Retirement Updates

DOL Issues Guidance on Annual Funding Notices for Pension Plans Receiving Special Financial Assistance

On April 25, 2023, the DOL’s Employee Benefits Security Administration (EBSA) issued Field Assistance Bulletin No. 2023-01, providing guidance to multiemployer plans on how they can comply with ERISA annual funding disclosure requirements when they receive special financial assistance (SFA) under the American Rescue Plan Act. The EBSA presents the guidance as 11 Q&A's, which are explained in order below.

  1. The EBSA states that multiemployer plans should not consider any SFA they receive when disclosing the funded percentage and the actuarial value of assets in their annual funding disclosures. SFA is not included in these items. However, the plans may want to include information in the annual funding notice explaining why the funded percentage stated in the notice is lower than participants and beneficiaries might have expected, given that the plan received SFA.
  2. The agency states that the annual funding notice must include 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." Accordingly, the statement of fair market value of plan assets should reflect any SFA that the multiemployer plans received during that time. If the statement does include SFA, then the notice must include a statement explaining that the plan received SFA, and that the actuarial value of assets used to determine the funded percentage does not include the SFA account's assets.
  3. The agency makes clear that the receipt of SFA triggers the “material effect” explanation in the annual disclosure notice. SFA is a government transfer that has a material effect on plan assets. Further, a plan that suspended benefits due to insolvency under Section 4245(a) of ERISA (or under the Multiemployer Pension Reform Act), but receives SFA, should reinstate suspended benefits going forward and pay make-up payments for those previously suspended benefits to participants and beneficiaries who were in pay status on the SFA payment date. These reinstated benefits and make-up payments could have a material effect on plan liabilities. Finally, the agency states that the multiemployer plan administrator is not required to project the effect on the plan's liabilities through the end of the current plan year, because the amount of SFA attributable to the reinstatement of benefits is expected to offset the increase in liabilities through at least 2051.
  4. The EBSA states that the material effect explanation must be included in the annual funding notice for the plan year in which the plan received SFA. If a multiemployer plan receives additional SFA under a supplemented application in a different plan year other than the plan year the plan received SFA under the initial application, the receipt of additional SFA is a material effect event for which an explanation is required.
  5. The agency states that when a plan's receipt of SFA triggers the "material effect" explanation required under the annual disclosure notice, that explanation must include the amount of SFA and the date it was paid to the plan. If the plan received additional SFA under a supplemented application, the explanation must state the amount and date of the SFA received under the initial and supplemented applications separately along with a statement explaining why the plan is receiving supplemented SFA. The Q&A then includes language that plans can use when providing this explanation.
  6. The EBSA makes clear that a plan that has received SFA is deemed to be in critical status, beginning with the plan year in which the plan first received SFA and ending with the plan year ending in 2051. The Q&A provides language that plans can use to explain this in the annual disclosure notice.
  7. The agency states that a plan's receipt of SFA affects the general description of the plan's investment policy. For plans that have received SFA, the description of the plan's investment policy must reflect the restrictions and limitations on investments applicable to the separate account.
  8. The EBSA states that the plan administrator does not have to separately identify the assets in the SFA account. The percentage allocation of investments under the plan, as required by the annual disclosure notice, is based on total plan assets, including the assets that make up the SFA account. However, the agency states that the plan administrator should include an explanation that SFA is included in the allocations. The Q&A has model language for this explanation.
  9. The agency states that if a plan receiving SFA subsequently becomes insolvent, the plan "will be subject to the current rules and guarantee for insolvent plans." Therefore, a plan receiving SFA should include the same summary of the rules governing insolvency as a plan that does not receive SFA.
  10. The EBSA states that an insolvent plan that is eligible for, but has not applied for, SFA can modify the model language in Appendix B of 29 CFR 2520.101-5, summarizing the rules governing insolvent plans to inform participants that the plan is eligible for SFA. The Q&A also includes model language that a multiemployer plan administrator of an insolvent plan eligible for SFA that has not been approved for SFA or does not have an application for SFA under review by the Pension Benefit Guaranty Corporation (PBGC) on the last day of the notice year may use in the annual disclosure notice.
  11. Finally, the agency states that the annual funding notice of a plan that received SFA can include a statement describing the prohibition against the plan applying to suspend benefits in the future even if the plan is in critical and declining status and otherwise meets the requirements for suspension. The Q&A includes model language that can be used for this statement.

Employers participating in multiemployer plans that received SFA should be aware of this new information.

Field Assistance Bulletin No. 2023-01 »

PPI Benefit Solutions does not provide legal or tax advice. Compliance, regulatory and related content is for general informational purposes and is not guaranteed to be accurate or complete. You should consult an attorney or tax professional regarding the application or potential implications of laws, regulations or policies to your specific circumstances.

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