DOL issues guidance on annual funding notice at 11th hour 

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April 8, 2025
Field Assistance Bulletin (FAB) 2025-2 provides long-awaited guidance on changes to the content requirements for defined benefit (DB) plan annual funding notices (AFNs) made by the SECURE 2.0 Act  of 2022 (Div. T of Pub. L. No. 117-38). The FAB resolves discrepancies between the new statutory requirements and DOL’s existing regulations, which predate SECURE 2.0. Appendices to the FAB provide new model AFNs for both single-employer and multiemployer DB plans. SECURE 2.0’s changes apply starting with 2024 plan-year AFNs, which calendar-year plans generally must provide by April 30, 2025.

Guidance on SECURE 2.0’s changes to AFN content

DB plans covered by termination insurance from the Pension Benefit Guaranty Corp. (PBGC) must provide AFNs to the PBGC, participants, beneficiaries receiving benefits and labor organizations representing participants. AFNs are generally due 120 days after the end of the plan year to which the notice relates (the “notice year”), except small plans have until the extended deadline for filing Form 5500 or, if earlier, the date the 5500 is filed.

The AFN discloses information about a plan’s funding level, finances, demographics, PBGC-guaranteed benefits and other important information. SECURE 2.0 made several changes to the content, including switching the asset, liability and participant count disclosures to year-end rather than the beginning of the year, adding more historical data and adding the return on assets for the notice year. FAB 2025-02 provides last-minute guidance on these changes just weeks before the first 2024 notice-year AFNs are due on April 30.

Funding percentage

AFNs for pre-2024 notice years had to show a plan’s funding target attainment percentage (FTAP) as of the first day of the notice year and the market-value of assets and liabilities as of the last day of the notice year. After SECURE 2.0, AFNs no longer have to show the FTAP but must show the plan’s year-end funded percentage on a market-value basis for the notice year and the two preceding plan years, along with the year-end value of assets and liabilities for each year. 
  • Plan assets

    SECURE 2.0 says plans should disclose the value of the plan’s assets for each of the three years determined using the asset-valuation method used for calculating PBGC premiums, which is generally the same value reported on Schedule SB of Form 5500. For the two preceding years, plans will generally need to update assets values shown in prior AFNs if those earlier values were not final. For example, assets shown on prior AFNs would not have included the discounted value of all contributions made after the end of the plan year but before filing the PBGC premium, which is usually done after the AFN due date.

    Inconsistency between statute and FAB. The FAB says the prior-year asset values should be those reported on Form 5500 and directs attention to the model notice, which says the prior-year values should match what is disclosed on Schedule H (Schedule I for small plans). However, these values may differ from those used for PBGC/Schedule SB filings for reasons such as:

    • Contributions paid for a plan year during the grace period after year-end are not discounted for the Schedule H/I.
    • Schedule H/I’s market value of assets may include assets held in the plan’s trust that aren’t available to pay defined benefits and aren’t reflected for PBGC/Schedule SB filings (for example, assets held in a Section 401(h) account to pay retiree medical benefits).

    Using the PBGC/Schedule SB assets will generally produce a funded status that is the same or lower than the funded status using the Schedule H/I assets. Showing a lower funded status is unlikely to be challenged. Nevertheless, plan sponsors or administrators concerned about which value to use might want to consult with legal counsel.

  • Plan liabilities
    The FAB allows plans to use estimated year-end liabilities for the notice year based on standard actuarial techniques. However, liabilities for the prior two plan years must be actuarial values reflecting the mandated year-end interest rates. Actual year-end liabilities presumably should reflect the year-end census — effectively, the same census used for the next year’s valuation. However, it’s unclear whether liabilities should also reflect any assumption or plan changes first taking effect in the subsequent year.

Average return on assets

SECURE 2.0 requires AFNs to disclose the average return on assets. This is required for both single-employer and multiemployer plans. However, the statute doesn’t explain how to determine the average rate of return. The FAB offers two methods to determine this but notes that other methods may satisfy the disclosure requirements. The first method is the same that single-employer plans use for the actual rate of return that will be shown on line 10 of Form 5500 Schedule SB for the notice year. The second method uses a formula similar to what multiemployer plans use to calculate the estimated investment return – current (market) value on Form 5500 Schedule MB, but based on the one-year period ending on the last day rather than the first day of the notice year. Presumably, most single-employer plans will use the first method, while most multiemployer plans will use the second, but this is not required.

Demographic information

AFNs now must disclose in tabular format demographic information for the notice year and the past two plan years. This data must be shown as of the last day of each year. Previously, AFNs had to show demographic information only for the notice year and as of the first day of that year. With AFNs for large plans due just 120 days after the end of the notice year, stakeholders expressed concern about providing accurate demographic information for the notice year. To address these concerns, the FAB says large plans can use reasonable, good-faith estimates for the notice year (and must disclose they are doing so) but must provide actual data for the two preceding years. However, since small plans have more time to prepare the AFN (up to 9-1/2 months after the end of the notice year), estimates are not allowed. Small-plan AFNs must provide actual demographic data for all three years.

PBGC guaranteed benefits

SECURE 2.0 requires AFNs to include a statement that PBGC may pay vested benefits greater than the guaranteed level of benefits if a terminating single-employer plan’s assets are sufficient. The FAB includes the following sample language to satisfy this requirement:

Participants and beneficiaries may receive benefits greater than the PBGC guaranteed amount but only if PBGC determines the Plan’s assets are sufficient to do so. Because PBGC makes this determination using different assumptions than the Plan, the additional benefits received may not correspond exactly to the Plan’s funded percentage. For example, just because a plan is 80 percent funded based on the plan’s assumptions, does not mean participants in that plan will receive 80 percent of their vested benefits.

Disclosure of material events having a significant impact on the plan’s funded status

SECURE 2.0 did not change the requirement that the AFN explain any known event taking effect in the current plan year — that is, the year in which the notice is issued (rather than the year to which the notice relates) — having a material effect on plan liabilities or assets. In most cases, this disclosure must include a projection of the event’s impact on the plan’s liabilities as of the end of the current year. The FAB contemplates that the notice year-end liabilities might already reflect the event’s impact, in which case no projection is required. If the notice year-end liabilities do not reflect the event’s impact, the projection to the end of the current year is still required. In either case, the notice must include an explanation of the event.

Other changes

The FAB also clarifies the following:

  • AFNs for single-employer plans no longer have to disclose “at-risk” liabilities because SECURE 2.0 eliminated the special at-risk disclosure requirements.
  • SECURE 2.0 includes duplicative requirements to disclose year-end assets and liabilities. The FAB confirms that a single disclosure will satisfy both requirements and states that “disclosing the information only once may improve the comprehensibility of the annual funding notice for its readers.”
  • AFNs for cooperative and small-employer charity (CSEC) plans must include the new demographic and average return on asset disclosures, even though those plans are subject to different funding rules.

New model notices

As noted above, appendices to the FAB include two new model AFNs: one for single-employer plans and one for multiemployer plans. The models reflect a noticeably different format than the prior models. Although plans don’t have to use the new models, DOL will consider plans that do so to have complied in good faith with the AFN requirements. The FAB further says that plans can no longer rely on the prior model notices because those models no longer comply with the new statutory requirements. However, employers that have already distributed AFNs for the 2024 plan year using the old models — with modifications to reflect SECURE 2.0’s changes — may still reasonably conclude that they complied in good faith (see Good-faith compliance below).

Interest-rate stabilization supplement still required. The single-employer model notice does not include the supplement for plans using interest-rate stabilization for minimum funding purposes. However, SECURE 2.0 didn’t change the requirement to include this supplement, even though the AFN itself no longer discloses minimum funding liabilities. Plans required to include the stabilization supplement with the AFN presumably can continue to rely on the model supplement published in FAB 2015-01.

Good-faith compliance 

Pending further guidance, DOL will treat compliance with the FAB as a reasonable, good faith interpretation of the AFN requirements as modified by SECURE 2.0. However, DOL recognizes that many plans may have already prepared or even distributed AFNs for the 2024 plan year. DOL nonetheless expects administrators for these plans to consider whether their AFNs are consistent with the FAB’s interpretation of SECURE 2.0 and “take appropriate action” to the extent deemed necessary. Sponsors of these plans might want to consider discussing the sufficiency of the 2024 AFNs with legal counsel.

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About the author(s)
Brian J. Kearney
Margaret Berger

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