DOL Issues Annual Pension Funding Notice Requirements

Many plans must furnish new annual funding notices by April 30, 2013

By Stephen Miller, CEBS Mar 14, 2013

Update: Field Assistance Bulletin 2013-01 (described in the article below) and subsequent guidance on annual funding notice requirements for defined benefit pension plans were superseded by a final rule issued by the Department of Labor in February 2015. See the SHRM Online article Final Rule Streamlines Pension Funding Notices.​

On March 8, 2013, the U.S. Department of Labor (DOL) issued Field Assistance Bulletin 2013-01, concerning new pension funding disclosure requirements mandated by the Moving Ahead for Progress in the 21st Century (MAP-21) Act, which was signed into law in July 2012.

Under the Employee Retirement Income Security Act (ERISA) and the Pension Protection Act (PPA), single-employer defined benefit pension plans are subject to minimum funding rules that require employers to make contributions to the plan in order to fund the plan’s benefits. When interest rates are low—as they have been for the past several years—pension plan liabilities are estimated to be higher and employers are required to contribute more money to meet their minimum funding obligations.

Under MAP-21, employers can put less money into their pension plans by using calculations that allow them to value liabilities using higher interest rates than the prevailing low rates. For instance, under the law's so-called "smoothing" or rate stabilization provision, the interest rates used to estimate pension liabilities and determine employer contributions, which statutorily have been based on the two-year average of interest rates, will be adjusted so that they are based on the average of interest rates for the 25-year period preceding the current year.

New Notice Requirements

MAP-21 also amended ERISA section 101(f) to require plan administrators to provide participants and others with information regarding the impact of MAP-21’s interest rate stabilization rules on the plan’s funding status. An estimated 12,000 single-employer plans covering approximately 33.5 million participants and beneficiaries are subject to the new disclosure requirements. Many of these plans must furnish their first annual funding notice under the new law no later than April 30, 2013.

The new bulletin includes technical questions and answers, and it provides a model information table that plan administrators may use to fulfill their MAP-21 disclosure obligations. The model information table shows how the MAP-21 interest rates affect the plan’s funding target attainment percentage (a measure of how well the plan is funded on a particular date), funding shortfall (the amount by which liabilities exceed net plan assets) and minimum required contribution (the amount of money an employer is required by law to contribute to a plan in a given year).

Good-Faith Compliance

In addition to following the guidance in the new bulletin, the DOL said it will treat plan administrators as in compliance if they have acted in accordance with a good-faith, reasonable interpretation of ERISA section 101(f) with respect to matters not specifically addressed in the bulletin.

Pension Underfunding Increases

Average funding ratios for U.S. corporate pension funds fell to 81 percent in 2012 from 89 percent in 2011, driven mainly by declining interest rates. More than 60 percent of all corporate defined benefit pension plans are now funded at 85 percent or less, and only 10 percent of plans are fully funded, according to Greenwich Associates latest U.S. Investment Management Study.

Companies’ decisions about their defined benefit pension plans are being driven by the tension between desires to shed pension risk and the increasingly pressing need to generate enough investment returns to fund long-term liabilities, the study found.

Stephen Miller, CEBS, is an online editor/manager for SHRM.

Related External Article:

Instructions Released for Annual Funding Notice MAP-21 Disclosures, Buck Consultants, March 2013

Related SHRM Article:

President Signs Pension Funding Relief Measure, SHRM Online Benefits, July 2012

Quick Links:

SHRM Online Benefits Page

SHRM Online Retirement Plans Resource Page

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