Annual Funding Notice for Multiemployer Defined Benefit Pension
Plans
[01/11/2006]
Volume 71, Number 7, Page 1903-1914
[[Page 1903]]
-----------------------------------------------------------------------
Part IV
Department of Labor
-----------------------------------------------------------------------
Employee Benefits Security Administration
-----------------------------------------------------------------------
29 CFR Part 2520
Annual Funding Notice for Multiemployer Defined Benefit Pension Plans;
Final Rule
[[Page 1904]]
-----------------------------------------------------------------------
DEPARTMENT OF LABOR
Employee Benefits Security Administration
29 CFR Part 2520
RIN 1210-AB00
Annual Funding Notice for Multiemployer Defined Benefit Pension
Plans
AGENCY: Employee Benefits Security Administration, DOL.
ACTION: Final regulation.
-----------------------------------------------------------------------
SUMMARY: This document contains a final regulation implementing the
notice requirement in section 101(f) of the Employee Retirement Income
Security Act of 1974. Section 103 of the Pension Funding Equity Act of
2004 (PFEA '04) amended section 101 of ERISA by adding a new subsection
(f), which requires the administrator of a multiemployer defined
benefit plan to provide participants, beneficiaries, and certain other
parties, including the Pension Benefit Guaranty Corporation, with an
annual funding notice indicating, among other things, whether the
plan's funded current liability percentage is at least 100 percent.
This document also contains a model notice that may be used by plan
administrators in discharging their duties under section 101(f).
DATES: Effective Date: This rule is effective February 10, 2006.
Applicability Date: The requirements of this rule shall apply to
plan years beginning after December 31, 2004.
FOR FURTHER INFORMATION CONTACT: Stephanie L. Ward, Office of
Regulations and Interpretations, Employee Benefits Security
Administration, (202) 693-8500. This is not a toll-free number.
SUPPLEMENTARY INFORMATION:
A. Background
Section 103(a) of the Pension Funding Equity Act of 2004, Public
Law 108-218 (PFEA '04), which was enacted on April 10, 2004, added
section 101(f) to the Employee Retirement Income Security Act of 1974,
as amended (ERISA or the Act). Section 101(f) provides that the
administrator of a multiemployer defined benefit plan shall for each
plan year furnish a plan funding notice to each plan 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.
Section 103(b) of PFEA '04 amended section 502(c)(1) of ERISA to
provide that any administrator who fails to meet the requirements of
section 101(f) with respect to a participant or beneficiary may, in a
court's discretion, be personally liable to such participant or
beneficiary in the amount of up to $100 a day from the date of such
failure or refusal and the court may in its discretion order such other
relief as it deems proper. Section 103(c) of PFEA '04 provides that the
Secretary of Labor shall, not later than 1 year after the date of
enactment of PFEA '04, issue regulations (including a model notice)
necessary to implement the amendments made by section 103. Section
103(d) of PFEA '04 provides that the amendments made by section 103 of
PFEA '04 shall apply to plan years beginning after December 31, 2004.
On February 4, 2005, the Department published in the Federal
Register (70 FR 6306) a proposed rule (and model notice), designated as
Sec. 2520.101-4 of title 29, to implement the new notice requirement.
The Department received seven comment letters from representatives of
employers, plans, and others. Copies of these comments are posted on
the Department's Web site. After careful consideration of the issues
raised by the written comments, the Department is publishing in this
notice, in final form, regulation Sec. 2520.101-4 of title 29. The
final regulation is substantially similar to the proposal. Set forth
below is an overview of the final regulation, with a discussion of the
comments received on the proposal and changes made in response to the
comments.
B. Overview of Final Regulation
1. In General
The final regulation requires the administrator of a multiemployer
defined benefit pension plan to furnish annually a notice of the plan's
funded status to the plan's participants and beneficiaries and other
specified interested parties (each labor organization representing such
participants or beneficiaries, each employer that has an obligation to
contribute under the plan, and the Pension Benefit Guaranty Corporation
(PBGC)). See Sec. 2520.101-4(a)(1). Like the proposal, the final
regulation includes a limited exception to the requirement to furnish
the annual funding notice. Under the exception, the administrator of a
plan receiving financial assistance from the PBGC is not required to
furnish the annual funding notice to the parties otherwise entitled to
such notice. See Sec. 2520.104-4(a)(2). One commenter recommended
eliminating this exception on the basis that the need for information
about the financial condition of a plan actually increases when the
plan becomes financially distressed. After consulting with the PBGC on
this issue, the Department has decided to retain the exception for the
reasons stated in the preamble of the proposal.\1\
---------------------------------------------------------------------------
\1\ The Department is of the view that the annual funding notice
would be of little, if any, value to recipients in light of the
PBGC's authority and responsibility under title IV of ERISA with
respect to insolvent multiemployer plans. The provisions of title IV
of ERISA that apply in the context of a plan's receipt of financial
assistance from the PBGC (Sec. Sec. 4245(e) and 4281(d)) ensure
that participants and beneficiaries of insolvent plans are
adequately informed of, among other things, their plan's funding
status (including, for participants in pay status, their individual
benefit levels), and PBGC's benefit guarantees. In addition, PBGC
receives plan financial information before providing financial
assistance. Inasmuch as the foregoing title IV provisions are
largely duplicative of the requirements in section 101(f) of ERISA,
an exception from the requirements of section 101(f) for plans
receiving financial assistance necessarily would reduce
administrative costs to these plans, thereby increasing the plan's
available resources for benefit payments. See 70 FR 6306.
---------------------------------------------------------------------------
Another commenter recommended the development of an exception for
plans whose only contributing employers are contractors or
subcontractors of the United States Government. The commenter argues
that funding notices are not necessary in this context given that,
pursuant to the contractual relationship between each contributing
employer and the Federal government under Federal acquisition rules,
the Federal government is ultimately required to meet the applicable
minimum funding requirements under the law. The Department has decided
against developing an exception along the lines requested by this
commenter. Section 101(f)(2) of ERISA requires all multiemployer
defined benefit pension plans to disclose their funding level even in
cases where the plan is 100 percent funded (on a funded current
liability basis). This provision, in the Department's view, suggests
strongly that Congress intends for disclosure without regard to how
well a plan is funded or how secure its ultimate source of funding.
Because the disclosure requirement in section 101(f) is not conditioned
on a plan's funding level or source, the Department did not adopt this
suggestion.
This commenter also suggested that the regulation should provide a
mechanism by which a plan administrator could incorporate information
from the annual funding notice into other documents already being
distributed by the plan. More
[[Page 1905]]
specifically, under the commenter's approach all of the required
information under section 101(f) of ERISA would be put into the plan's
summary annual report and summary plan description, thereby eliminating
the need to distribute a stand alone annual funding notice. The
commenter believes this approach would reduce compliance costs. The
Department has decided not to adopt this suggestion. Dispersing the
annual funding notice information among a plan's summary annual report
and summary plan description, in the Department's view, is not
consistent with the requirements of section 101(f) of ERISA, for the
following two reasons. First, under section 101(f), the information in
the annual funding notice must be furnished on an annual basis, but
under section 104(b)(1) of ERISA, some participants and beneficiaries
might receive a summary plan description only every 10 years. Second,
under section 101(f) of ERISA, the annual funding notice must be
furnished to each plan 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, but section 104(b)(3) requires plan administrators to furnish
a summary annual report only to each participant and beneficiary
receiving benefits. The Department also notes that the commenter's
suggestion may be contrary to the requirements relating to the summary
annual report in that some or all annual funding notice information
might not be information that, as required by section 104(b)(3) of
ERISA, fairly summarizes a plan's latest annual report.\2\
---------------------------------------------------------------------------
\2\ Regarding the commenter's cost argument, any cost savings
that might be realized as a result of not having to distribute a
stand alone annual funding notice to each participant and
beneficiary would seem to be reduced, if not entirely negated, by
having to distribute the summary annual report and summary plan
description to the wider set of recipients set forth in section
101(f) of ERISA.
---------------------------------------------------------------------------
2. Content of Notice
Paragraph (b) of the final regulation sets forth the content
requirements of the annual funding notice. Like the proposal, paragraph
(b) of the final regulation requires that the identification and
financial information included in the notice should be consistent with
the information included in the plan's Annual Return/Report Form 5500
filed for the plan year to which the notice relates. Paragraph (b)(1)-
(4) of the final regulation provides that the notice shall include: The
name of the plan; the address and phone number of the plan
administrator and the plan's principal administrative officer (if
different from the plan administrator); the plan sponsor's employer
identification number (currently line 2(b) of the Annual Return/Report
Form 5500); and the plan number (currently line 1(b) of the Annual
Return/Report Form 5500). Because there were no comments on these
provisions, they were adopted from the proposal without modification.
See Sec. 2520.101-4(b)(1)-(4).
Paragraph (b)(5)-(8) of the final regulation provides that the
notice shall include information relevant to the plan's funding.
Paragraph (b)(5) requires a statement as to whether the plan's funded
current liability percentage for the plan year to which the notice
relates is at least 100 percent (and, if not, the actual percentage). A
plan's funded current liability percentage is calculated by dividing
the actuarial value of the plan's assets (currently line 1b(2) of the
Schedule B of the Annual Return/Report Form 5500) by the current
liability (currently line 1d(2)(a) of the Schedule B of the Annual
Return/Report Form 5500).\3\
---------------------------------------------------------------------------
\3\ The preamble to the proposal explained that a plan's funded
current liability percentage is to be calculated by dividing the
actuarial value of the plan's assets (currently line 1b(2) of the
Schedule B of the Annual Return/Report Form 5500) by the current
liability (currently line 2b(4), column (3), of the Schedule B of
the Annual Return/Report Form 5500). The second Schedule B reference
was changed from ``line 2b(4), column (3)'' to ``line 1d(2)(a).''
This change was to ensure that the same valuation date would be used
for the plan's assets and current liability.
---------------------------------------------------------------------------
Paragraph (b)(6) of the final regulation requires a statement of
the market value (same as current value) of the plan's assets
(currently line 2a of the Schedule B of the Annual Return/Report Form
5500) and the valuation date (first day of the plan year), the amount
of benefit payments for the plan year to which the notice relates
(currently line 2e(4) of the Schedule H of the Annual Return/Report
Form 5500), and the ratio of the assets to the benefit payments for the
plan year to which the notice relates.
Paragraph (b)(7) of the final regulation requires a summary of the
rules governing insolvent multiemployer plans, including the
limitations on benefit payments and any potential benefit reductions
and suspensions (and the potential effects of such limitations,
reductions, and suspensions on the plan). Lastly, paragraph (b)(8)
requires a general description of the benefits under the plan that are
eligible to be guaranteed by the PBGC, along with an explanation of the
limitations on the guarantee and the circumstances under which such
limitations apply. See Sec. 2520.101-4(b)(5)-(8).
With respect to calculating a plan's funded current liability
percentage under paragraph (b)(5) of the regulation, one commenter
suggested that the final regulation might allow plans to use generally
applicable actuarial assumptions to establish the plan's current
liability, rather than the assumptions specifically required under the
definition of ``current liability'' in section 412(l)(7) of the
Internal Revenue Code. The Department was unable to accommodate this
suggestion, taking into account the clear and specific directive in
section 101(f) of ERISA. Section 101(f) states that a plan's funded
current liability percentage is ``as defined in section 302(d)(8)(B)''
of ERISA. The Internal Revenue Service advised the Department that it
interprets section 302(d)(8)(B) of ERISA to include the requirements of
section 412(l)(7) of the Code.\4\ Accordingly, the final regulation
does not permit plan administrators to depart from mandatory
assumptions under section 412(l)(7) of the Code when calculating the
funded current liability percentage for purposes of section 101(f) of
ERISA.
---------------------------------------------------------------------------
\4\ Under Reorganization Plan No. 4 of 1978 (43 FR 47713;
October 17, 1978), the Department's authority to issue
interpretations and opinions under part 2 (relating to minimum
participation, vesting and benefit accrual standards for pension
plans) and part 3 (relating to minimum funding standards for pension
plans) of title I of ERISA, including section 302(d)(8)(B), has been
transferred to the Department of the Treasury.
---------------------------------------------------------------------------
One commenter took issue with the requirement in paragraph (b)(6)
of the proposal that each annual funding notice must include a
statement of the market value of the plan's assets. The commenter
argued that plans should have a choice whether to state the value of
their assets on an actuarial or market basis. In the Department's view,
however, a market value approach is more appropriate for this
particular statement. A market value approach is more likely to
increase the transparency of a plan's financial condition for all
parties interested in the financial viability of the plan. Actuarially
derived figures, on the other hand, may be contrary to increased
transparency, thereby diminishing the likelihood that participants and
others will be able to engage in a meaningful monitoring process.
Accordingly, the Department rejected this comment, and paragraph (b)(6)
the final regulation continues to require that each annual funding
notice include a statement of the market value of the plan's assets.
In connection with the statement of the market value of the plan's
assets, as required in paragraph (b)(6) of the final regulation, one
commenter suggested
[[Page 1906]]
that plan administrators might also be required to include a
description of the plan's contribution stream, defined by this
commenter as new money coming into the plan, so that interested
individuals could better assess the financial strength of the plan. The
Department decided against this suggestion on the basis that such a
requirement is beyond the scope of this regulatory project. However,
the Department notes that ERISA already requires pension plans, as part
of their summary annual report, to disclose similar information to
participants and beneficiaries. See 29 CFR 2520.104b-10(d)(3).
Paragraph (b)(8) of the proposed regulation mandated a general
description of the benefits eligible to be guaranteed by the PBGC. One
commenter suggested that plans with a funded current liability
percentage of 75 percent or greater should be exempt from the
requirements of paragraph (b)(8). As indicated above, the Department is
of the view that the structure and requirements of section 101(f)(2)(B)
of ERISA suggest that Congress intended for plans to disclose all of
the information set forth in section 101(f)(2), including a general
description of the benefits under the plan that are eligible to be
guaranteed by the PBGC, without regard to the plan's actual funding
percentage. Accordingly, this commenter's recommendation was not
accepted, and paragraph (b)(8) of the final regulation requires that
each annual funding notice include a general description of the
benefits under the plan that are eligible to be guaranteed by the PBGC.
Paragraph (b)(9) of the proposal contained a provision allowing a
plan administrator to add to the notice information in addition to the
information mandated by the regulation, provided that the additional
information is ``necessary or helpful'' to explaining the mandatory
information. One commenter representing plans objected to this standard
on the basis that it might be too restrictive. This commenter was
concerned that the proposed standard might hamper an administrator's
ability to add desirable explanatory or contextual information to
notices, such as why the plan has a funding shortfall. This commenter
requested that the Department replace the proposed standard with a
standard that permits the inclusion of any additional information so
long as the information is not designed to mislead or confuse
recipients of the notice. While the Department believes that plan
administrators have substantial discretion to determine whether
additional information might be appropriate to add to a plan's notice,
taking into account the unique circumstances of that plan, the
Department, nevertheless, is of the view that such additional
information must be relevant to the information Congress requires in
these notices. Because this commenter's suggestion, in the view of the
Department, lacks an acceptable standard of relevance, the suggestion
was not adopted in the final regulation.
A different commenter objected to the ``necessary or helpful''
standard on the basis that it might be too permissive. This commenter
was concerned that additional information might have the unintended
effect, either due to placement or quantity, of obscuring the
prescribed information. This commenter recommended that information in
addition to prescribed information should be allowed only on a separate
page and after the prescribed information. The Department shares the
concern raised by this commenter. Accordingly, under paragraph (b)(9)
of the final regulation, plan administrators are free to add to their
notices any additional information they elect, provided that such
information is necessary or helpful to understanding the mandatory
information in the notice, and that such additional information is
added at the end of the notice under the heading ``Additional
Explanation.'' See Sec. 2520.101-4(b)(9).
3. When To Furnish Notice
Paragraph (d) of the proposal provided that notices shall be
furnished within nine months after the close of the plan year, unless
the Internal Revenue Service has granted an extension of time to file
the annual report, in which case the notice shall be furnished within
two months after the close of the extension period. Since there were no
negative comments regarding this aspect of the proposal, this provision
was adopted in the final regulation without modification. See Sec.
2520.101-4(d). The Department notes that the deadline established under
paragraph (d) is the same deadline for furnishing the summary annual
report, see Sec. 2520.104b-10(c), and that nothing in this regulation
precludes a plan administrator from furnishing simultaneously both
notices in the same mailing.
4. Persons Entitled to Notice
Paragraph (f) of the proposal delineated the persons to whom
funding notices would have to be furnished. While there were no
comments on the other provisions in paragraph (f), one commenter made
several comments regarding the breadth of paragraph (f)(4) of the
proposal. Paragraph (f)(4) of the proposed regulation, in relevant
part, provided that notification must be furnished to each employer
that, as of the last day of the plan year to which the notice relates,
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.
In the preamble to the proposed regulation, the Department
explained that the phrase ``or who otherwise may be subject to
withdrawal liability'' is intended to make it clear that, in the case
of plans that cover employees in the building and construction
industry, entertainment industry, or trucking, household goods moving
and public warehousing industries, notice is required for any employer
that, as of the last day of the plan year to which the notice relates,
has ceased to have an obligation to contribute under the plan, but who
has continued exposure to withdrawal liability pursuant to section
4203(b), (c), or (d) of ERISA. This ``special industry rule'' is
intended to ensure that all employers who have a direct financial
interest in a plan's funding status will receive a notice.
The commenter opposed the special industry rule for two reasons.
First, the commenter argued that a requirement to provide notification
to employers based solely on continued exposure to withdrawal liability
is beyond the Department's regulatory authority under section 101(f) of
the Act. Second, the commenter argued that the information provided by
this notice is irrelevant to these employers given that the amount of
their withdrawal liability is fixed as of the last day of the plan year
preceding the cessation of the contribution obligation. On the first
argument, the Department disagrees with the commenter's assessment of
the Department's scope of regulatory authority under section 101(f) of
the Act. Section 103(c) of PFEA '04 expressly grants the Department
authority to establish regulations necessary to implement the notice
requirement in section 101(f) of the Act. On the second argument, after
consulting with the PBGC on the special industry rule, the Department
disagrees with the commenter that the information in the notice would
be irrelevant to special-industry employers who are exposed to
withdrawal liability after the cessation of their obligation to
contribute. The Department is of the view that the information provided
by this notice might be relevant to an employer's decision,
particularly in the
[[Page 1907]]
construction and entertainment industries, whether to renew its
obligation and resume covered operations prior to the expiration of the
5-year or 3-year period, as applicable, set forth in section 4203(b) of
ERISA. Accordingly, the Department has adopted paragraph (f)(4) of the
proposal without modification.
This commenter also requested clarification regarding whether plans
would have to furnish notification to each entity within the same
controlled group as the participating employer, as well as to employers
that have withdrawn but are in the process of making annual withdrawal
liability payments to the plan. The Department agrees clarification
would be helpful on these two issues. With respect to whether a plan
administrator is required to provide notification to controlled group
members, it is the Department's view that, for purposes of section
101(f) of the Act, a plan administrator is not required to provide
annual notices to entities in the same controlled group as an employer
otherwise eligible to receive a notice under paragraph (f)(4) of the
regulation. With respect to withdrawn employers, notification under
section 101(f) of the Act, and this implementing regulation, is not
required in the case of any employer that has withdrawn under any
provision in section 4203 of the Act.
5. Model Notice
A number of commenters offered suggestions on improving the
language in the proposed model notice. Most, if not all, of the
suggestions were elaborations on concepts significant to the particular
commenter in light of the uniqueness of the commenter's own plan. Given
that the final regulation permits plan administrators to augment plan
notices with any additional information they elect, provided that such
information is necessary or helpful to understanding the mandatory
information in the notice, see Sec. 2520.101-4(b)(9), the Department
decided against most of the suggestions for improving the language in
the model notice. The Department, however, changed the model notice in
two noteworthy respects. First, language was added to the section
entitled Plan's Funding Level to provide a more helpful context for
understanding the significance of a plan's funded current liability
percentage. Second, the section entitled Rules Governing Insolvent
Plans was expanded to provide for a fuller explanation of the rules
relating to insolvent plans. These and other changes to the language in
the model notice are intended to clarify the proposal and should not be
viewed as substantive changes to the content requirements in the
proposed regulation.
Although not specifically the subject of any particular comment
letter, the Department believes it might be helpful to clarify whether
there would be any impact on the relief otherwise accorded by paragraph
(g) of the regulation to a plan administrator that elects to include in
the notice, pursuant to paragraph (b)(9) of the final regulation,
information in addition to prescribed information. Paragraph (g) of the
final regulation, in relevant part, provides that, although use of the
model notice is not mandatory under the regulation, its use will be
deemed to satisfy the requirements of paragraphs (b) (content
requirements) and (c) (style and format requirements) of the
regulation, with respect to the prescribed information in paragraph
(b)(1)-(8). The Department is of the view that the forgoing relief is
not affected by an administrator's decision to add supplementary
information to a model notice, provided that the administrator complies
with requirements of paragraph (b)(9) of the regulation with respect to
the additional information.
C. Regulatory Impact Analysis
Summary
This final regulation contains a model notice and other guidance
necessary to implement the amendments made by new section 101(f) of
ERISA, as enacted by section 103(a) of PFEA '04. The regulation offers
a model notice to administrators of multiemployer defined benefit
plans, which is expected to mitigate burden and contribute to the
efficiency of compliance.
The multiemployer defined benefit plan funding notice provision of
PFEA '04 was enacted amid concerns about persisting low interest rates
and declines in equity values, each of which has a deleterious effect
on contribution requirements and funding levels of defined benefit
plans, increasing the former and decreasing the latter. More complete
and timelier disclosures were considered an important element of
measures enacted in PFEA '04 to strengthen the long-term health of the
defined benefit pension system. Increasing the transparency of
information about the funding status of multiemployer plans for
participants and beneficiaries, the labor organizations representing
them, contributing employers, and PBGC will afford all parties
interested in the financial viability of these plans greater
opportunity to monitor their funding status.
According to a March 2004 report by the General Accounting Office
(GAO) \5\ the regulatory framework within which multiemployer plans
operate shifts certain financial risks away from the government and, by
implication, the taxpayer. Contributing employers to multiemployer
plans share the risk of funding benefits for all participants, not just
those in their employment, and face specific liabilities if they
withdraw from the plans. Participants in multiemployer plans face lower
benefit guaranties than those in single-employer plans. According to
the GAO report, these factors create incentives for participants and
employers to work together constructively to find solutions to plans'
financial difficulties. These notices will provide timely disclosure of
information concerning the funding status of these plans to support the
effort of all interested parties to monitor their financial condition
and take action where necessary.
---------------------------------------------------------------------------
\5\ See GAO-04-423 Private Pensions. Multiemployer Plans Face
Short and Long-Term Challenges. U.S. General Accounting Office,
March 2004. General Accounting Office name changed to Government
Accountability Office effective July 7, 2004.
---------------------------------------------------------------------------
The regulation would further afford plan administrators greater
certainty that they have discharged their notice obligation under
section 101(f). The regulation is also intended to clarify certain
terms used in section 101(f) for the general purpose of delineating
those persons entitled to receive the notice. The benefits of greater
efficiency, certainty, and clarity are expected to be substantial, but
cannot be specifically quantified.
The cost of the multiemployer defined benefit plan notices is
expected to amount to $1,301,000 in the year of implementation, and
$644,000 in each subsequent year. The total estimated cost includes the
one-time development of a notice by each plan, the annual preparation
and mailing by the administrators of all multiemployer defined benefit
plans of the required notices to plan participants and beneficiaries,
specified labor organizations, employers that have an obligation to
contribute to these plans, and to the Pension Benefit Guaranty
Corporation, and the planning of a one-time informational meeting which
plan administrators may hold for labor and employer representatives, to
help them better understand the information contained in the notices.
The first year estimate is higher to account for the time required for
plan administrators to adapt and review the model notice, and
[[Page 1908]]
the time required to plan the informational meeting.
In this regulation, the Department has attempted to provide
guidance to assist administrators to meet this objective in the most
economically efficient way possible. Because the costs of this
regulation arise from notice provisions in PFEA '04, 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.
Executive Order 12866
Under Executive Order 12866 (58 FR 51735), the Department must
determine whether a regulatory action is ``significant'' and therefore
subject to review by the Office of Management and Budget (OMB). Section
3(f) of the Executive Order 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 the Executive Order. OMB
has, therefore, reviewed this regulatory action pursuant to the
Executive Order.
Paperwork Reduction Act
As part of its continuing effort to reduce paperwork and respondent
burden, the Department of Labor conducts a preclearance consultation
program to provide the general public and federal agencies with an
opportunity to comment on proposed and continuing collections of
information in accordance with the Paperwork Reduction Act of 1995 (PRA
95) (44 U.S.C. 3506(c)(2)(A)). This helps to ensure that requested data
can be provided in the desired format, reporting burden (time and
financial resources) is minimized, collection instruments are clearly
understood, and the impact of collection requirements on respondents
can be properly assessed.
On February 4, 2005, the Department published a Notice of Proposed
Rulemaking (NPRM) in the Federal Register (70 FR 6306) concerning the
Annual Funding Notice for Multiemployer Defined Benefit Pension Plans,
which included a request for comments on its information collection
provisions. The Office of Management and Budget (OMB) approved the
information collection requirements included in the NPRM (OMB Control
Number 1210-0126) in an OMB Notice of Action dated March 17, 2005. No
program changes have been made to the regulation that would affect
these information collection requirements. In response to two comments
on the burden analysis published in the NPRM, the Department has,
however, adjusted the hourly rate for attorneys preparing the notice
from $83 per hour in the NPRM to $275 in the notice of final rulemaking
and included two hours for preparation in order to account for plan
administrators who may hold briefing meetings to educate employers and
union representatives about the notice in the first year of
implementation, as further described below. The Department will submit
these minor adjustments to the paperwork burden under Control Number
1210-0126 to OMB for review.
The information collection provisions of this regulation are found
in section 2520.101-4. A model notice is provided in the Appendix to
section 2520.101-4 to facilitate compliance and moderate the burden
attendant to supplying notices to participants and beneficiaries, labor
organizations, contributing employers, and PBGC as required by PFEA '04
and the final regulation. 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. This
final regulation is also intended to clarify certain of the PFEA '04
requirements as to content, style and format, manner of furnishing, and
persons entitled to receive notice.
Increasing the transparency of information about the funding status
of multiemployer plans for participants and beneficiaries, the labor
organizations representing them, contributing employers, and 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 this final regulation, the Department
estimated the number of multiemployer defined benefit plans, and the
numbers of participants, beneficiaries receiving benefits, labor
organizations representing participants, and employers that have an
obligation to contribute to these plans. The PBGC Pension Insurance
Data Book 2003 indicates that as of September 30, 2003, there were
1,623 multiemployer defined benefit plans with 9.7 million participants
and beneficiaries receiving benefits. These estimates are based on
premium filings with PBGC for 2002, projected by PBGC to 2003,
generally the most recent information currently available. This total
has been adjusted to 1,595 to reflect the exception from the
requirement to furnish a funding notice for years in which a plan is
receiving financial assistance from PBGC.
The Department is not aware of a direct source of information as to
the number of labor organizations that represent participants of
multiemployer defined benefit plans and that would be entitled to
receive notice under section 101(f). As a proxy for this number, the
Department has relied on information supplied by the Department's
Employment Standards Administration, Office of Labor Management
Standards, as to the number of labor organizations that filed required
annual reports for their most recent fiscal year, generally 2002, at
this time. The Department adjusted the number provided by excluding
labor organizations that appeared to represent only state, local, and
Federal governmental employees to account for the fact that such
employees are generally unlikely to be participants in plans covered
under Title I of ERISA. The resulting estimate of labor organizations
entitled to receive notice is 21,000. Although this number has been
used for purposes of this analysis, it is believed that this number is
an upper bound for the actual number of labor organizations that will
receive notice because it is likely that some labor organizations do
not represent participants in defined benefit plans, or that some labor
organizations represent only participants in single employer plans not
subject to section 101(f).
The Department is also unaware of a source of information for the
current number of employers obligated to contribute to multiemployer
defined benefit plans. PBGC assisted with development of an estimate of
this number by providing the Department with a tabulation on their 1987
premium filings of the number of employers contributing to
multiemployer defined benefit plans at that time. This was the last
year this data element was required to be reported. The Department has
attempted
[[Page 1909]]
to validate that 1987 figure by dividing the number of participants in
multiemployer defined benefit plans in the industries in which these
plans are most concentrated, such as construction, trucking, and retail
food sales,\6\ by the average number of employees per firm in those
industries based on data published by the Office of Advocacy, U.S.
Small Business Administration for 2001. This computation resulted in a
figure that was similar in magnitude, but somewhat higher than the
277,600 employers reported in the PBGC premium filing data. As a
result, the Department has used 300,000 for its estimate of the number
of contributing employers to whom the required notice will be sent.
---------------------------------------------------------------------------
\6\ Multiemployer Plans Face Short and Long-Term Challenges.
U.S. General Accounting Office, March 2004. General Accounting
Office name changed to Government Accountability Office effective
July 7, 2004. See GAO-04-423 Private Pensions.
---------------------------------------------------------------------------
For purposes of its estimates of regulatory impact, then, the
Department has assumed that each plan will develop a notice, and that
each year the multiemployer defined benefit plan notices will be
prepared and sent by the administrators of 1,595 plans to 9.7 million
participants and beneficiaries, 21,000 labor organizations, 300,000
contributing employers, and to PBGC, for a total of about 10 million
notices.
It is assumed that the availability of a model notice as provided
in paragraph (f) will lessen the time otherwise required by a plan
administrator to draft a required notice. In developing burden
estimates, the Department has included one hour for reviewing and
adapting the model notice, 30 minutes for completing the notice, and
two hours to prepare for and hold briefing meetings for each plan.
Reviewing and adapting the notice is expected to be performed by
service providers, specifically by legal counsel at an hourly rate of
$275. This accounts for the estimated burden of developing the notice,
which amounts to about $438,625 for the 1,595 plans. Completing the
notice by adding information relevant to each year is expected to take
30 minutes in the first year of implementation, as well as in
subsequent years, and it is expected to be performed by the same
professionals who are accounted for as preparing the Summary Annual
Report (SAR) for plans, namely financial professionals at the rate of
$68 per hour. Preparing for, and holding, briefing sessions that
explain the purpose and content of the notice for union and employer
representatives, is expected to take 2 hours, on average, in the first
year of implementation. Preparing for, and holding, a briefing session,
is expected to be carried out by the same professionals who are
accounted for as completing the notice for plans, namely financial
professionals at the rate of $68 per hour.
The assumed preparation cost to plans to complete the notice is
therefore about $54,525 per year. The total cost to plans to develop,
complete, and explain the notice in the year of implementation is about
$711,000. This estimate has been adjusted upwards from the $187,000
outlined in the NPRM. The increase of $523,830 is the result of an
adjustment in the hourly rate for the attorney developing the notice in
the year of implementation from $83 per hour to $275 per hour, and the
addition of time to prepare for, and hold, a briefing meeting
explaining the notice to union and employer representatives. These
adjustments are the result of comments received in response to the
NPRM.
Two commentators indicated that the hourly rate the Department
estimated in the NPRM for attorneys who work with multiemployer
retirement plans was too low. The revised hourly rate is derived from
the Altman Weil 2004 Survey of Law Firm Economics,\7\ and represents
the average hourly rate for ERISA attorneys, the type of attorney
assumed most likely to develop the notice.
---------------------------------------------------------------------------
\7\ Altman Weil 2004 Survey of Law Firm Economics, pages 83 &
114. The Department made further tabulations of data.
---------------------------------------------------------------------------
In the NPRM, the Department did not include a cost burden for
planning or holding briefing meetings for union and employer
representatives. However, one commentator indicated that the notice
might provoke inquiries, particularly from employers who are not
accustomed to receiving such notices. The Department has taken this
comment into consideration, and has concluded that it supports an
adjustment of the hour and cost burdens originally estimated for the
first year after implementation. The Department has included two hours
for preparation in order to allow plan administrators to hold briefing
meetings in the first year of implementation.
The estimated distribution costs for the notices are based on
separate assumptions for participant and beneficiary notices versus the
labor organization, contributing employer, and PBGC notices. The
distribution cost for the notices to participants and beneficiaries is
relatively modest compared to the number of notices because it is
assumed that these notices will be provided at the same time and as
part of the same mailing as the SAR. The mailing costs for the SAR are
already accounted for in the ICR for the SAR, currently approved under
OMB Control Number 1210-0040. Therefore, only an additional materials
cost is accounted for in the estimate of distribution costs for
participant and beneficiary notices, which totals $292,000.
Distribution cost estimates for the notices to labor organizations,
employers, and PBGC include $0.40 for materials and postage, and two
minutes at a clerical wage rate of about $17 for each notice. Total
distribution costs to labor organizations, contributing employers, and
PBGC, therefore, are expected to total about $316,000. Distribution
costs for all notices are estimated at $608,000.
In order to estimate the hour burden of preparation and
distribution of the notices, the Department has generally relied on the
same assumptions used for estimates of the burden of SAR preparation
and distribution. Specifically, it is assumed that 100% of notices are
developed by service providers, and that 90% of notices are prepared
and distributed by service providers. Those activities are
appropriately accounted for as cost burden, for which plans pay service
providers. The remaining 10% of notices prepared and distributed in
house by plan administrators are appropriately accounted for as hour
burden. Materials and mailing costs are considered direct cost burden,
as well. The Department has not accounted here for reductions in
mailing and material costs that might arise from the electronic
distribution of some notices. Although such distribution may be deemed
to satisfy the requirements of section 2520.104b-1(b)(1) with respect
to fulfilling the disclosure obligation if conditions of section
2520.104b-1(c) are satisfied, it is assumed for purposes of these
estimates that these funding notices are less likely to be provided
electronically due to the nature of the industries involved and the
relationships of the parties affected by this requirement because the
active workers affected often do not have access to e-mail at their
workplaces.
The Department received one comment suggesting that multiemployer
plans do not necessarily send regular mail to contributing employers
and many may need additional data collection and systems work to do so.
The Department believes that plan administrators should currently have
the ability to mail correspondence to all contributing employers, and
therefore no adjustments have been made to address the commenter's
concern.
[[Page 1910]]
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 are likely to
have a significant economic impact on a substantial number of small
entities. Unless an agency certifies that a final rule is not likely to
have a significant economic impact on a substantial number of small
entities, section 603 of the RFA requires that the agency present a
final regulatory flexibility analysis at the time of the publication of
the notice of final rulemaking describing the impact of the rule on
small entities and seeking public comment on such impact. Small
entities include small businesses, organizations and governmental
jurisdictions.
For purposes of analysis under the RFA, the Employee Benefits
Security Administration (EBSA) proposes to continue to consider a small
entity to be an employee benefit plan with fewer than 100 participants.
The basis of 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. Under
section 104(a)(3), the Secretary may also provide for exemptions or
simplified annual reporting and disclosure for welfare benefit plans.
Pursuant to the authority of section 104(a)(3), the Department has
previously issued at 29 CFR 2520.104-20, 2520.104-21, 2520.104-41,
2520.104-46 and 2520.104b-10 certain simplified reporting provisions
and limited exemptions from reporting and disclosure requirements for
small plans, including unfunded or insured welfare plans covering fewer
than 100 participants and which satisfy certain other requirements.
Further, while some large employers may have small plans, in
general small employers maintain most small plans. Thus, EBSA believes
that assessing the impact of this 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.). EBSA therefore requested comments on the appropriateness of the
size standard used in evaluating the impact of the proposal on small
entities, but received none.
EBSA has determined that this rule will not have a significant
economic impact on a substantial number of small entities. In support
of this determination, EBSA has prepared the following final regulatory
flexibility analysis.
Section 103(c) of PFEA `04 provides that the Secretary of Labor
shall issue regulations (including a model notice) necessary to
implement the amendments made by new section 101(f) of ERISA, as
enacted by section 103(a) of PFEA `04. Section 101(f) of ERISA requires
the administrator of a multiemployer defined benefit pension plan to
furnish annually a notice of the plan's funded status to the plan's
participants and beneficiaries and other specified interested parties
(each labor organization representing such participants and
beneficiaries, each employer that has an obligation to contribute under
the plan, and the PBGC).
The conditions set forth in this regulation are intended to satisfy
the PFEA `04 requirement that the Secretary prescribe regulations
(including a model notice) necessary to implement the amendments made
by section 103.
The regulation will affect only small plans that are multiemployer
defined benefit pension plans. It is expected that the regulation will
affect approximately 10 small plans, and 800 participants in small
plans.
The initial cost of the funding notice for small plans is expected
to be about $275 per plan. Preparation of this information is in most
cases accomplished by professionals that provide services to employee
benefit plans. Administrators of some small plans may choose to hold
briefing meetings to educate employers and union representatives about
the notice. The Department estimates that, on average, small plans will
spend two hours preparing for, and holding briefing meetings at an
estimated cost of $138 per plan, or $1,380 for all plans the Department
estimates to be impacted by the notice requirement.
Congressional Review Act
The Notice of Final Rulemaking being issued here is subject to the
provisions of the Small Business Regulatory Enforcement Fairness Act of
1996 (5 U.S.C. 801, et seq.) (SBREFA) and has been transmitted to
Congress and the Comptroller General for review. The 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 foreign-
based 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, this regulation does not
include any Federal mandate that may result in expenditures by State,
local, or tribal governments, and does not impose an annual burden
exceeding $100 million on the private sector.
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. This 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
implemented in this 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, Pensions, Reporting and
recordkeeping requirements.
0
For the reasons set forth in the preamble, the Department of Labor
amends 29 CFR part 2520 as follows:
[[Page 1911]]
PART 2520--RULES AND REGULATIONS FOR REPORTING AND DISCLOSURE
0
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 1-2003, 68 FR 5374 (Feb. 3,
2003). 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. 2520.101-4 also issued under sec. 103 of Pub. L. 108-218.
0
2. Add Sec. 2520.101-4 to subpart A to read as follows:
Sec. 2520.101-4 Annual funding notice for multiemployer defined
benefit pension plans.
(a) In general. (1) Except as provided in paragraph (a)(2) of this
section, pursuant to section 101(f) of the Act, the administrator of a
defined benefit, multiemployer pension plan 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 for any plan year for which the plan is receiving financial
assistance from the Pension Benefit Guaranty Corporation pursuant to
section 4261 of ERISA.
(b) Content of notice. A funding notice shall, consistent with the
information included in the plan's Annual Return/Report Form 5500 filed
for the plan year to which the funding notice relates, include the
following information:
(1) The name of the plan;
(2) The address and phone number of the plan administrator and the
plan's principal administrative officer (if different from the plan
administrator);
(3) The plan sponsor's employer identification number;
(4) The plan number;
(5) A statement as to whether the plan's funded current liability
percentage (as defined in section 302(d)(8)(B) of ERISA) for the plan
year to which the notice relates is at least 100 percent (and, if not,
the actual percentage);
(6) A statement of the market value of the plan's assets (and
valuation date), the amount of benefit payments, and the ratio of the
assets to the payments for the plan year to which the notice relates;
(7) A summary of the rules governing insolvent multiemployer plans,
including the limitations on benefit payments and any potential benefit
reductions and suspensions (and the potential effects of such
limitations, reductions, and suspensions on the plan);
(8) 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; and
(9) Any additional information that the plan administrator elects
to include, provided that such information:
(i) Is necessary or helpful to understanding the mandatory
information in the notice, and
(ii) Is set forth following the information prescribed by
paragraphs (b)(1) through (b)(8) of this section and shall be headed,
``Additional Explanation.''
(c) Style and format of notice. Funding notices shall be written in
a manner that is consistent with the style and format requirements of
29 CFR 2520.102-2.
(d) When to furnish notice. A funding notice shall be furnished
within 9 months after the close of the plan year, unless the Internal
Revenue Service has granted an extension of time to file the annual
report, in which case such furnishing shall take place within 2 months
after the close of the extension period.
(e) Manner of furnishing notice. (1) Except as provided in
paragraph (e)(2) of this section, funding notices shall be furnished in
any manner consistent with the requirements of Sec. 2520.104b-1 of
this chapter, including paragraph (c) of that section relating to the
use of electronic media.
(2) Notice shall be furnished to the Pension Benefit Guaranty
Corporation in a manner consistent with the requirements of part 4000
of this title.
(f) Persons entitled to notice. Persons entitled to notice under
this section include:
(1) Each participant covered under the plan on the last day of the
plan year to which the notice relates;
(2) Each beneficiary receiving benefits under the plan on the last
day of the plan year to which the notice relates;
(3) Each labor organization representing participants under the
plan on the last day of the plan year to which the notice relates;
(4) Each employer that, as of the last day of the plan year to
which the notice relates, 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
(5) The Pension Benefit Guaranty Corporation.
(g) Model notice. The appendix to this section contains a model
notice that is intended to assist plan administrators in discharging
their notice obligations under this section. Use of the model notice is
not mandatory. However, use of the model notice will be deemed to
satisfy the requirements of paragraphs (b) and (c), except with respect
to information referenced in paragraph (b)(9) of this section.
BILLING CODE 4150-29-P
[[Page 1912]]
[GRAPHIC] [TIFF OMITTED] TR11JA06.000
[[Page 1913]]
[GRAPHIC] [TIFF OMITTED] TR11JA06.001
[[Page 1914]]
[GRAPHIC] [TIFF OMITTED] TR11JA06.002
Signed at Washington, DC, this 3rd day of January, 2006.
Ann L. Combs,
Assistant Secretary, Employee Benefits Security Administration,
Department of Labor.
[FR Doc. 06-194 Filed 1-10-06; 8:45 am]
BILLING CODE 4150-29-C
|
