DOL issues guidance on annual funding notice at 11th hour
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
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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.
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Plan liabilitiesThe 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
Demographic information
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
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
Related resources
Non-Mercer resources
- Field Assistance Bulletin 2025-02 (DOL, April 3, 2025)
- Single-employer pension plan model annual funding notice (Appendix 1) (DOL, April 3, 2025)
- Multiemployer pension plan model annual funding notice (Appendix 2) (DOL, April 3, 2025)
Mercer Law & Policy resources
- DOL starts tackling SECURE 2.0 reporting and disclosure updates (Sept. 19, 2023)
- Taking a look at SECURE 2.0’s defined benefit plan provisions (Feb. 21, 2023)
