Compliance News | May 1, 2023

Annual Funding Notice: DOL on Special Financial Assistance

Multiemployer pension plans that receive Special Financial Assistance (SFA), have SFA applications pending or that are eligible for SFA but have not yet applied are subject to certain restrictions and conditions that impact annual funding notice (AFN) disclosures.

The DOL guidance, released on April 25, provides a special rule to address issuance of the guidance just days before calendar-year plans are required to furnish the AFN, and provides information that plans must or may include in the AFN.

The guidance does not apply to plans that are not eligible for SFA.

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Special rule for already prepared/distributed AFNs

As provided in the guidance, administrators of plans that already prepared or distributed the 2022 notice year AFN should consider the guidance in evaluating whether the AFN disclosures relating to SFA are consistent with a reasonable, good-faith interpretation of the AFN rules. If not, the guidance instructs the administrator to take appropriate corrective action but does not describe what DOL would consider appropriate action.

The guidance

The guidance, EBSA Field Assistance Bulletin No. 2023-01 (FAB), is in the form of question-and-answer instructions to the DOL staff reviewing AFNs.

SFA restrictions and conditions

The guidance addresses specific items in the AFN where information on the receipt of SFA could be relevant and discusses when SFA information is required and when it is optional, as summarized in the following table.

SFA Condition or Restriction Required Language Optional Language
Segregation of SFA from plan assets If year-end market value of assets for any of the three disclosure years includes SFA, statement that the plan received SFA and that the actuarial value of assets used for determining funded percentage do not include SFA (Q2) Explanation as to why the funded percentage is lower than individuals might have expected after the plan’s receipt of SFA (Q1)
Reinstatement of previously suspended benefits Statement in the “material effect” explanation (see discussion below) for the first plan year the plan receives SFA that previously suspended benefits must be reinstated (no projection of the effect of reinstatement on liabilities is required and no explanation of reinstatement is required for subsequent years) (Q3 & Q5)  
Deemed critical status Explanation that a plan that receives SFA is deemed to be in critical status until the plan year ending in 2051. Special rule for merged plans (Q6)  
Restrictions on investments of SFA

Description of the plan’s investment policy reflecting SFA investment restrictions and limitations (Q7)

Statement that one year of benefit payments and administration costs are required to be invested in investment-grade fixed income (Q7)

Explanation that SFA is included in asset allocations (Q8)
Subject to insolvency rules Same summary of current rules and PBGC guarantee for insolvent plans as appears in the model notice (Q9)  
Eligibility for SFA for insolvent plans   Statement that insolvent plan is eligible for SFA but has not yet applied or been approved added to summary of insolvency rules in the model notice (Q10)
Prohibited from implementing future benefit suspension under the Multiemployer Pension Reform Act (MPRA)   Statement that SFA-recipient plans may not implement a MPRA benefit suspension included in the “Where to Get More Information” in the model notice (Q11)

The guidance includes model language that plans may use, where appropriate, to meet the AFN requirements. Administrators are not required to use the model language. In addition, where appropriate, plan administrators may include additional information beyond what is legally required if necessary or helpful to understanding the required information.

Material effect explanation

The AFN requires inclusion of an explanation in the AFN for events that have a material effect on plan assets. The guidance provides that receiving SFA triggers a “material effect” explanation. Such explanation is required for the plan year in which the plan receives SFA and must include the amount of SFA and the date it was paid to the plan. The explanation for the first plan year SFA is received must also include a brief description of the conditions and restrictions that apply to SFA plans. If additional SFA is received under a supplemented application for a different plan year, a material effect explanation is required for that plan year and must separately account for the amount and date SFA was received under the initial and supplemented applications. The explanation must also include a statement explaining why the plan received supplemented SFA (Qs 3–5).

Next steps

The administrator, in consultation with counsel, should determine whether the prepared or distributed AFN comports with the guidance and, if not, what appropriate corrective action is necessary.


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This page is for informational purposes only and does not constitute legal, tax or investment advice. You are encouraged to discuss the issues raised here with your legal, tax and other advisors before determining how the issues apply to your specific situations.