Annual Funding Notice for Multiemployer Defined Benefit Pension Plans, 1904-1914 [06-194]

Agencies

• Employee Benefits Security Administration
• DEPARTMENT OF LABOR

[Federal Register Volume 71, Number 7 (Wednesday, January 11, 2006)]
[Rules and Regulations]
[Pages 1904-1914]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 06-194]



[[Page 1903]]

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Part IV





Department of Labor





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Employee Benefits Security Administration



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29 CFR Part 2520



Annual Funding Notice for Multiemployer Defined Benefit Pension Plans; 
Final Rule

Federal Register / Vol. 71, No. 7 / Wednesday, January 11, 2006 / 
Rules and Regulations

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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.

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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\
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    \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.
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    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\
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    \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.
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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\
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    \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.
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    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.
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    \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.
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    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.
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    \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.
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    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.
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[[Page 1914]]


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    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