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Pension Funding Notices

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The Pension Protection Act of 2006 requires both single and multiemployer defined benefit pension plans to provide annual plan funding notices. These funding notices inform pension plan participants about the financial status of their pension plans.

Under prior law, all private retirement plans were required to provide overviews of their financial status to employees in “Summary Annual Reports.” In addition, multiemployer defined benefit pension plans and underfunded single employer defined benefit plans were required to tell employees if their plans were underfunded, and the extent that their benefits were guaranteed by the federal pension insurance program if the plan terminated.

The Pension Protection Act eliminates the Summary Annual Report and requires all defined benefit pension plans, funded and underfunded, single and multiemployer plans to distribute annual plan funding notices to all plan participants and beneficiaries, labor organizations representing participants, employers having an obligation to contribute under the plan, and the PBGC.

The notices must contain the following information:

  • Identifying information such as the name of the plan, contact information for the plan administrator, the plan sponsor’s employer identification number, and the plan identification number.
  • Whether the plan is 100 percent funded and, if not, the actual funded percentage.
  • A comparison between the value of the plan’s assets and the amount of benefits being paid out.
  • The number of participants receiving benefits, the number entitled to currently receive benefits, and the number of active participants in the plan.
  • The total assets and liabilities of the plan for the current year and the two preceding years.
  • Information on the funding policy and allocation of plan assets under the plan.
  • A description of the benefits insured by the PBGC and any limitations on benefits that apply.
  • An explanation of any plan amendment or benefit increase or reduction that has an effect on assets or liabilities.
  • Directions for obtaining a copy of the plan’s annual report from the Department of Labor’s web site.

Additionally, multiemployer plans must provide information on whether the plan was in endangered or critical status during the current year. Under the Pension Protection Act, multiemployer plans that are underfunded by a specific percentage are categorized as either in critical or endangered funding status. Depending on the degree of underfunding these plans must adopt rehabilitative plans designed to increase the funding level of the plans. Read about benefit cutbacks the Pension Protection Act permits in certain underfunded multiemployer plans.

For most plans, the plan funding notice must be provided within 120 days after the end of the plan year. For plans covering less than 100 employees, the notice is not due until seven months after the end of the plan year or longer if the plan is granted extensions. The new provision tooks effect in 2008.

Read Section 501 of the Pension Protection Act of 2006 Public Law 109-280

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