Quick Overview of Proposed AFN Regulations

With the passage of PPA, many defined benefit pension plan sponsors must provide an annual notice describing the plan’s funded status to all participants. The Annual Funding Notice (AFN) requirement has been in place since 2008, and our first guidance came in the form of DOL Field Assistance Bulletin 2009-01. As mentioned in our 5500 filing database post the other day, the DOL has now released proposed regulations to help plan sponsors and practitioners better implement the AFN requirement. There is also a Fact Sheet which can be found here.

The proposed AFN regulations don’t contain many revelations, but they do help clarify a number of items related to the disclosures. Some highlights include:

  • New sample AFN templates for single employer and multi-employer pension plans. The general content of the sample notices remain unchanged from those in FAB 2009-01, but there are some organizational and descriptive changes that should help clarify the content for participants. Use of the new notices is deemed to satisfy the “content” and “style/format” requirements of ERISA, so it’s probably a good idea for plan sponsors to consider updating their AFN templates to reflect the new model notices.
  • Confirmation of many details in FAB 2009-01. These include:
    • Determination of whether an event has a “material effect” on plan assets or liabilities.
    • How to calculate liabilities and assets disclosed in the statement.
    • Who should receive the AFN, and by what date.
  • Clarification that it is acceptable to include other disclosure requirements in the AFN through a combined notification. This statement is a bit vague and raises the question of what it means for additional information to be “necessary or helpful”. The example described in the proposed regulations is the inclusion of a statement about the small plan audit waiver. It remains to be seen whether the final regulations permit the inclusion of other mandatory disclosures (such as the disclosure of the right to receive an annual benefit statement).
  • Request for comments on various issues prior to issuing final regulations. The DOL is requesting input from the pension plan community on a number of topics covered in the proposed regulations. Many of the items seem to be foregone conclusions, but now is the chance to provide input if you choose to do so.

One uncertainty raised in the proposed regulations is that there are no explicit details about the acceptable methods for providing notices to participants. In particular, FAB 2009-01 states that AFNs may be provided electronically, but the section in the proposed regulations dealing with this issue is reserved pending further guidance. Notwithstanding the e-delivery issue, the proposed AFN regulations confirm most of the guidance issued in FAB 2009-01 and the new model notices should make the AFNs a bit easier for interested participants to decipher.

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