Chapter 11 - Participant and PBGC Notices

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Chapter 11 - Participant and PBGC Notices
2013-10-21 23:41:29
Key Terms

Key Terms
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  1. Annual Funding Notice
    Annual funding notice that must be distributed to defined benefit plan participants no later than 120 days after the end of the plan year for a large plan or the Form 5500 filing date for a small plan.  This notice is not required for plans not covered by the PBGC.  Must include the following:

    Identifying Information -

    • 1.  Name of the plan
    • 2.  Address & phone number of PA
    • 3.  Sponsor's EIN
    • 4.  Plan Number

    Funding Information -

    • 1.  Plan's funding target attainment percentage (FTAP) for current and two preceding plan years.
    • 2.  Statement of the total assets and liabilities for the plan year which the latest annual report was filed and the two preceding years.
    • 3.  Statement of the value of plan's assets and estimated liabilities as of the end of the plan year to which the notice relates.
    • 4.  A summary of the rules governing the termination of single-employer plans under Title IV of ERISA.

    Miscellaneous Information -

    • 1.  Stmt of # of participants who are retired or separated from service and are receiving benefits, retired or separated participants entitled to future benefits, and active participants
    • 2.  Stmt setting forth funding policy of the plan and asset allocations of investments
    • 3.  Explanation of any plan amendment, schedule benefit increase or reduction
    • 4.  General description of the benefits under the plan that are eligible to be guaranteed by the PBGC, and the limitations on the guarantee and the circumstances under which such limitations apply.
    • 5.  Stmt that a person can obtain a copy of the Form 5500 at the DOL's website or though intranet website by the plan sponsor
    • 6.  Any additional information a plan administrator elects to include.
  2. ERISA 204(h) Notice
    • A notice of reduction in future accruals that must be provided to participants regarding a plan amendment that significantly reduces the rate of future accruals.  Also required for reduction in early retirement benefits or subsidies.
    • Notice must generally be provided at least 45 days before the effective date of the amendment reducing future accrual rates.
  3. Flat-Rate Premium
    • The sponsor of a plan covered by the PBGC must pay annual insurance premiums composed of two elements:  a flat portion per participant and a variable-rate portion determined by the value of the vested accrued benefits that is not currently funded.
    • All plans covered by the PBGC must pay the flat-rate portion of the premium.  In 2012, the flat-rate premium is $35 per participant at the end of the prior year.
  4. PBGC Notices
    The PBGC requires notices to be filed by the plan administrator with the PBGC under certain situations.
  5. Pension Benefit Guaranty Corporation (PBGC)
    • Guarantees DB plan participants will receive benefits up to specified levels even if the plan is terminated with insufficient assets to pay all plan participants the promised benefits.
    • PBGC covers most qualified DB plans, the following plan types are exempt from PBGC coverage:
    • - Plan of a professional service employer that has never had more than 25 active participants.
    • - Plan of a government agency including Indian tribal governments; however, if the plan covers workers carrying significant commercial activities it may require PBGC coverage
    • - A church plan, unless coverage is irrevocably elected
    • - A plan open only to non-resident aliens, and
    • - A plan established only for substantial (more than 10%) owners or their spouses.
  6. PPA Benefit Restrictions
  7. Summary Annual Report (SAR)
    • Provides a narrative summary of financial information reported on Form 5500 and a statement of the participant's right to receive a copy of the annual report.
    • Plans that are not covered by the PBGC are exempt from the requirement to distribute the annual funding notice, so for those plans an SAR is required.
    • Must generally be sent by the later of nine months after the plan year or two months after the Form 5500 is due (when an extension of time is used).
  8. Suspension of Benefits Notice
    Required for plans that suspend benefits for active participants beyond NRA or for retirees reemployed after benefit commencement.  If a plan suspends benefits, such notice must be provided in the SPD, and be made during the first month of any period in which benefits are suspended.

    • Must contain the following items:
    • 1.  Description of the specific reasons why benefit payments are being suspended
    • 2.  General description of the plan provisions relating to the suspension of payments
    • 3.  A copy of such provisions
    • 4.  Statement to the effect that applicable DOL regulations may be found in Code of Federal Regulations

    This notice is delivered to the employee by personal delivery or first class mail.
  9. Variable-Rate Premium
    For 2012, the variable-rate premium is $9 for each $1,000 of unvested benefits. 

    There is a cap on this premium for small plans with fewer than 25 employees.  The cap per participant is $5 times the number of participants squared. 

    A plan will not be required to pay the variable-rate premium if it satisfies at least one of the following exemptions:

    • - The plan has no vested participants
    • - The plan is fully insured under IRC 412(e)(3)
    • - The plan is terminating in a standard termination where all benefits are funded or some benefits are being waived for a more than 50 percent substantial owner in accordance with PBGC regulations.

    This premium is calculated using the 'standard method' or 'alternative method'.