Transcript Pension Protection Act of 2006 – What You Need to Know
ACOPA Advanced Actuarial Conference
PPA Funding Notices and Other Disclosures
William G. Karbon, MSPA, CPC, QPA CBIZ Benefits & Insurance Services, Inc.
(609) 895-5332 (610) 862-2557 (fax) [email protected]
Ilene H. Ferenczy, CPC, Esq.
The Law Offices of Ilene H. Ferenczy, LLC (404) 320-1100 (404) 320-1105 (fax) [email protected]
Agenda The Big Kahuna: The Annual Funding Notice Participant Benefit Statements Notice of Failure to Make Quarterly Contributions Notice of Funding-Based Distribution Limitations Notice of Suspension of Benefits
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Agenda Notice of Prospective Plan Amendment ( §204(h) Notice) PBGC Notice of Plan Termination Notice of Potential Withdrawal Liability
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THE BIG KAHUNA: THE ANNUAL FUNDING NOTICE
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The Big Kahuna: The Annual Funding Notice
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Added by PPA, effective for Plan Years beginning on or after January 1, 2008 Revised ERISA §101(f) Required for all PBGC-covered defined benefit pension plans If AFN requirements apply, plan is exempt from SAR requirements 5
The Big Kahuna: The Annual Funding Notice
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Must be provided to: The PBGC Each participant and beneficiary Each union representing participants and beneficiaries For multiemployer plans, each contributing employer 6
The Big Kahuna: The Annual Funding Notice
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Timing: General rule: within 120 days of plan year end Small plans (i.e., <100 participants on each day of the preceding plan year): “upon filing” the annual Form 5500 Not filing due date Form : written, electronic, or other appropriate form reasonably accessible to the recipients, in language understandable to average participant 7
The Big Kahuna: The Annual Funding Notice
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Content: All Plans: Identifying information (plan name, address and phone number of plan administrator and plan’s principal administrative officer, plan number) Number of participants : Retired/separated and receiving benefits entitled to future benefits Active under the plan 8
The Big Kahuna: The Annual Funding Notice
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Content: All Plans (cont’d): Funding policy and asset allocation (as % of total assets) as of the PYE General description of benefits eligible to be guaranteed by PBGC, explanation of limits on the guarantee and when they apply Statement of right to obtain copy of Form 5500 on request DOL website/company intranet 9
The Big Kahuna: The Annual Funding Notice
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Content: All Plans (cont’d): If there is a plan amendment, scheduled benefit increases or reductions, or other known event taking effect in the current PY and having a material effect on plan assets or liabilities for the year: Explanation Projection to PYE of effect of amendment, etc. on plan liabilities 10
The Big Kahuna: The Annual Funding Notice
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Content: Single Employer Plans: Statement as to whether FTAP for current and 2 preceding years exceeded 100% (and, if not, the actual percentage) Statement of: Total assets (separately stating the prefunding and carryover balances) and liabilities as determined for minimum funding purposes for the PY and 2 preceding years per annual report; and Value of assets and liabilities for PBGC premium payment purposes 11
The Big Kahuna: The Annual Funding Notice
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Content: Single Employer Plans: Summary of rules re plan termination under PBGC 12
The Big Kahuna: The Annual Funding Notice
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Content: Multiemployer Plans: Statement as to whether the plan’s funded percentage for the PY and for 2 prior plan years is at least 100% (and, if not, the actual percentages) Statement of plan assets and liabilities, as determined for minimum funding purposes, for current PY and 2 prior plan years 13
The Big Kahuna: The Annual Funding Notice
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Content: Multiemployer Plans: Statement as to whether the plan is in critical or endangered status and, if so: Statement of how the participant may obtain a copy of the plans’ funding improvement or rehabilitation plan and the actuarial and funding data demonstrating action taken toward fiscal improvement; Summary of the funding improvement or rehabilitation plan 14
The Big Kahuna: The Annual Funding Notice
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Content: Multiemployer Plans: Summary of the rules governing reorganization or insolvency, including limitations on benefit payments 15
The Big Kahuna: The Annual Funding Notice
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FAB 2009-01
issued February 10, 2009 (PPA required DOL to issue by August 17, 2007), provides Model Notices and answers to some questions about complying with these rules No regulations in relation to the notice have yet been issued (hard to comply in their absence) Multiemployer plans cannot use the notice
previously
in the regulations for the 2008 year – must comply with new §101(f) 16
The Big Kahuna: The Annual Funding Notice
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FAB 2009-01 says: Must file with PBGC, but no penalty for single employer plans if liabilities – assets <= $50M if notice is provided within 30 days of PBGC request No penalties will apply to multiemployer plan that is late on AFN but is insolvent and has done all required insolvency notices 17
The Big Kahuna: The Annual Funding Notice
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FAB 2009-01 says: FTAP equals: Value of assets – prefunding and carryover balances Funding target for the plan year (w/o regard to Code §430(i)*) *special rules for at-risk plans 18
The Big Kahuna: The Annual Funding Notice FAB 2009-01 says:
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Calculating year end assets: okay to add in contributions made after year end attributable to the plan year at issue Year end liabilities: present value of benefits accrued as of that date using funding assumptions and interest rate as of last month of the plan year 19
The Big Kahuna: The Annual Funding Notice FAB 2009-01 says:
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Participant counts for the AFN should be as of the valuation date Asset allocation percentages: model notice specifies certain asset classes, and plan must reflect percentage of assets in each of those classes using same valuation method as used on Form 5500 20
The Big Kahuna: The Annual Funding Notice
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FAB 2009-01 says: Plan amendment, etc. has “material effect” when: the amendment changes assets or liabilities by more than 5% from the prior plan year; or The actuary judges that the event is material for purposes of funding status under Code §430 or 431 without regard to 5% standard 21
The Big Kahuna: The Annual Funding Notice FAB 2009-01 says:
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Okay to add information to the AFN if: Necessary or helpful to understanding AFN; and Does not mislead or misinform participants Information for the prior 2 years: If prior years are pre PPA, put “n/a” on chart AND Include language from Appendix C of FAB regarding transition years 22
The Big Kahuna: The Annual Funding Notice Penalties for Nonfiling:
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$100 per day per participant or beneficiary 23
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PARTICIPANT BENEFIT STATEMENTS
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Participant Benefit Statements
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Obligation to provide statements initiated by PPA for plan years beginning in 2007 and later (ERISA §105) Timing: at least once every 3 years to participants with vested accrued benefits who are employed; and upon request to participants or beneficiaries (but not more than 1 statement per year) 25
Participant Benefit Statements
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In determining 3-year period for providing statements, do not need to include any year during which no employee or former employee accrues any benefit under the plan 26
Participant Benefit Statements
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Content: Total benefits accrued Nonforfeitable benefits (or earliest date on which benefits will become nonforfeitable) Explanation of permitted disparity (if applicable) Explanation of floor offset arrangement (if applicable) 27
Participant Benefit Statements
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Content: Can be based on reasonable estimate Based on latest information available In a form calculated to be understood by average participant Written, electronic, or other appropriate form reasonably accessible to the recipient 28
Participant Benefit Statements
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Alternative to benefit statements: At least once per year, plan administrator provides notice of availability of benefit statements Includes description of how the participant or beneficiary may request the statement 29
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NOTICE OF FAILURE TO MAKE QUARTERLY CONTRIBUTIONS
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Notice of Failure to Make Quarterly Contributions
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PBGC Reportable Event under ERISA §4043 Requires that notice be filed whenever a minimum funding obligation under Code §412 (or ERISA §302) [which reference §430] is not met Pre-2009, the PBGC waived this requirement for small plans (PBGC Tech Update 09-3) Waiver eliminated for 2009+ years PBGC granted some small plan relief for 2009 31
Notice of Failure to Make Quarterly Contributions
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Normal Deadline: within 30 days after plan administrator or contributing sponsors know or should know of the failure to fund (unless the funding is done within that period) – April 15 is first deadline for making a quarterly contribution, so the normal deadline for a notice of a missed quarterly contribution is May 15.
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Notice of Failure to Make Quarterly Contributions
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Reason for small plan relief: PBGC cares about missed contributions because it may be indicative of financial difficulty that will lead to PBGC takeover of the plan PBGC has been convinced that small plans often fail to make quarterly contributions for reasons
other than
financial difficulties 33
Notice of Failure to Make Quarterly Contributions
ACOPA Advanced Actuarial Conference
2009 Relief Available only if: Paid flat rate premium in 2008 Financial inability to make the contribution is not the reason for the missed quarterly For plans with less than 25 participants: No need to file notice at all For plans with 25-99 participants: need to file notice of the first missed contribution only 34
Notice of Failure to Make Quarterly Contributions
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Result: if missed first quarterly contribution, notice is normally due on May 15, 2009 Problem: how do you know why your client missed the quarterly contribution Call each client?
Do notice for everyone? 2 nd Problem: PBGC Waiver Notice issued 4/30/09 (Um. . . thanks) 35
Notice of Failure to Make Quarterly Contributions
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Contents of notice (sample included in Tech Update 09-3): Name of plan, EIN of employer, plan number The date on which the 2009 plan year began Statement that: quarterly contribution has not been or will not be timely made financial inability is not the reason for not making the contribution Last day for satisfying the 2009 minimum funding requiremen t 36
Notice of Failure to Make Quarterly Contributions
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If missed quarterly contributions of more than $1M, use Form 200 If : missed quarterly contributions of $1M or less and have more than 100 participants; or If <=100 participants and missed quarterly contributions are due to financial difficulties, Use Form 10 37
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AFTAP CERTIFICATION
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AFTAP Certification
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Applicable AFTAP based on when certified: For first three months of a plan year, the AFTAP is considered to be the same as the AFTAP certified for the prior year If actuary certifies AFTAP by 4/1 (for a calendar year plan), that AFTAP is for the current year If actuary does not certify the AFTAP by 4/1, it is presumed to be the same as the prior year AFTAP, reduced by 10 percentage points 39
AFTAP Certification
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Applicable AFTAP based on when certified: If actuary does not certify the AFTAP by 10/1 (for calendar year plans), the AFTAP is presumed to be less than 60% and all applicable limits are in place through the end of the year Certification must be in writing and provided to the plan administrator 40
AFTAP Certification
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Special rules for small plans with end-of-year valuation: For 2008 AFTAP, permitted to base on valuation date other than end of year, so long as ultimately do AFTAP certification when end-of year valuation is completed (so long as there is no material change) [IRS Notice 2008-21] 41
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NOTICE OF FUNDING-BASED LIMITS ON DISTRIBUTIONS
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Notice of Funding-Based Distribution Limitations
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Required if plan has become subject to the limits on shut-down benefits or distributions because AFTAP is less than 80% or accruals because AFTAP is less than 60% Due date: within 30 days after restriction applies or After valuation where AFTAP is less than 60% (or when AFTAP deemed to be less than 60%) 43
Notice of Funding-Based Distribution Limitations
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Must be provided to participants and beneficiaries In writing or electronically or other form reasonably accessible to recipient Potential penalty: $1,000 per day per participant 44
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NOTICE OF SUSPENSION OF BENEFITS
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Notice of Benefit Suspension
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If plan provides no actuarial adjustment for delayed retirement or suspends benefits when a retiree in pay status is reemployed, must provide a notice of benefit suspension Not required if the benefits to a reemployed retiree are actuarially increased due to the suspension Retiree must be working at least 40 hours per month (8 days for elapsed time) for plan sponsor 46
Notice of Benefit Suspension
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Must be provided during first calendar month or applicable payroll period in which the withholding of payments occurs Must be sent by first class mail or hand delivered 47
Notice of Benefit Suspension
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Contents Explanation of suspension Can refer to SPD explanation If the plan provides for future benefits to be offset by any benefits that are erroneously paid to the rehired retiree, the notice must explain how that works 48
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NOTICE OF APPLICATION FOR WAIVER OF MINIMUM FUNDING
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Notice of Application for Waiver of Minimum Funding
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Section 412(c) permits an employer to apply for a waiver of minimum funding within 2-1/2 months of the plan year end The employer must, as part of application to IRS, certify that it has provided notice of the application to each “affected party”: participants, beneficiaries, unions covering participants, and the PBGC 50
Notice of Application for Waiver of Minimum Funding
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Revenue Procedure 2004-15 contains updated guidance on requesting waivers A plan sponsor may not receive more than 3 waivers out of any 15 consecutive plan years Notice must include a disclosure of the extent to which PBGC guaranteed benefits are funded 51
Notice of Application for Waiver of Minimum Funding
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May request funding waiver of all or a portion of the minimum funding requirement if: sponsor is unable to satisfy the minimum funding standard for a year without temporary substantial business hardship application of the standard would be adverse to interests of plan participants in the aggregate 52
Notice of Application for Waiver of Minimum Funding
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Substantial business hardship demonstrated by: an employer that is operating at an economic loss substantial unemployment or underemployment in the trade or business and in the industry sales and profits of the industry concerned that are depressed or declining a reasonable expectation that the plan will be continued only if the waiver is granted 53
Notice of Application for Waiver of Minimum Funding Application must include:
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General facts concerning the employer Financial condition of the employer Annual report for employer and controlled group members for 2 fiscal years prior year of waiver Executive compensation arrangements 54
Notice of Application for Waiver of Minimum Funding
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Application must include: Facts concerning the pension plan Name of plan, date adopted, effective date Class of employees, number of employees Document, SPD, description of amendments adopted in year of waiver Recent actuarial reports, type of funding, contributions for prior 24 months Required contribution, amount requested to be waived Copy of most recent Form 5500 55
Notice of Application for Waiver of Minimum Funding
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Application must include: Nature and extent of business hardship Reasons leading to current situation Statement concerning prospects for recovery Statement describing actions taken / planned to effect recovery Statement as to when contributions are expected to resume Financial projections and collateral information 56
Notice of Application for Waiver of Minimum Funding Application must include:
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Pending matters with IRS, DOL or PBGC Digest of information from financial statements 57
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NOTICE OF PROSPECTIVE PLAN AMENDMENT TO REDUCE FUTURE BENEFIT ACCRUALS ( §204(H))
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§204(h) Notice
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Must give advance notice if amending plan to reduce the rate of future benefit accruals Normal Deadline: 45 days before effective date of the amendment Small Plan (<100 participants) Deadline: 15 days before effective date of amendment Deadline for Amendments Related to M&A transaction involving plan mergers, transfers, or consolidations: no later than 30 days after amendment effective date if relates only to reduction in benefit-type subsidies or early retirement benefits (but not reduction in accruals) 59
§204(h) Notice
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Must provide notice to: Participants Alternate payees whose benefits will be affected by the amendment.
First class mail, hand-delivery, electronic delivery in a manner to ensure actual receipt 60
§204(h) Notice
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Notice must include: Description of formulas before and after the change (for change in accrual) Description of how subsidies or early retirement benefits are calculated before and after change Sufficient information to determine magnitude of change Effective date of change 61
§204(h) Notice Penalties for No Notice:
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Egregious failure: participants get greater of old and new benefit $100 per individual who did not receive notice and was supposed to for each day by which notice should have been given to date of correction Not applicable if corrected within 30 days of discovery of problem if plan sponsor exercised reasonable diligence to meet the requirements Reasonable diligence: exercised diligence to deliver the notice within 30 days AND reasonably believes that notice was actually delivered within 30 days Nonegregious failure: Amendment is still effective; but Participants can take action under ERISA §502 for civil penalties and enforcement 62
§204(h) Notice
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Egregious failure: within control of plan sponsor and either intentional or results in failure to provide most of the individuals with most of the information they are entitled to receive “Intentional” includes any failure to promptly provide the notice after unintentional failure to meet requirements is discovered Not egregious if change is reasonably determined by plan administrator not to be significant reduction 63
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PBGC PLAN TERMINATION NOTICES
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PBGC Plan Termination Notices
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Standard termination: Notice of intent to terminate (60-90 days before termination) to all participants, beneficiaries, alternate payees, unions Notice of Plan Benefits (not later than the filing of the PBGC Form 500) reflecting benefits Form 500 with PBGC (within 180 days of plan termination date) 65
PBGC Plan Termination Notices
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Standard termination: Notice of Annuity Information (no more than 45 days before proposed distribution date) to participants Post-Distribution Certification to PBGC (PBGC Form 501) (within 30 days of final distribution of benefits) 66
PBGC Distress Termination Notices
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Notice of Intent to Terminate to participants, beneficiaries, alternate payees, unions, and the PBGC (60-90 days before effective date) Distress Termination Notice with PBGC (within 120 days after effective date) Participant and Benefit Information with PBGC (by later of 120 days after effective date or 30 days after PBGC notice accepting distress termination 67
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NOTICE OF POTENTIAL WITHDRAWAL LIABILITY
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Notice of Potential Withdrawal Liability
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A contributing employer to a multiemployer plan may make a written request for a determination of its estimated withdrawal liability if it were to leave the plan May not make a request more than once in a 12 month period The plan has 180 days to respond and may charge for copying, mailing, and “other costs of furnishing such notice” 69
Notice of Potential Withdrawal Liability
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The notice must include an explanation of how the liability was calculated, including Actuarial assumptions Methods of determining plan assets and liabilities Data regarding employer contributions, unfunded vested benefits, annual changes in plan’s unfunded vested benefits, limitations on estimated withdrawal liability May be in written, electronic, or other form reasonably accessible to the recipient 70
Questions?
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Contact Information
William G. Karbon, MSPA, CPC, QPA
CBIZ Benefits & Insurance Services, Inc.
1009 Lenox Drive, Ste. 105 Lawrenceville, NJ 08648 (609) 895-5332 (V) (610) 862-2557 (F) [email protected]
Contact Information
Ilene H. Ferenczy, CPC, Esq.
Law Offices of Ilene H. Ferenczy, LLC 2200 Century Parkway, Suite 560 Atlanta, Georgia 30345 ( 404) 320-1100 x 102 (V) (866) 515-5140 (toll free) (404) 320-1105 (F) [email protected]