

such preceding plan year, and 

(B) A statement of the value of the 

plan’s assets and liabilities determined 

as of the last day of the notice year. For 

purposes of this statement, the value of 

the plan’s assets is the fair market value 

of plan assets. Plan liabilities are equal 

to the present value of benefits accrued 

through the last day of the notice year 

determined in the same manner as 

liabilities are calculated under section 

303 of the Act (including actuarial 

assumptions and methods), but using 

the interest rate under section 

4006(a)(3)(E)(iv) of the Act in effect for 

the last month of the notice year. 

(ii) Multiemployer plans. For 

multiemployer plans— 

(A) A statement of the value of the 

plan’s assets (determined in the same 

manner as under section 304(c)(2) of the 

Act) and liabilities (determined in the 

same manner as under section 305(i)(8) 

of the Act, using reasonable actuarial 

assumptions as required under section 

304(c)(3) of the Act) as of the valuation 

date of the notice year and each of the 

two preceding plan years, and 

(B) A statement of the fair market 

value of plan assets as of the last day of 

the notice year, and as of the last day 

of each of the two preceding plan years 

as reported in the annual report filed 

under section 104(a) of the Act for each 

such preceding plan year. 

(iii) Contributions receivable. For 

purposes of determining the fair market 

value of plan assets as of the last day of 

the notice year under paragraphs 

(b)(3)(i)(B) and (b)(3)(ii)(B) of this 

section, the plan administrator may, but 

is not required to, include contributions 

made after the notice year and before 

the notice is furnished to recipients, but 

only to the extent such contributions are 

treated for funding purposes as having 

been made on account of the notice year 

under section 303(g)(4) of the Act, in the 

case of a single-employer plan, or under 

section 304(c)(8) of the Act, in the case 

of a multiemployer plan. 

(4) Demographic information. A 

statement of the number of participants 

and beneficiaries who, as of the 

valuation date of the notice year, are: 

Retired or separated from service and 

receiving benefits; retired or separated 

from service and entitled to future 

benefits (but currently not receiving 

benefits); or active participants under 

the plan. The statement shall indicate 

the number of participants and 

beneficiaries in each category and the 

sum of all such participants and 

beneficiaries. The terms ‘‘active’’ and 

‘‘retired or separated’’ shall have the 

same meaning given to those terms in 

instructions to the annual report filed 

under section 104(a) of the Act. 

(5) Funding policy. A statement 

setting forth— 

(i) The funding policy of the plan; 

(ii) The asset allocation of 

investments under the plan (expressed 

as percentages of total assets) as of the 

end of the notice year; and 

(iii) A general description of any 

investment policy of the plan as it 

relates to the funding policy in 

paragraph (b)(5)(i) of this section and 

the asset allocation of investments 

under paragraph (b)(5)(ii) of this section. 

(6) Endangered, critical, or critical 

and declining status. In the case of a 

multiemployer plan, a statement 

whether the plan was in endangered, 

critical, or critical and declining status 

under section 305 of the Act for the 

notice year and, if so— 

(i) A statement describing how a 

person may obtain a copy of the plan’s 

funding improvement plan or 

rehabilitation plan, as appropriate, 

adopted under section 305 of the Act 

and the actuarial and financial data that 

demonstrate any action taken by the 

plan toward fiscal improvement; 

(ii) A summary of the plan’s funding 

improvement plan or rehabilitation 

plan, including any update or 

modification of such funding 

improvement or rehabilitation plan 

adopted under section 305 of the Act 

during the notice year; and 

(iii) In the case of a multiemployer 

plan in critical and declining status: 

(A) The projected date of insolvency; 

(B) A clear statement that such 

insolvency may result in benefit 

reductions; and 

(C) A statement describing whether 

the plan sponsor has taken legally 

permitted actions to prevent insolvency. 

(7) Events having a material effect on 

liabilities or assets. Subject to paragraph 

(g) of this section, 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. 

(8) Rules on termination or 

insolvency—(i) Single-employer plans. 

In the case of a single-employer plan, a 

summary of the rules governing 

termination of single-employer plans 

under subtitle C of title IV of the Act. 

(ii) Multiemployer plans. In the case 

of a multiemployer plan, a summary of 

the rules governing insolvency, 

including the limitations on benefit 

payments. 

(9) PBGC guarantees. A general 

description of the benefits under the 

plan which are eligible to be guaranteed 

by the Pension Benefit Guaranty 

Corporation, along with an explanation 

of the limitations on the guarantee and 

the circumstances under which such 

limitations apply. 

(10) Annual report information. A 

statement that a person entitled to 

notice under paragraph (f) of this 

section may obtain a copy of the annual 

report of the plan filed under section 

104(a) of the Act upon request, through 

the Internet Web site of the Department 

of Labor, or through any Intranet Web 

site maintained by the applicable plan 

sponsor (or plan administrator on behalf 

of the plan sponsor). 

(11) Information disclosed to PBGC. 

In the case of a single-employer plan, if 

applicable, a statement that the 

contributing sponsor of the plan or a 

member of the contributing sponsor’s 

controlled group was required to 

provide information under section 4010 

of the Act for the information year 

ending in the notice year (see 29 CFR 

4010.5). 

(12) Additional information. Any 

additional information that the plan 

administrator elects to include, 

provided that such information is 

necessary or helpful to understanding 

the mandatory information in the 

notice, or is otherwise permitted by law. 

(c) Style and format of notice. 

Funding notices shall be written in a 

manner that is consistent with the style 

and format requirements of § 2520.102– 

2 of this chapter. 

(d) When to furnish notice. (1) Except 

as provided in paragraph (d)(2) of this 

section, a funding notice shall be 

provided not later than 120 days after 

the end of the notice year. 

(2) In the case of a small plan, a 

funding notice shall be provided not 

later than the earlier of the date on 

which the annual report is filed under 

section 104(a) of the Act or the latest 

date the annual report must be filed 

under that section (including 

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Federal Register / Vol. 80, No. 21 / Monday, February 2, 2015 / Rules and Regulations 5647 

employer plan is a small plan if it meets 

the exception in section 303(g)(2)(B) of 

the Act, and a multiemployer plan is a 

small plan if it had 100 or fewer 

participants on each day during the plan 

year preceding the notice year. 

(e) Manner of furnishing notice. (1) 

[Reserved.] 

(2) A funding notice must be 

furnished to the Pension Benefit 

Guaranty Corporation in a manner 

consistent with the requirements of part 

4000 of title IV of the Act. The date that 

the notice is furnished to the Pension 

Benefit Guaranty Corporation is 

determined consistent with that part. 

(f) Persons entitled to notice. Persons 

entitled to a funding notice under this 

section are: 

(1) Each participant covered under the 

plan on the last day of the notice year; 

(2) Each beneficiary receiving benefits 

under the plan on the last day of the 

notice year; 

(3) Each alternate payee under the 

plan on the last day of the notice year; 

(4) Each labor organization 

representing participants under the plan 

on the last day of the notice year; 

(5) In the case of a multiemployer 

plan, each employer that, as of the last 

day of the notice year, is a party to the 

collective bargaining agreement(s) 

pursuant to which the plan is 

maintained or who otherwise may be 

subject to withdrawal liability pursuant 

to section 4203 of the Act; and 

(6) The Pension Benefit Guaranty 

Corporation. 

(g) Special rules and definitions for 

material effect disclosures. (1) The term 

‘‘current plan year’’ means the plan year 

after the notice year. Thus, for example, 

if the notice year is January 1, 2017 

through December 31, 2017, then the 

current plan year would be January 1, 

2018 through December 31, 2018. 

(2) An event described in paragraph 

(b)(7) of this section 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, in such 

year. 

(3) An event described in paragraph 

(b)(7) of this section 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. For this measurement, 

calculate assets and liabilities in the 

same manner as under paragraph (b)(2) 

of this section. 

(4) An event described in paragraph 

(b)(7) of this section 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) of this section. 

(5) An 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. Thus, if an event otherwise 

described in paragraph (b)(7) first 

becomes known to a plan administrator 

120 days or less before the due date of 

a notice, the plan administrator is not 

required to explain, or project the effect 

of, the event in that notice. 

(6) The term ‘‘other known event’’ 

includes, but is not limited to, an 

extension of coverage under the existing 

terms of the plan to a new group of 

employees; a plan merger, 

consolidation, or spinoff pursuant to 

regulations under section 414(l) of the 

Internal Revenue Code; or, a shutdown 

of any facility, plant, store, or such other 

similar corporate event that creates 

immediate eligibility for benefits that 

would not otherwise be immediately 

payable for participants separating from 

service. The term does not include 

market fluctuations. 

(7) With respect to events described in 

paragraph (g)(4) of this section, the plan 

administrator may, instead of projecting 

the effect on plan liabilities to the end 

of the current plan year, include an 

explanation why the event is considered 

material by the enrolled actuary. 

(8) 

Example. The following example 

illustrates the special rules and definitions of 

paragraph (g) of this section: 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. Therefore, the amendment is 

recognized as taking effect under the final 

rule in 2018. Since the amendment adopted 

on June 1, 2017, is known more than 120 

days prior to the April 30, 2018 due date of 

the 2017 funding notice, the amendment 

must be disclosed in the 2017 funding notice 

under paragraph (b)(7) of the final regulations 

as a material effect event taking effect in 2018 

(i.e., the current plan year). 

(h) Model notices. (1) The appendices 

to this section contain a model notice 

for single-employer plans and a model 

notice for multiemployer plans. These 

models are intended to assist plan 

administrators in discharging their 

notice obligations under this section. 

Use of a model notice is not mandatory. 

However, subject to paragraph (h)(2) of 

this section, use of a model notice will 

be deemed to satisfy the requirements of 

paragraphs (b)(1) through (b)(11) and 

paragraph (c) of this section. 

(2) To the extent a plan administrator 

elects to include in a model notice 

information described in paragraph 

(b)(12) of this section, such additional 

information must be consistent with the 

style and format requirements in 

paragraph (c) of this section. 

(i) Notice year. For purposes of this 

section, the term ‘‘notice year’’ means 

the plan year to which the notice 

relates. For example, for a calendar year 

plan that must furnish its 2010 funding 

notice no later than the 120th day of 

2011, the ‘‘notice year’’ is the 2010 plan 

year. 

(j) Alternative method of compliance 

for furnishing notice to PBGC for certain 

single-employer plans. Notwithstanding 

any other provision of this section, the 

plan administrator of a single-employer 

plan is not required to furnish a notice 

to the Pension Benefit Guaranty 

Corporation annually if, based on the 

data described in paragraph (b)(3)(i)(A) 

of this section for the notice year, plan 

liabilities do not exceed total plan assets 

by more than $50 million, provided that 

the plan administrator furnishes the 

latest available funding notice to the 

Pension Benefit Guaranty Corporation 

within 30 days of a written request. 

(k) Alternative method of compliance 

for multiemployer plans terminated by 

mass withdrawal. (1) Notwithstanding 

any other provision of this section, for 

plan years beginning after the date 

specified in section 4041A(b)(2) of the 

Act, an alternative method of 

compliance is available in the case of a 

multiemployer plan that terminates 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, as described 

in section 4041A(a)(2) of the Act. Under 

this alternative method, the plan 

administrator shall furnish annually to 

each person described in paragraph 

(f)(1) through (3) of this section a notice 

that complies with paragraphs (c), (d), 

(e), and (k)(2) of this section. 

(2) The notice includes: 

(i) A statement of the fair market 

value of the plan’s assets as of the last 

day of the notice year, and as of the last 

day of each of the two preceding plan 

years as reported in the annual report 

filed under section 104(a) of the Act for 

each such preceding plan year; 

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5648 Federal Register / Vol. 80, No. 21 / Monday, February 2, 2015 / Rules and Regulations 

(ii) A statement of the amount of 

benefit payments made during the 

notice year and each of the two 

preceding plan years; 

(iii) If a notice has not already been 

furnished pursuant to 29 CFR 4281.32, 

a statement that benefits may be 

reduced pursuant to section 4281(c) of 

the Act and a summary of the rules 

governing such reductions; 

(iv) A summary of the rules governing 

insolvency, including the limitations on 

benefit payments, pursuant to paragraph 

(b)(8)(ii) of this section; 

(v) The information described in 

paragraphs (b)(1), (b)(9), and (b)(10) of 

this section; and 

(vi) Any additional information that 

the plan administrator elects to include, 

subject to the requirements of paragraph 

(b)(12) of this section. 

(l) Alternative method of compliance 

for Internal Revenue Code section 

412(e)(3) plans. (1) Notwithstanding any 

other provision of this section, an 

alternative method of compliance is 

available in the case of an insurance 

contract plan described in section 

412(e)(3) of the Internal Revenue Code 

of 1986. Under this alternative method, 

the plan administrator shall furnish 

annually to each person described in 

paragraph (f) of this section a notice that 

complies with paragraphs (c), (d), (e), 

and (l)(2) of this section. 

(2) The notice includes: 

(i) An explanation that the plan is 

funded exclusively by an insurance 

contract or contracts, that such contract 

or contracts provide for the benefit 

payments to participants and 

beneficiaries, that such benefit 

payments are guaranteed by a licensed 

insurance company or companies, and 

the name of the insurance company or 

companies; 

(ii) A statement whether, as of the last 

day of the notice year, there were any 

delinquent premiums and, if so, the 

amount and date of the delinquency and 

the effect on the plan and on 

participants and beneficiaries in the 

event of a policy lapse; 

(iii) The information described in 

paragraph (b)(1), (b)(9), and (b)(10) of 

this section; and 

(iv) Any additional information that 

the plan administrator elects to include, 

provided that such information meets 

the standard in paragraph (b)(12) of this 

section. 

(m) CSEC plans. [Reserved]. 

Appendix A to § 2520.101–5—SingleEmployer Plan Model Annual Funding 

Notice 


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ANNUAL FUNDING NOTICE 

For 

[insert name of single-employer pension plan] 

Introduction 

This notice includes important information about the funding status of your single-employer 

pension plan (the "Plan"). It also includes general information about the benefit payments 

guaranteed by the Pension Benefit Guaranty Corporation ("PBGC"), a federal insurance agency. 

All traditional pension plans (called "defined benefit pension plans") must provide this notice 

every year regardless of their funding status. This notice does not mean that the Plan is 

terminating. It is provided for informational purposes and you are not required to respond in 

any way. This notice is required by federal law. This notice is for the plan year beginning 

[insert beginning date] and ending [insert ending date] ("Plan Year"). 

How Well Funded Is Your Plan 

The law requires the administrator of the Plan to tell you how well the Plan is funded, using a 

measure called the "funding target attainment percentage." The Plan divides its Net Plan 

Assets by Plan Liabilities to get this percentage. In general, the higher the percentage, the better 

funded the plan. The Plan's Funding Target Attainment Percentage for the Plan Year and each 

of the two preceding plan years is shown in the chart below. The chart also shows you how the 

percentage was calculated. 

Funding Target Attainment Percentage 

[insert Plan Year, e.g., [insert plan year [insert plan year 2 

2015] preceding Plan Year, years preceding Plan 

e.g., 2014] year, e.g., 2013] 

1. Valuation Date [insert date] [insert date] [insert date] 

2. Plan Assets 

a. Total Plan Assets [insert amount] [insert amount] [insert amount] 

b. Funding Standard [insert amount] [insert amount] [insert amount] 

Carryover Balance 

c. Prefunding Balance [insert amount] [insert amount] [insert amount] 

d. Net Plan Assets [insert amount] [insert amount] [insert amount] 

(a)- (b)- (c)= (d) 
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3. Plan Liabilities [insert amount] [insert amount] [insert amount] 

4. At-Risk Liabilities [insert amount] [insert amount] [insert amount] 

5. Funding Target [insert percentage] [insert percentage] [insert percentage] 

Attainment Percentage 

(2d)/(3) 

{Instructions: Report Valuation Date entries in accordance with section 303(g)(2) of ERISA. Report Total Plan Assets in 

accordance with section 303(g)(3) of ERISA. Report credit balances (i.e., funding standard carryover balance and prefunding 

balance) in accordance with section 303(/) of ERISA. Report Net Plan Assets, Plan Liabilities (i.e., funding target), and Funding 

Target Attainment Percentage in accordance with section 303(d)(2) of ERISA. The amount reported as "Plan Liabilities" should 

be the funding target determined without regard to at-risk assumptions, even if the plan is in at-risk status. At-Risk Liabilities 

are determined under section 303(i) of ERISA (taking into account section 303(i)(5) of ERISA). Report At-Risk Liabilities for 

any year covered by this chart in which the plan was in "at-risk" status within the meaning of section 303(i) of ERISA, only if 

At-Risk Liabilities are greater than Plan Liabilities; otherwise delete the entire row designated as number 4. Round off all 

amounts in this chart to the nearest dollar.} 

Plan Assets and Credit Balances 

The chart above shows certain "credit balances" called the Funding Standard Carryover Balance 

and Prefunding Balance. A plan might have a credit balance, for example, if in a prior year an 

employer contributed money to the plan above the minimum level required by law. Generally, 

an employer may credit the excess money toward the minimum level of contributions required 

by law that it must make in future years. Plans must subtract these credit balances from Total 

Plan Assets to calculate their Funding Target Attainment Percentage. 

{Instructions: Include the preceding discussion, entitled Plan Assets and Credit Balances, only where such balances exist.} 

Plan Liabilities 

Plan Liabilities in line 3 of the chart above is an estimate of the amount of assets the Plan needs 

on the Valuation Date to pay for promised benefits under the Plan. 

At-Risk Liabilities 

The law considers a plan to be in "at risk" status if its funding target attainment percentage for 

the prior plan year was below a legal threshold. The sponsor of an at-risk plan must make 

certain assumptions and contribute more money to that plan. For example, plans in "at-risk" 

status must assume that all workers eligible to retire in the next 10 years will do so as soon as 

they can, and that they will take their distribution in whatever form would create the highest 

cost to the plan, without regard to whether those workers actually do so. The additional 

contributions that result from "at-risk" status may then remove a plan from this status. The 

Plan was in" at-risk" status in [enter year or years covered by the chart above]. The At-Risk 

Liabilities row in the chart above shows the increased liabilities resulting from "at-risk" status. 

{Instructions: Include the preceding discussion, entitled At-Risk Liabilities, only in the case of a plan required to report 

At-Risk Liabilities. Delete the entire row designated as number 4 in the chart above if the At-Risk Liabilities 

discussion is not included in the notice.} 

Year-End Assets and Liabilities 
Federal Register / Vol. 80, No. 21 / Monday, February 2, 2015 / Rules and Regulations 5651 


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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 [enter the last day of the Plan Year], the fair market value of the Plan's assets 

was [enter amount]. On this same date, the Plan's liabilities, determined using market rates, 

were [enter amount]. 

{Instructions: Insert the fair market value of the plan's assets as of the last day of the plan year. You may include contributions 

made after the end of the plan year to which the notice relates and before the date the notice is timely furnished but only if such 

contributions are attributable to such plan year for funding purposes. 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 assumptions used to determine the funding target under 

section 303. The interest rate assumption is the rate provided under section 4006(a)(3)(E)(iv), but using the last month of the 

year to which the notice relates rather than the month preceding the first month of the year to which the notice relates. If, 

consistent with section 303(g)(2) of ERISA, the plan's valuation date is not the first day of the plan year, make appropriate 

modifications to the preceding paragraph, e.g., replace "first day of' with "valuation date for."} 

{Instructions: If, pursuant to section 303(g)(3) of ERISA, the value of the plan's assets in the chart above is fair market value, 

include the paragraph below rather than the paragraph above, but otherwise follow the instructions above.} 

The asset values in the chart above are measured as of the first day of the Plan Year. As of [enter 

the last day of the Plan Year], the fair market value of the Plan's assets was [enter amount]. On this 

same date, the Plan's liabilities, determined using market rates, were [enter amount]. 

Participant Information 

The total number of participants and beneficiaries covered by the Plan on the Valuation Date 

was [insert number]. Of this number, [insert number] were current employees, [insert number] 

were retired and receiving benefits, and [insert number] were retired or no longer working for 

the employer and have a right to future benefits. 

Funding & Investment Policies 

Every pension plan must have a procedure to establish a funding policy for plan objectives. A 

funding policy relates to how much money is needed to pay promised benefits. The funding 

policy of the Plan is [insert a summary statement of the Plan's funding policy]. 

Pension plans also have investment policies. These generally are written guidelines or general 

instructions for making investment management decisions. The investment policy of the Plan is 

[insert a summary statement of the Plan's investment policy]. 

Under the investment policy, the Plan's assets were allocated among the following categories of 

investments, as of the end of the Plan Year. These allocations are percentages of total assets: 

{Instructions: Insert and complete either Alternative 1 or Alternative 2, below.} 

Alternative 1: 
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Asset Allocations 

1. Cash (interest bearing and non-interest bearing) 

2. U.S. Government securities 

3. Corporate debt instruments (other than employer securities): 

Preferred 

All other 

4. Corporate stocks (other than employer securities): 

Preferred 

Common 

5. Partnership/joint venture interests 

6. Real estate (other than employer real property) 

7. Loans (other than to participants) 

8. Participant loans 

9. Value of interest in common/ collective trusts 

10. Value of interest in pooled separate accounts 

11. Value of interest in master trust investment accounts 

12. Value of interest in 103-12 investment entities 

13. Value of interest in registered investment companies (e.g., mutual funds) 

14. Value of funds held in insurance co. general account (unallocated contracts) 

15. Employer-related investments: 

Employer Securities 

Employer real property 

16. Buildings and other property used in plan operation 

17. Other 

Percentage 

For information about the Plan's investment in any of the following types of investments -

common/ collective trusts, pooled separate accounts, master trust investment accounts, or 103-

12 investment entities - contact [insert the name, telephone number, email address or mailing address 

of the plan administrator or designated representative]. 

{Instructions: Percentages must total100%. If a plan holds an interest in one or more of the direct filing entities (DFEs) noted 

above, i.e., MTIAs, CCTs, PSAs, or 103-12IEs and the administrator does not break out the DFE's investments among the other 

asset classes, immediately following the asset allocation chart include the paragraph above informing recipients how to obtain 

more information regarding the plan's DFE investments (e.g., the plan's ScheduleD and/or the DFE's Schedule H). If a plan 

does not hold an interest in a DFE or the plan administrator breaks out the investments of all DFEs among the other asset 

classes, do not include the above paragraph. If the administrator knows the actual asset allocation of an MTIA, the MTIA entry 

(line 11) should not be competed and the investments of the MTIA should be reflected in the relevant asset classes.} 

Alternative 2 

Asset Allocations 

Stocks 

Investment grade debt instruments 

High-yield debt instruments 

Real estate 

Other 

Percentage: 

{Instructions: Percentages must total100%. Follow the instructions for the latest ScheduleR to Form 5500 to allocate 

investments to one of the above asset classes. 

Events Having a Material Effect on Assets or Liabilities 
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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 [insert the first day of the current plan year (i.e., 

the year after the notice year)] and ending on [insert the last day of the current plan year], the Plan 

expects the following events to have such an effect: [Insert explanation of any plan amendment, 

scheduled benefit increase or reduction, or other known event taking effect in the current plan year and 

having a material effect on plan liabilities or assets for the current plan year, as well as a projection to the 

end of the current plan of the effect of the amendment, scheduled increase or reduction, or event on plan 

I iabil ities] . 

{Instructions: Include the preceding discussion, entitled Events having a Material Effect on Assets or Liabilities, only if and to 

the extent applicable.} 

Right to Request a Copy of the Annual Report 

Pension plans must file annual reports with the US Department of Labor. The report is called 

the "Form 5500." These reports contain financial and other information. You may obtain an 

electronic copy of your Plan's annual report by going to www.efast.dol.gov and using the search 

tool. Annual reports also are available from the US Department of Labor, Employee Benefits 

Security Administration's Public Disclosure Room at 200 Constitution A venue, NW, Room N1513, Washington, DC 20210, or by calling 202.693.8673. Or you may obtain a copy of the Plan's 

annual report by making a written request to the plan administrator. [If the plan's annual report 

is available on an Intranet website maintained by the plan sponsor (or plan administrator on behalf of the 

plan sponsor), modify the preceding sentence to include a statement that the annual report also may be 

obtained through that website and include the website address.] Annual reports do not contain 

personal information, such as the amount of your accrued benefits. You may contact your plan 

administrator if you want information about your accrued benefits. Your plan administrator is 

identified below under "Where To Get More Information." 

Summary of Rules Governing Termination of Single-Employer Plans 

If a plan terminates, there are specific termination rules that must be followed under federal 

law. A summary of these rules follows. 

There are two ways an employer can terminate its pension plan. First, the employer can end a 

plan in a "standard termination" but only after showing the PBGC that such plan has enough 

money to pay all benefits owed to participants. Under a standard termination, a plan must 

either purchase an annuity from an insurance company (which will provide you with periodic 

retirement benefits, such as monthly for life or for a set period of time when you retire) or, if the 

plan allows, issue one lump-sum payment that covers your entire benefit. Your plan 

administrator must give you advance notice that identifies the insurance company (or 

companies) selected to provide the annuity. The PBGC's guarantee ends upon the purchase of 

an annuity or payment of the lump-sum. If the plan purchases an annuity for you from an 

insurance company and that company becomes unable to pay, the applicable state guaranty 

association guarantees the annuity to the extent authorized by that state's law. 
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Second, if the plan is not fully-funded, the employer may apply for a distress termination. To 

do so, however, the employer must be in financial distress and prove to a bankruptcy court or 

to the PBGC that the employer cannot remain in business unless the plan is terminated. If the 

application is granted, the PBGC will take over the plan as trustee and pay plan benefits, up to 

the legal limits, using plan assets and PBGC guarantee funds. 

Under certain circumstances, the PBGC may take action on its own to end a pension plan. Most 

terminations initiated by the PBGC occur when the PBGC determines that plan termination is 

needed to protect the interests of plan participants or of the PBGC insurance program. The 

PBGC can do so if, for example, a plan does not have enough money to pay benefits currently 

due. 

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, 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 [insert current calendar 

year], the maximum guarantee is [insert amount from PBGC web site, www.pbgc.gov, applicable for 

the current calendar year] per month, or [insert amount from PBGC web site, www.pbgc.gov, applicable 

for the current calendar year] per year, 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 

reflecting the fact that younger retirees are expected to receive more monthly pension checks 

over their lifetimes. [if the plan does not provide for commencement of benefits before age 65, you may 

omit this sentence.] Similarly, the maximum guarantee is higher for an individual who starts 

receiving benefits from PBGC after 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 include 

[Include the following guarantees that apply to benefits available under the plan.]: 

• 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. 
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The PBGC does not guarantee certain types of benefits [Include the following guarantee limits that 

apply to the benefits available under the plan.]: 

• 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 general information about the PBGC and the 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 benefit. PBGC does not have that information. 

See "Where to Get More Information About Your Plan," below. 

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, [enter name of plan sponsor] 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 monitoring and other purposes. 

{Instructions: Insert the preceding paragraph entitled "Corporate and Actuarial Information on File with PBGC" only if a 

reporting under section 4010 of ERISA was required for the information year ending in the Plan Year. Modify the preceding 

paragraph, as appropriate, if the plan sponsor is the sole member of its controlled group. 

Where to Get More Information 
5656 Federal Register / Vol. 80, No. 21 / Monday, February 2, 2015 / Rules and Regulations 

Appendix B to § 2520.101–5— 

Multiemployer Plan Model Annual 

Funding Notice 


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Federal Register / Vol. 80, No. 21 / Monday, February 2, 2015 / Rules and Regulations 5657 


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ANNUAL FUNDING NOTICE 

For 

[insert name of multiemployer pension plan] 

Introduction 

This notice includes important information about the funding status of your multiemployer 

pension plan (the "Plan"). It also includes general information about the benefit payments 

guaranteed by the Pension Benefit Guaranty Corporation ("PBGC"), a federal insurance agency. 

All traditional pension plans (called "defined benefit pension plans") must provide this notice 

every year regardless of their funding status. This notice does not mean that the Plan is 

terminating. It is provided for informational purposes and you are not required to respond in 

any way. This notice is required by federal law. This notice is for the plan year beginning 

[insert beginning date] and ending [insert ending date] ("Plan Year"). 

How Well Funded Is Your Plan 

The law requires the administrator of the Plan to tell you how well the Plan is funded, using a 

measure called the "funded percentage." The Plan divides its assets by its liabilities on the 

Valuation Date for the plan year to get this percentage. In general, the higher the percentage, 

the better funded the plan. The Plan's funded percentage for the Plan Year and each of the two 

preceding plan years is shown in the chart below. The chart also states the value of the Plan's 

assets and liabilities for the same period. 

Funded Percentage 

[insert Plan Year, e.g., [insert plan year [insert plan year 2 years 

2015] preceding Plan Year, e.g., preceding Plan Year, e.g., 

2014] 2013] 

Valuation [insert date] [insert date] [insert date] 

Date 

Funded [insert percentage] [insert percentage] [insert percentage] 

Percentage 
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Value of [insert amount] [insert amount] [insert amount] 

Assets 

Value of [insert amount] [insert amount] [insert amount] 

Liabilities 

{Instructions: The plan's "funded percentage" is equal to a fraction, the numerator of which is the actuarial value of the plan's 

assets (determined in the same manner as under section 304(c)(2) of ERISA) and the denominator of which is the accrued 

liability of the plan (under section 305(i)(8) of ERISA, using reasonable actuarial assumptions as required under section 

304(c)(3) of ERISA). Report the value of the plan's assets and liabilities in the same manner as under section 304 of ERISA (but 

determining the plan's liabilities under section 305(i)(8) of ERISA, using reasonable actuarial assumptions as required under 

section 304(c)(3) of ERISA) as of the plan's valuation date for the plan year. Round off all amounts in this chart to the nearest 

dollar.} 

Year-End Fair Market Value of Assets 

The asset values in the chart above are measured as of the Valuation Date. 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. The asset values in the chart below are market values and are measured on the 

last day of the Plan Year. The chart also includes the year-end market value of the Plan's assets 

for each of the two preceding plan years. 

[insert last day of Plan [insert last day of plan [insert last day of plan 

Year, e.g., 2015] year preceding Plan year 2 years preceding 

Year, e.g., 2014] Plan Year, e.g., 2013] 

Fair Market [insert amount] [insert amount] [insert amount] 

Value of 

Assets 

{Instructions: Insert the fair market value of the plan's assets as of the last day of the plan year. You may include contributions 

made after the end of the plan year to which the notice relates and before the date the notice is timely furnished but only if such 

contributions are attributable to such plan year for funding purposes. For each of the two preceding plan years, you may use the 

fair market value of assets on the last day of the plan year as reported in the annual report for such plan year.} 

Endangered, Critical, or Critical and Declining Status 

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 may 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 
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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. 

{Instructions: Select and complete the appropriate option below.} 

{Option one} 

The Plan was not in endangered, critical, or critical and declining status in the Plan Year. 

{Option two} 

The Plan was in [insert "endangered" or "critical"] status in the Plan Year ending [insert last day 

of Plan Year] because [insert summary description of why plan was in this status based on statutory 

factors]. In an effort to improve the Plan's funding situation, the trustees adopted [insert 

summary of the plan's funding improvement or rehabilitation plan, including when adopted and expected 

duration, and a description of any modification or update to the plan adopted during the plan year to 

which the notice relates]. You may get a copy of the Plan's [insert "funding improvement plan" or 

"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 applicable, insert: "Or you may obtain this 

information at [insert Intranet address of plan sponsor (or plan administrator on behalf of the plan 

sponsor)].] 

{Option three} 

The Plan was in critical and declining status in the Plan Year ending [insert last day of Plan Year] 

because [insert summary description of why plan was in this status based on statutory factors]. The 

Plan is projected to be insolvent in the [insert plan year] 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 [insert date]. The rehabilitation plan [Insert a summary of the plan's 

rehabilitation plan, including expected duration and a description of any modification or update to the 

plan adopted during the plan year to which the notice relates]. [Insert the following if applicable: The 

plan sponsor has taken the following legally permitted actions to prevent insolvency: [Insert 

explanation of actions]." 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. [lf 

applicable, insert: "Or you may obtain this information at [insert Intranet address of plan sponsor (or 

plan administrator on behalf of the plan sponsor)].] 

If the Plan is in endangered, critical, or critical and declining status for the plan year ending 

[insert the last day of the plan year following the Plan Year], separate notification of that status has or 

will be provided. 

Participant Information 

The total number of participants and beneficiaries covered by the Plan on the valuation date 

was [insert number]. Of this number, [insert number] were current employees, [insert number] 

were retired and receiving benefits, and [insert number] were retired or no longer working for 

the employer and have a right to future benefits. 
5660 Federal Register / Vol. 80, No. 21 / Monday, February 2, 2015 / Rules and Regulations 


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Funding & Investment Policies 

Every pension plan must have a procedure to establish a funding policy for plan objectives. A 

funding policy relates to how much money is needed to pay promised benefits. The funding 

policy of the Plan is [insert a summary statement of the Plan's funding policy]. 

Pension plans also have investment policies. These generally are written guidelines or general 

instructions for making investment management decisions. The investment policy of the Plan is 

[insert a summary statement of the Plan's investment policy]. 

Under the Plan's investment policy, the Plan's assets were allocated among the following 

categories of investments, as of the end of the Plan Year. These allocations are percentages of 

total assets: 

{Instructions: Insert and complete either Alternative 1 or Alternative 2, below.} 

Alternative 1: 

Asset Allocations 

1. Cash (Interest bearing and non-interest bearing) 

2. U.S. Government securities 

3. Corporate debt instruments (other than employer securities): 

Preferred 

All other 

4. Corporate stocks (other than employer securities): 

Preferred 

Common 

5. Partnership/joint venture interests 

6. Real estate (other than employer real property) 

7. Loans (other than to participants) 

8. Participant loans 

9. Value of interest in common/ collective trusts 

10. Value of interest in pooled separate accounts 

11. Value of interest in 103-12 investment entities 

12. Value of interest in registered investment companies (e.g., mutual funds) 

13. Value of funds held in insurance co. general account (unallocated contracts) 

14. Employer-related investments: 

Employer Securities 

Employer real property 

15. Buildings and other property used in plan operation 

16. Other 

Percentage 

For information about the Plan's investment in any of the following types of investmentscommon/ collective trusts, pooled separate accounts, or 103-12 investment entities - contact 

[insert the name, telephone number, email address or mailing address of the plan administrator or 

designated representative]. 
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{Instructions: Percentages must total100%. If a plan holds an interest in one or more of the direct filing entities (DFEs) noted 

above, i.e., CCTs, PSAs, or 103-12IEs and the administrator does not break out the D FE's investments among the other asset 

classes, immediately following the asset allocation chart include the paragraph above informing recipients how to obtain more 

information regarding the plan's DFE investments (e.g., the plan's ScheduleD and/or the DFE's Schedule H). If a plan does not 

hold an interest in a DFE or the administrator breaks out the investments of all DFEs among the other asset classes, do not 

include the above paragraph. 

Alternative 2 

Asset Allocations 

Stocks 

Investment grade debt instruments 

High-yield debt instruments 

Real estate 

Other 

Percentage: 

{Instructions: Percentages must total100%. Follow the instructions in the latest ScheduleR to Form 5500 to allocate 

investments to one of the above asset classes. 

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 [insert the first day of the current plan year (i.e., 

the year after the notice year)] and ending on [insert the last day of the current plan year], the Plan 

expects the following events to have such an effect: [Insert explanation of any plan amendment, 

scheduled benefit increase or reduction, or other known event taking effect in the current plan year and 

having a material effect on plan liabilities or assets for the current plan year, as well as a projection to the 

end of the current plan of the effect of the amendment, scheduled increase or reduction, or event on plan 

liabilities]. 

{Instructions: Include the preceding discussion, entitled Events having a Material Effect on Assets or Liabilities, only if and to 

the extent applicable.} 

Right to Request a Copy of the Annual Report 

Pension plans must file annual reports with the US Department of Labor. The report is called 

the "Form 5500." These reports contain financial and other information. You may obtain an 

electronic copy of your Plan's annual report by going to www.efast.dol.gov and using the search 

tool. Annual reports also are available from the US Department of Labor, Employee Benefits 

Security Administration's Public Disclosure Room at 200 Constitution A venue, NW, Room N1513, Washington, DC 20210, or by calling 202.693.8673. Or you may obtain a copy of the Plan's 

annual report by making a written request to the plan administrator. [If the plan's annual report 

is available on an Intranet website maintained by the plan sponsor (or plan administrator on behalf of the 

plan sponsor), modify the preceding sentence to include a statement that the annual report also may be 

obtained through that website and include the website address.] Annual reports do not contain 

personal information, such as the amount of your accrued benefit. You may contact your plan 
5662 Federal Register / Vol. 80, No. 21 / Monday, February 2, 2015 / Rules and Regulations 


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administrator if you want information about your accrued benefits. Your plan administrator is 

identified below under "Where To Get More Information." 

Summary of Rules Governing Insolvent Plans 

Federal law has a number of special rules that apply to financially troubled multiemployer 

plans that become insolvent, either as ongoing plans or plans terminated by mass withdrawal. 

The plan administrator is required by law to include a summary of these rules in the annual 

funding notice. A plan is insolvent for a plan year if its available financial resources are not 

sufficient to pay benefits when due for that plan year. An insolvent plan must reduce benefit 

payments to the highest level that can be paid from the plan's available resources. If such 

resources are not enough to pay benefits at the level specified by law (see Benefit Payments 

Guaranteed by the PBGC, below), the plan must apply to the PBGC for financial assistance. The 

PBGC will loan the plan the amount necessary to pay benefits at the guaranteed level. Reduced 

benefits may be restored if the plan's financial condition improves. 

A plan that becomes insolvent must provide prompt notice of its status to participants and 

beneficiaries, contributing employers, labor unions representing participants, and PBGC. In 

addition, participants and beneficiaries also must receive information regarding whether, and 

how, their benefits will be reduced or affected, including loss of a lump sum option. 

Benefit Payments Guaranteed by the PBGC 

The maximum benefit that the PBGC guarantees is set by law. Only benefits that you have 

earned a right to receive and that cannot be forfeited (called vested benefits) are guaranteed. 

There are separate insurance programs with different benefit guarantees and other provisions 

for single-employer plans and multiemployer plans. Your Plan is covered by PBGC' s 

multiemployer program. Specifically, the PBGC guarantees a monthly benefit payment equal to 

100 percent of the first $11 of the Plan's monthly benefit accrual rate, plus 75 percent of the next 

$33 of the accrual rate, times each year of credited service. The PBGC' s maximum guarantee, 

therefore, is $35.75 per month times a participant's years of credited service. 

Example 1: If a participant with 10 years of credited service has an accrued monthly benefit of 

$600, the accrual rate for purposes of determining the PBGC guarantee would be determined by 

dividing the monthly benefit by the participant's years of service ($600/10), which equals $60. 

The guaranteed amount for a $60 monthly accrual rate is equal to the sum of $11 plus $24.75 (.75 

x $33), or $35.75. Thus, the participant's guaranteed monthly benefit is $357.50 ($35.75 x 10). 

Example 2: If the participant in Example 1 has an accrued monthly benefit of $200, the accrual 

rate for purposes of determining the guarantee would be $20 (or $200/10). The guaranteed 

amount for a $20 monthly accrual rate is equal to the sum of $11 plus $6.75 (.75 x $9), or $17.75. 

Thus, the participant's guaranteed monthly benefit would be $177.50 ($17.75 x 10). 

The PBGC guarantees pension benefits payable at normal retirement age and some early 

retirement benefits. In addition, the PBGC guarantees qualified preretirement survivor benefits 

(which are preretirement death benefits payable to the surviving spouse of a participant who 

dies before starting to receive benefit payments). In calculating a person's monthly payment, 
Federal Register / Vol. 80, No. 21 / Monday, February 2, 2015 / Rules and Regulations 5663 

■ 4. Amend § 2520.104–46 by revising 

paragraph (b)(1)(i)(B) introductory text 

to read as follows: 

§ 2520.104–46 Waiver of examination and 

report of an independent qualified public 

accountant for employee benefit plans with 

fewer than 100 participants. 

* * * * * 

(b) * * * 

(1) * * * 

(i) * * * 

(B) The summary annual report 

(described in § 2520.104b–10) or, in the 

case of plans subject to section 101(f) of 

the Act, the annual funding notice 

(described in § 2520.101–5), includes, in 

addition to any other required 

information: 

* * * * * 

■ 5. Amend § 2520.104b–10, by revising 

paragraphs (g)(7) and (8) and adding 

paragraph (g)(9) to read as follows: 

§ 2520.104b–10 Summary Annual Report. 

* * * * * 

(g) * * * 

(7) A dues financed welfare plan 

which meets the requirements of 29 CFR 

2520.104–26; 

(8) A dues financed pension plan 

which meets the requirements of 29 CFR 

2520.104–27; and 

(9) A plan to which title IV of the Act 

applies. 

* * * * * 

Signed this 23rd day of January, 2015. 

Phyllis C. Borzi, 

Assistant Secretary, Employee Benefits 

Security Administration, U.S. Department of 

Labor. 

[FR Doc. 2015–01884 Filed 1–30–15; 8:45 am] 

BILLING CODE 4510–29–P 


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