The Highway and Transportation Funding Act of 2014 (HATFA) modified some of the content to be included on the 2014 annual funding notice (AFN) for single-employer defined benefit (DB) plans. Pension law requires employers that sponsor defined benefit plans to share certain financial information about the plan‘s funded status with plan participants via the AFN. Because the AFN due date is approaching for 2014 calendar-year plans, actuaries and plan sponsors should be aware of the necessary changes. The U.S. Department of Labor issued Field Assistance Bulletin (FAB) 2015-01 addressing updates to the 2014 AFN to reflect the application of HATFA.
In general, the AFN must be distributed to pension plan participants 120 days after the end of the plan year. Therefore, for calendar-year plans, the AFN must be distributed by April 30.
If a plan sponsor did not opt out of HATFA for plan year 2013 (“opt out” refers to the selection of the interest rate used to calculate the plan’s funding target) and had previously issued a 2013 AFN without reflecting HATFA, the 2013 AFN does not need to be revised or reissued to reflect the updates addressed in FAB 2015-01. However, the plan year 2013 results reflecting HATFA will need to be disclosed on the 2014 AFN.
Throughout the AFN, any references to Moving Ahead for Progress in the 21st Century Act (MAP-21) interest rates must refer to interest rates as amended by HATFA. A temporary supplement section was added to the 2012 AFN to disclose the effect of the change that is due to the MAP-21. Prior to HATFA, the temporary supplement was only required for applicable plan years beginning before January 1, 2015. Subsequent to HATFA, this temporary supplement is required for applicable plan years beginning before January 1, 2020.
An applicable plan year is defined as any plan year within the period in which the following three requirements are met:
1. The funding target under adjusted interest rates is less than 95% of the funding target without regard to adjusted interest rates.
2. The plan’s funding shortfall determined without regard to adjusted interest rates is greater than $500,000.
3. The plan had 50 or more participants on any day during the preceding plan year.
Previously, the first two items above were calculated using MAP-21 interest rates. Subsequent to HATFA, these same calculations are determined using HATFA interest rates. The wording on the supplement section of the AFN has replaced any references to MAP-21 rates with “adjusted interest rates.”
Prior to HATFA, if the value of plan assets was determined without regard to the MAP-21 interest rates, the AFN was to include a statement with the asset value and an explanation of how it differs from the value of plan assets used for funding purposes. Subsequent to HATFA, the Department of Labor rescinded this requirement after recognizing that it may result in complex requirements.
While most of the changes required by FAB 2015-01 are modest, they will still need to be reflected in the 2014 AFN. Be sure to update your 2014 AFN accordingly.