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DOL Grants EFAST2 PIN Relief
Signers May Not Need Credentials

In a letter dated January 5, 2010, ASPPA asked the Department of Labor (DOL) to modify its rules regarding the sharing of signer credentials under EFAST2. When the fully electronic filing system became operational, the DOL specifically prohibited signers from providing their PIN information to service providers to facilitate filing.

Plan administrators and employers may continue to obtain signer credentials and execute the Form 5500 or Form 5500-SF signing ceremony either through I-FILE or their service provider’s software; however, the DOL announced on May 13, 2010 another filing option. You can see the official notices at www.efast.dol.gov.

Practitioner Credentials
The DOL’s new rule permits plan administrators/employers to authorize the service provider that manages their annual filing process to electronically submit the Form 5500 or Form 5500-SF on their behalf. This relief comes with a few strings:

As of May 13, the EFAST2 I-FILE system has been updated to include a certification applicable to any practitioner who is filing on behalf of his or her client. The practitioner must certify that (1) they will retain a copy of the plan administrator’s/employer’s written authorization to file on their behalf; (2) the manually signed pages have been attached to the electronic filing, as described above; (3) the plan administrator/employer has been advised that his or her manual signature will be posted on the DOL’s public disclosure web site; and (4) the plan administrator/employer will be advised of any inquiries from EFAST2, DOL, IRS or PBGC concerning the filing.

Third Party Software Being Adapted
The DOL’s I-FILE system will accept such filings immediately; however, third-party software providers are quickly adapting their systems to accommodate this new feature. Check with your service provider to find out how soon you can begin filing on behalf of your clients.

Conclusion
This relief offers yet another avenue for plan administrators/employers and their service providers to consider when filing under EFAST2. While none of the solutions may feel “perfect,” the Department certainly offers a viable alternative for many filers with this new option and is to be commended on its willingness to adapt their systems and policies in this transition year.

LIVE: It’s EFAST2!

Form 5500 Update: Revisions to Instructions for
2008 Actuarial Schedules and Schedule R
and Filings for Short 2009 Plan Years
Supplemental instructions have been issued for the 2008 Form 5500, specifically with regard to Schedule MB, Multiemployer Defined Benefit Plan and Certain Money Purchase Plan Actuarial Information (IRS Notice 1389); Schedule R, Retirement Plan Information (IRS Notice 1388), and Schedule SB, Single-employer Defined Benefit Plan Actuarial Information (IRS Notice 1391). The revisions have been incorporated into the 2008 instructions and, along with the notices, may be found at http://www.dol.gov/ebsa/5500main.html or http://www.irs.gov/pub/irs-pdf/i5500.pdf.

Revisions Apply to Actuarial Schedules Signed After December 17, 2009
Notices 1389 and 1391 specify that it is not necessary to file a revised 2008 Schedule MB or SB if the schedules are completed using the original instructions and signed by December 17, 2009. For multiemployer plans, if the accumulated reconciliation account reported on line 9o(3) of the 2008 Schedule MB was calculated using the originally published instructions, then the 2009 Schedule MB must include an attachment that reports the corrected accumulated reconciliation account for 2008 using these revised instructions.

Schedule SB changes affect only the following lines:
Line 2b, Actuarial Value of Assets;
Line 6, Target Normal Cost;
Line 15, Adjusted Funding Target Attainment Percentage;
Line 21b, with regard to the interest rates used to measure the funding target;
Line 25, Change in Funding Method (most plans will check “Yes” but no attachment is required);
Line 32a, Shortfall Amortization Bases and Amortization Installments; and
Line 38, Interest-Adjusted Excess Contributions for Current Year.

Revisions to Schedule R Instructions
Notice 1388 describes revisions to the instructions for the 2008 Schedule R; however, these changes affect only multiemployer plans with a Funding Improvement or Rehabilitation Plan. For the most part, the revisions clarify the reporting requirements as a result of Sections 204 and 205 of the Worker, Retiree, and Employer Recovery Act of 2008 (WRERA).

Short 2009 Plan Year Filings
At the ASPPA annual conference, Scott Albert (Chief, Division of Reporting Compliance/EBSA) confirmed that any plan that had a short 2009 plan year may file Form 5500 for that short plan year using the 2008 paper forms so long as the filing sent to Lawrence, Kansas is postmarked no later than December 31, 2009. Thereafter, all Form 5500 reports for 2009 plan years--short or otherwise--must be filed electronically using the 2009 forms and schedules and the new EFAST2 electronic filing system.

Any defined benefit plan with a short plan year for 2009 should consider the revisions to the instructions for Schedules SB and MB, described above, in determining whether it has properly filed Form 5500 for its short plan year.

Amended and Late Filings
The current EFAST system will continue to accept paper filings for any late or amended Form 5500 reports through December 31, 2009 (postmark). Thereafter, the new EFAST2 electronic system must be used to file such reports, regardless of the filing year although there are limited exceptions for 2008 plan years.

The Voluntary Delinquent Filer Compliance (VDFC) program will continue to be available for late filers, even after the implementation of EFAST2 on January 1, 2010. You may find more information about the DFVC at http://www.dol.gov/ebsa/newsroom/0302fact_sheet.html.

Let Your Clients Know the E-Filing of
Form 5500 is Coming!
During several recent webcasts, I promised to share a draft of my client communication about EFAST2 with you.  This write-up may feel bare bones, but I wanted to isolate what I thought clients would be most interested in.  Clients generally don't care what my process has to be; rather, they want to know how it directly affects them.

Here it is!  [click here]

Feel free to use this text in developing your own message to clients.  You might want to delay the distribution of your communication until later this year since the EFAST2 and it's credential system are not operational until January 1, 2010.

Tips for July 31 Filings
The 2008 Form 5500 filings for calendar year plans are due in just a few weeks. Here are a few reminders and tips to make your work go smoothly.

Annual Funding Notice for Small PBGC-Covered Defined Benefit Plans
Small plan filers (including those filing under the 80/120 rule) are subject to a timing rule that is somewhat -- but not entirely -- similar to the SAR rule. For these plans, the annual funding notice must be provided no later than the earlier of:

• the date on which the Form 5500 report is filed, or
• the latest date the annual report could be filed, including extensions

It should be noted that a “small plan filer” for this purpose is determined based upon the participant count for every day of the plan year prior to the year for which the Annual Funding Notice is issued. For 2008 plan years, that means you look at the participant count during the 2007 plan year.

Ffor more discussion of the Annual Funding Notice, the EBSA has helpfully provided the model notices in Word format.
[click here] for the single-employer model notice. [Appendix A]
[click here] for the multiemployer notice. [Appendix B]

The traditional SAR format should be used for defined benefit plans that are not subject to PBGC insurance, which generally includes those plans that cover professional services companies (think lawyers and doctors, for example) with no more than 25 employees. Of course, owner-only defined benefit plans are not subject to the SAR or Annual Funding Notice rules.

Regulations for SAR content may be found at ERISA Reg. Section 2520.104b-10(d)(3).

Additional Language for Annual Funding Notice
In order for a small defined benefit plan to qualify for the waiver of the report of an independent accountant, the Annual Funding Notice must include:

• the name of each regulated financial institution holding or issuing qualifying plan assets and the amount of such assets as of the end of the plan year;
• the name of the surety company issuing the fidelity bond, if the plan has more than 5% of its assets in non-qualifying plan assets;
• a notice that participants and beneficiaries may, upon request and without charge, examine or receive from the plan administrator evidence of the required bond and copies of statements from the regulated financial institutions; and
• a notice that participants and beneficiaries should contact the EBSA Regional Office if they are unable to gain access to the information described in the last bullet point.

For more information, see page 41 of the 2008 Instructions for Schedule I, right hand column, under Condition 2.

Intranet and Internet Posting Required for Defined Benefit Plans
PPA §504(a) added new ERISA §104(b)(5) and requires internet and intranet posting of a defined benefit plan’s 2008 Form 5500 actuarial information. All Schedules SB, MB or other actuarial information schedules filed for 2008 plan years received by the Department of Labor’s EFAST center will be posted on a public disclosure website at within 90 days of EFAST’s receipt of the filing.

The law requires similar intranet posting by the plan sponsor (or the plan administrator on behalf of the plan sponsor); however, such intranet posting is only intended to be for communication with plan participants and not the public. If a plan sponsor does not maintain an intranet, then no posting is required. The statute does not clearly specify a 90-day window for intranet posting and the DOL has not issued any guidance in this regard. To be on the safe side, the intranet posting should be made within 90 days of the date the 2008 Form 5500 is submitted to EFAST for processing. Note that only the actuarial schedule (Schedule SB or MB) need be posted; attachments do not need to be uploaded to the intranet.

Caution! Actuaries should consider whether Schedule SB should be filed by one-participant plans filing Form 5500-EZ. While the actuarial certification must be maintained with the sponsor’s records, filing a one-participant Schedule SB for 2008 will subject that information to posting on the public disclosure website. The requirement to include Schedule B with Form 5500-EZ was eliminated beginning with 2005 plan year filings.

2009 Short Plan Year Filings
It’s common knowledge that mandatory electronic filing rules apply to plan years beginning in 2009. The agencies, however, have anticipated that filers with due dates before January 1, 2010 -- the date the EFAST2 filing system is expected to go “live” -- will not want to delay filing for short 2009 plan years. This is particularly true where the short plan year arises on account of a plan termination which may be coincident with cessation of business operations by the plan sponsor.

Option #1. Short 2009 plan year filers with due dates to submit their 2009 filing before January 1, 2010 may use plan year 2008 forms and submit their 2009 filing to EFAST on or before the due date for their short plan year filing. Filings received after June 30, 2010 will be manually entered into the governmental system.

Option #2. Alternatively, short 2009 plan year filers with due dates before January 1, 2010 are given an automatic extension of time to electronically file their complete 2009 Form 5500 until 90 days after the 2009 filing system is available on the DOL website. The DOL notes that this special extension is being granted to encourage short plan year filers to file electronically under the EFAST2 system thereby eliminating the need for manual data entry on their end.

Although the language suggests that only those short 2009 plan year filings with a due date before January 1, 2010 may file on paper using the 2008 form, I’ve been told that it’s reasonable to assume that DOL will not reject any filings made on paper before the cutoff date.

No More Correspondence from EFAST
Effective July 1, 2009, EFAST (in Lawrence, KS) has shut off its system that generates correspondence to plan filers when there are apparent deficiencies in the filing, based upon the system’s analysis of the report. These letters usually ask for clarification of data entry or missing schedules or other attachments and follow-up correspondence is issued about 30 days after the initial letter.

Although this correspondence protocol will cease, the EFAST system will still look for errors or inconsistencies in the filings. In some instances, correspondence may be issued by the Washington office of EBSA -- it’s important to respond to such inquiries immediately! These letters may have much stricter response time limits and it’s possible that penalties may apply for failure to act quickly.

Upcoming Webcast
Janice will be presenting a 100-minute Web cast for NIPA ( on Thursday, August 20, 2009 beginning at noon (eastern)....Is Your Firm Prepared to Manage EFAST2 and the 2009 Form 5500 Changes? By attending this Web event, you will learn:

• How EFAST2 e-filing will impact your work process and your clients
• What your firm should be thinking about now to prepare for 2009 filings
• Which plans may use the new Form 5500-SF
• How to approach the revised Schedule C
• Other form and schedule changes to note
• How to file Form 8955-SSA and Form 5500-EZ with IRS
  
  

This Year's Benefit Plan Audit Headache: FAS 157
What’s in store as plan sponsors and service providers gear up for the annual benefit plan audit season? For 2006 plan years, the implementation of SOP 94-4-1 affected financial statements for defined contribution plans investing in fully benefit responsive contracts. While reviewing 2007 financial statements, auditors increased scrutiny of internal controls and DOL intensified its attention to alternative investments. For 2008 plan years, you need to become familiar with FAS 157.

What is FAS 157?
The FASB Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“FAS 157") establishes a framework for measuring fair value and expands disclosures about fair value measurements in the notes to a plan’s financial statements. As a practical matter, FAS 157 must be implemented for all plans that prepare financial statements, without regard to whether the auditor is engaged to perform a full scope or limited scope audit. FAS 157 applies for fiscal years beginning after November 15, 2007.

The full text of FAS 157 is available at The AICPA’s Employee Benefit Plan Audit Quality Center has developed several very useful FAS 157 tools that provide additional information for plan sponsors and service providers trying to understand the new rules.

How does FAS 157 define “fair value?”
Fair value is in the eye of the beholder -- either the buyer’s, as an acquisition or entry price, or the seller’s, as a sales or exit price. FAS 157 defines fair value as the price from the perspective of the seller - the price that would be received to sell an asset in an orderly transaction between market participants as of the valuation date.

While FAS 157 defines fair value differently than in the past, in many cases there will be no difference in the fair value amounts reported on the plan’s financial statements. The most visible change is the added disclosures that will appear in the notes to the audited financial statements.

It is important to note that, as has always been the case, the plan’s management retains the ultimate responsibility for the oversight of the fair values reported in the plan’s financial statements, including determining the adequacy of the related note disclosures. Plans that invest only in mutual funds and equity securities with readily determinable fair values should generally find it easier to implement FAS 157 than plans for which there is little, if any, market activity at the measurement date, such as limited partnerships, private equity funds, real estate and the like.

Do you understand where the numbers come from?
This is the question auditors will pose to plan sponsors and that might come back to you as the service provider. FAS 157 establishes a fair value hierarchy that distinguishes between quoted market prices and investment values based upon observable inputs compared to fair values established based on the plan’s own assumptions about the factors -- or unobservable inputs -- that market participants would take into account in pricing the asset, based on the best information available in the circumstances.

These three categories, then, translate into Level 1 Inputs (Quoted Prices), Level 2 Inputs (Observable Inputs) and Level 3 Inputs (Unobservable Inputs) and each plan investment must be dropped into one of these buckets.

By far, the easiest classification is the Level 1 Input. If the value of an asset is based on prices quoted on the NYSE, NASDAQ or the Chicago Board of Trade -- national recognized pricing services - that investment belongs in the Level 1 Input category. Exchange traded mutual funds and equity securities fall into this group. However, even if a price is quoted on a national exchange, a lightly traded security may not meet the test for Level 1.

Level 2 Inputs are inputs other than quoted market prices included in Level 1 that are either directly or indirectly observable for the asset. This is why it’s important to understand where the numbers come from. For example, common/collective trust funds (CCT) and pooled separate accounts (PSA) generally follow written procedures for establishing the unit value on a periodic basis (i.e., daily, monthly, etc.) although the CCT or PSA is not, itself, traded on an established market as described above. It also is important to know whether there are liquidity restrictions and whether the funds are open to new investors. The inputs, then, are observable but do not solely rely on quoted market prices to establish fair value.

Plans investing in CCTs and PSAs will want to review the audited financial statements of the fund to consider that fund’s FAS 157 disclosure. In addition, those financial statements may provide additional information to aid the plan’s management in designating its own FAS 157 input level.

Level 3 investments are based on inputs that are termed unobservable. Limited partnerships, hedge funds, and venture capital investments most likely fall into this category because of limited trading. Values reported on the custodial statement may be merely a pass-through of the values set by the issuer or fund manager, which may not be fair value or may not be as of the plan’s year end. In this case, the plan’s management needs to understand how the value was determined so as to evaluate whether it is a reasonable estimate of the investment’s fair value.

Are participant loans subject to FAS 157?
Yes, loans are considered “investments” and thus are subject to FAS 157. For practical reasons loans are typically recorded on the financial statements as the remaining outstanding balance as a proxy for fair value, on the assumption that the two values are not materially different. In theory, though, the outstanding loan value is not fair value because interest rates change every day. A common fair value method for loans would discount the cash flow of the loan based on an assumed interest rate; therefore, unless the assumed interest rate used in the valuation was exactly the same as the interest rate charged on the loan that is being fair valued, fair value does not equal the outstanding balance.

Beyond the issue of establishing fair value, though, what is an exit price for a participant loan? There really is no market (quoted prices or observable inputs) for participant loans, and so it’s likely these assets fall into the Level 3 Input category. This is a highly debated issue right now, so expect there will be arguments made that consumer interest rates are observable and so participant loans would be Level 2.

How should service providers prepare for FAS 157?
Most trustees and custodians are anticipating the need to assist plan sponsors in evaluating the various investments of plans in light of FAS 157. Many service providers are expanding their audit packages to include a recommended FAS 157 fair value hierarchy.

For service providers who rely on other institutions or alliance partners for investments, start gathering all of the information you can about the pricing mechanisms applied to assets held by your customers’ plans. This may include audited financial statements, annual reports, or prospectus information. Custodians generally have a written description of pricing sources and methods for each type of investment, so be sure to capture that information.

More complicated investment vehicles, such as private equity funds and venture capital investment companies or partnerships and limited partnerships typical utilize written agreements spelling out call commitments and withdrawal restrictions and, because of the fund’s potentially illiquid nature, may employ a valuation specialist to report on projected cash flows and produce an industry analysis.

Steps for the plan sponsor
Any plan sponsor drafting its plan’s financial statements would be well advised to contact their auditors to begin a dialogue about the requirements of FAS 157 and to learn how their auditors will approach this subject during the audit process. The plan’s management also should review any FAS 157 related materials provided by their service providers and ask for more information, if necessary.

The plan sponsor must classify all plan assets according to the FAS 157 fair value hierarchy and draft notes to be incorporated into the plan’s financial statements to appropriately disclose such determinations.

In Conclusion
Each year, the employee benefit plan audit work becomes more complex causing plan sponsors and service providers to devote more time and resources to the effort. Get acquainted with FAS 157 now to save yourself from headaches this summer!

UPDATE: Form 5558 Procedures Change
In the last two weeks, we provided information about a recent procedure change at IRS’s Ogden, UT facility with regard to Form 5558. Recently, plan sponsors have been receiving correspondence from IRS when a Form 5558 was properly filed to extend the due date for filing Form 5500.

I have been able to confirm that IRS is working to have the language in the notice modified to advise plan sponsors that they do not need to attach the acknowledgement letter to their Form 5500 filings. The language instructing filers to do so is an error and will be removed soon. As it has been in the past, a copy of the Form 5558 must be attached to the Form 5500 filing.

It will take some time for this programming to be accomplished, but rest assured that both the IRS and the DOL are on it!

Form 5558 Procedures Change
In January 2008 the IRS issued a revised Form 5558 that incorporated the automatic approval rules for extending the deadline to file Form 5500. Under that document, filers of Form 5558 would receive acknowledgement and approval of the request only to the extent that the Form 5558 was filed to extend the due date for filing Form 5330.

Without much fanfare, the rules changed again in January 2009. When Form 5558 is filed, the plan sponsor is receiving IRS correspondence which states the following:

• We have received your Form 5558, Application for Extension of Time to File an Employee Plan Return, for the return (form), plan number, and tax period identified above, and have approved your request. We have extended the due date to file your return to (IRS inserts mo/day/year).
• It is important to attach a copy of this letter and a copy of your Form 5558, Application for Extension of Time to File an Employee Plan Return to your return when you file it. It will show the Department of Labor (DOL) that we granted you an extension of time to file your return. If a copy of the extension and notice is not attached to the return, it could be processed as a late filed return.
• If you have any questions, please call us at the number shown above, or you may write us at the address shown at the top left of this letter.

IRS advises that this procedure was implemented in January 2009. When EFAST2 (the fully electronic filing system) starts up in January 2010, filers will not be required (or allowed) to attach copies of Form 5558 to their electronic filings, so IRS is improving how it tracks Form 5558 filings. This new procedure includes sending acknowledgement letters to filers.

This will undoubtedly cause some re-thinking of procedures currently followed by service providers with regard to delivery of signature-ready Form 5500 reports. We urge practitioners to follow the instructions in the IRS correspondence to alleviate future correspondence from DOL.

Annual Funding Notice Replaces SAR for PBGC-Covered Plans
When the Pension Protection Act (PPA) was signed into law in August 2006, it contained many provisions which required the DOL to issue guidance within one year. While a nice goal, it was hardly achievable given the scope and breadth of PPA; both IRS and DOL were left to prioritize the issues for which guidance was needed and to tackle them to the best of their ability.

Section 501(a) of the PPA amended ERISA §101(f) for plan years beginning after December 31, 2007, replacing the SAR with an Annual Funding Notice for PBGC-covered pension plans. Fortunately, the DOL heard concerns of the actuarial and benefits community and so issued Field Assistance Bulletin (FAB) No. 2009-01 on February 10, 2009. The FAB included Frequently Asked Questions (FAQs) along with model notices for both single-employer and multiemployer plans and stated that, pending further guidance, use of an appropriately completed model notice will satisfy the new content requirements.

The FAB may be found at http://www.dol.gov/ebsa/regs/fab2009-1.html.

Which Plans Have PBGC Coverage?
Under Title IV of ERISA, the PBGC insures workers in most private-sector defined benefit plans in the event that their plans do not have sufficient assets to pay benefits when the plan is terminated because of the bankruptcy or other financial distress of the sponsoring employer(s). PBGC insures both single-employer and multiemployer defined benefit plans.

There are some exceptions to PBGC coverage, including:

• Plans established and maintained exclusively for substantial owners -- Form 5500-EZ filers among them -- are not covered by PBGC. Generally, a substantial owner is anyone who owns the entire interest in an unincorporated business, or a partner or shareholder who owns (directly or indirectly) more than 10 percent of a partnership or corporation.
• Plans of professional services employers that have always had 25 or fewer active participants are not insured. This includes physicians, dentists, chiropractors, osteopaths, optometrists, other licensed practitioners of the healing arts, lawyers, public accountants, public engineers, architects, draftspersons, actuaries, psychologists, social or physical scientists, and performing artists.
• Unfunded plans are not insured.

Earlier Delivery Date than SAR
As noted, the new annual funding notice requirements apply to plan years beginning after 2007. The time by which participants and beneficiaries must receive the notice, however, is driven by the participant count on each day during the plan year preceding the year to which the notice relates. [See ERISA §303(g)(2)(B).] So, for 2008 plan year notices, look to the participant count on each day of the 2007 plan year.

More than 100 Participants. Plans that cover more than 100 participants must distribute the notice no later than 120 days after the close of the plan year. For calendar year plans, the deadline is Thursday, April 30, 2009, which is 120 days after the close of the 2008 plan year.

100 or Fewer Participants. Plans that covered 100 or fewer participants on each day during the plan year preceding the reporting year are subject to a timing rule that is somewhat -- but not entirely -- similar to the SAR rule. For these plans, the annual funding notice must be provided no later than the earlier of:

• the date on which the Form 5500 report is filed, or
• the latest date the annual report could be filed, including extensions.

Model Notices
Model notices have been included for single-employer plans (Appendix A) and multiemployer plans (Appendix B). The models anticipate display of information for the current and two preceding plan years. Since PPA funding rules first became effective for 2008 plan years, the relevant information is not available for 2006 and 2007 plan years; therefore, the FAB includes Appendix C with an explanation of the transition period. Actuaries may find that they will be required to generate calculations for the notice that traditionally have not been part of the annual valuation work.

In FAQ #2, the FAB advises that use of an appropriately completed model notice will satisfy the content requirements of ERISA §101(f). In addition, the FAB notes that use of the model notice is not mandatory; however, it is expected that most plans will take advantage of the model to show they have acted in good faith and with a reasonable interpretation of the guidelines.

It should be noted that the model Annual Funding Notice for multiemployer plans that has been used prior to 2008 plan years does not contain sufficient information under the new rules and should no longer be used. [FAQ #4].

The EBSA has helpfully provided the model notices in Word format.

In Word format -
[click here] for the single-employer model notice. [Appendix A]
[click here] for the multiemployer notice. [Appendix B]

Notice Content
Participants and beneficiaries are accustomed to the content of the SAR. The new Annual Funding Notice goes far beyond the information provided in the SAR by including data about the plan’s investment policy and the funding target attainment percentage. [See FAQs #6-13.] In addition, sections entitled Summary of Rules Governing Termination of Single-Employer Plans and Benefit Payments Guaranteed by the PBGC appear in the single-employer notice. Financially troubled multiemployer plans must include a section entitled Summary of Rules Governing Plans in Reorganization and Insolvent Plans.

The length of the model notice is troublesome -- but necessary -- to incorporate all of the required data. Large plan filers may find drafting of the notice complicated by the fact that the audit of the plan and the related Form 5500 are incomplete. It’s not clear from the FAB that the figures reported on the notice must tie precisely to that reported on Form 5500, but every effort should be made to use the best data available at the time the notice is due.

Distribution of the Notice
The law requires the Notice be distributed to “...the Pension Benefit Guaranty Corporation, to each plan participant and beneficiary, to each labor organization representing such participants or beneficiaries, and in the case of a multiemployer plan, to each employer that has an obligation to contribute to the plan.” [ERISA §101(f)(1).]

However, in FAQ #4, the DOL indicates that a single-employer plan with liabilities that do not exceed plan assets by more than $50 Million is not required to provide the notice to PBGC, unless the PBGC sends a written request to the plan administrator. Multiemployer plans must continue to provide a copy of the Notice to PBGC, as they have for each plan year beginning after 2004.

In FAQ #5, the DOL notes that it will not take any enforcement action against any insolvent multiemployer plan that is in compliance with the insolvency notice requirements under Title IV of ERISA. However, a plan that emerges from insolvency or that ceases to comply with the insolvency notice requirements is subject to the annual funding notice rules.

The notice may be furnished to recipients electronically, as discussed in FAQ #14. In most cases, however, a variety of delivery methods will be utilized to ensure compliance with ERISA and the E-SIGN Act. Generally, ERISA Reg. §2520.104b-1(c) allows for electronic delivery of documents to a participant who has the ability to effectively access documents furnished in an electronic form at any location where the participant is reasonably expected to perform his or her duties as an employee and to whom the access is an integral part of their duties. In addition, other recipients may affirmatively consent to electronic receipt of such documents. A paper copy must be made available to any [electronic] recipient who requests it.

SAR Still Applies
A defined benefit plan that must provide the Annual Funding Notice no longer provides an SAR to plan participants and beneficiaries. Other defined benefit plans as well as defined contribution plans and certain welfare benefit plans must continue to provide the SAR to participants and beneficiaries on an annual basis.

Clarification – SARs for Defined Benefit Plans
For the past year or so I have been writing articles -- and making comments - that, beginning with 2008 plan years, defined benefit plans no longer distribute Summary Annual Reports (SARs) but rather an Annual Funding Notice. That’s not quite correct.

Under the Pension Protection Act of 2006, a new rule requires PBGC-covered defined benefit plans to provide an Annual Funding Notice rather than a Summary Annual Report for plan years beginning in 2008 and later. [See PPA Section 503(c) and ERISA Section 104(b)(3).] This Notice is due 120 days after the plan year end for large plan filers (e.g. April 30, 2009); small plan filers have until the due date of the related Form 5500 filing. It should be noted that DOL has not issued regulations (or format/content) relating to this Annual Funding Notice so additional rules may apply.

The traditional SAR format should be used for defined benefit plans that are not subject to PBGC insurance, which generally includes those plans that cover professional services companies (think lawyers and doctors, for example) with no more than 25 employees. Of course, owner-only defined benefit plans are not subject to the SAR or Annual Funding Notice rules.

Regulations for SAR content may be found at ERISA Reg. Section 2520.104b-10(d)(3).

Unveiling the 2008 Form 5500
On November 25, 2008, the IRS and DOL posted the 2008 Form 5500 series reports and official instructions at http://www.dol.gov/ebsa/pdf/2008-5500inst.pdf. As of this writing, the instructions to 2008 Form 5500-EZ have not been released, but no substantive changes are expected. The majority of the changes to the 2008 forms package focus on reporting changes required on account of new PPA funding rules, and so primarily affects defined benefit plans.  However, certain guidance affects all plans.

Short Plan Year Filings -- 2008 and 2009
It has been common practice to use prior year forms to satisfy filing obligations for short plan years when the due date for the short plan year's filing was before the current year's form was available. This is not the case for short 2008 plan years for any defined benefit plan required to include actuarial information or for certain money purchase (or target benefit) plans with funding waivers.

In response to PPA, separate actuarial schedules have been developed for 2008 plan year filings -- Schedule SB for single-employer defined benefit plans and Schedule MB for multiemployer defined benefit plans and certain money purchase plans. These schedules are the only valid means of satisfying the actuarial information filing requirements for 2008; the 2007 Schedule B may not be used.

In addition, multiemployer plans must file as many as four attachments to the Schedule R to report certain PPA-related information about contributing employers and liabilities for two or more plans. Similarly, all defined benefit pension plans covering 1,000 or more participants must include financial asset breakout information as an attachment to Schedule R.

Automatic Extension for Short 2008 Plan Years.  Because of these changes, filers that are subject to the abovementioned rules have been granted an automatic extension of time to file their complete 2008 Form 5500 until 90 days after the 2008 forms become available to use for filing. According to IRS sources, the paper forms will be available beginning December 10, 2008; it is likely that software vendors also will deliver their packages in December 2008. This translates into an extended due date of approximately March 10, 2009. Plans not subject to minimum filing rules that experience a short plan year during 2008 must file their 2008 Form 5500 report by the last day of the seventh month following the end of the plan year, or as extended by filing Form 5558.

Caution!   It should be noted that DOL is not rejecting filings that include the 2007 Schedule B with a short 2008 plan year Form 5500 report; however, that does not mean that the plan has satisfied its obligation to provide certain actuarial information to the agencies. It is recommended that any actuary who signed a 2007 Schedule B that reflected information for a short 2008 plan year work with the plan sponsor to file an amended report using the proper 2008 forms.   

Options for 2009 Short Plan Year Filings.  It's common knowledge that mandatory electronic filing rules apply to plan years beginning in 2009. The agencies, however, have anticipated that filers with due dates before January 1, 2010 -- the date the EFAST2 filing system is expected to go Alive@ -- will not want to delay filing for short 2009 plan years. This is particularly true where the short plan year arises on account of a plan termination which may be coincident with cessation of business operations by the plan sponsor.

Option #1.  Short 2009 plan year filers with due dates to submit their 2009 filing before January 1, 2010 may use plan year 2008 forms and submit their 2009 filing to EFAST on or before the due date for their short plan year filing. Filings received after June 30, 2009 will be manually entered into the governmental system.

Option #2.  Alternatively, short 2009 plan year filers with due dates before January 1, 2010 are given an automatic extension of time to electronically file their complete 2009 Form 5500 until 90 days after the 2009 filing system is available on the DOL website.  The DOL notes that this special extension is being granted to encourage short plan year filers to file electronically under the EFAST2 system thereby eliminating the need for manual data entry on their end.

Schedule R Changes for Money Purchase and Target Benefit Plans
Lines 6a, 6b, and 6c of Schedule R report whether a money purchase or target benefit plan has met the minimum funding requirement for the plan year.  The instructions specifically direct the filer to report only those contributions paid to the defined contribution plan by the date the return is filed. If the resulting value on line 6c is greater than zero, then an attachment must be created.

Label the attachment  Schedule R, line 6c information and explain whether the sponsor will contribute an amount to meet the minimum funding requirement shown on line 6a by the funding deadline, which is generally no later than 82 months after the end of the plan year.

Internet and Intranet Posting Required
PPA '504(a) added new ERISA '104(b)(5) and requires internet and intranet posting of a defined benefit plan's 2008 Form 5500 actuarial information. All Schedules SB, MB or other actuarial information schedules filed for 2008 plan years received by the Department of Labor's EFAST center will be posted on a public disclosure website at http://askebsa.dol.gov/ppa/ within 90 days of EFAST's receipt of the filing.

The law requires similar intranet posting by the plan sponsor (or the plan administrator on behalf of the plan sponsor); however, such intranet posting is only intended to be for communication with plan participants and not the public.  If a plan sponsor does not maintain an intranet, then no posting is required. The statute does not clearly specify a 90-day window for intranet posting and the DOL has not issued any guidance in this regard. To be on the safe side, the intranet posting should be made within 90 days of the date the 2008 Form 5500 is submitted to EFAST for processing. Note that only the actuarial schedule (Schedule SB or MB) need be posted; attachments do not need to be uploaded to the intranet.

Caution!  Actuaries should consider whether Schedule SB should be filed by one-participant plans filing Form 5500-EZ.  While the actuarial certification must be maintained with the sponsor's records, filing a one-participant Schedule SB for 2008 will subject that information to posting on the public disclosure website. The requirement to include Schedule B with Form 5500-EZ was eliminated beginning with 2005 plan year filings.

Annual Funding Notice Replaces Summary Annual Report for Defined Benefit Plans
For plan years beginning after December 31, 2007, the Pension Protection Act (PPA) '501 requires defined benefit plan administrators B for both single employer and multiemployer defined benefit plans -- to provide an annual funding notice for each plan year. Previously, the annual funding notice rules only applied to multiemployer plans. The PPA expands the information and accelerates the time by which the notice must be distributed.

More importantly, this annual funding notice replaces the Summary Annual Report for defined benefit plans beginning for 2008 plan years.  The notice must be provided to (a) the PBGC; (b) each plan participant and beneficiary; (3) each labor organization representing plan participants and beneficiaries and (d) for multiemployer plans, each contributing employer.

The annual funding notice must be provided no later than 120 days after the end of the plan year relating to the notice.  For calendar year plans, the first notice is due to be distributed by April 30, 2009; however, small plan filers have some relief in that the distribution must occur by the due date for filing the plan's Form 5500 report.

To date, the Department of Labor (DOL) has not provided any guidance with regard to the content of the revised notice although PPA required a sample notice to be issued by August 17, 2007.  The existing regulations for annual funding notices of multiemployer plans were issued in January 2006 and may be found at http://www.dol.gov/federalregister/HtmlDisplay.aspx?DocId=11408&AgencyId=8&DocumentType=2.

Note!  The waiver of the requirement to have an audit of a small pension plan generally requires certain disclosures in the SAR.  This requirement is satisfied if the information is provided in the Annual Funding Notice for small defined benefit plans beginning with 2008 plan years.

Actuarial Schedules SB and MB
Schedule SB, Single-Employer Defined Benefit Plan Actuarial Information, is new for 2008 plan years and replaces the Schedule B previously used to report actuarial information for single employer defined benefit plans. Schedule MB, Multiemployer Defined Benefit Plan and Certain Money Purchase Plan Actuarial Information, is new for 2008 plan years and replaces the Schedule B previously used to report actuarial information for multiemployer defined benefit plans

Schedule MB also is filed for any money purchase or target benefit plan that has received a waiver of the minimum funding standard and the waiver is currently being amortized. Lines 3, 9, and 10 of Schedule MB must be completed and the schedule attached to the Form 5500 filing; however, it need not be signed by an enrolled actuary.

These schedules substantially mirror the drafts released to the public in December 2006. The IRS provided a cross reference table to acquaint preparers with the new format as it relates to the previously used Schedule B. [click here] for those cross reference tables.

Note!  Check the Schedule B box on Form 5500, Part II, line 10a(2) to indicate that either a Schedule SB or Schedule MB is attached.

Special Rules for Defined Benefit Pension Plans -- 2008 Schedule R
The 2008 Schedule R calls for up to four new attachments for certain defined benefit pension plans.  Two schedules apply only to multiemployer plans, a third applies to both multiemployer and single-employer plans that were involved in a merger, spin-off, or transfer in the prior plan year, while the remaining attachment is required only for plans that cover 1,000 or more participants as of the first day of the plan year.

Attachments for Multiemployer Plans with a Funding Improvement or Rehabilitation Plan.  The funding rules for multiemployer plans have been different from the single-employer plan funding rules. For plan years beginning after 2007, however, changes have been made through a new Code Section 431 that will (a) reduce the amortization periods for certain supplemental costs to 15 years, (b) change the amortization extension and funding waiver interest rate to the plan rate, (c) tighten the reasonableness requirement for actuarial assumptions, (d) eliminate the alternative minimum funding standard, (e) allow an automatic five-year amortization extension with an additional five-year extension, and (f) provide circumstances under which there is deemed approval of changes in the use of the shortfall funding method.

Multiemployer plans that are so underfunded as to be in "endangered" or "critical" status are required to adopt funding improvement and rehabilitation plans. These actions are intended to improve their funding status over a period of years.  A plan is generally in endangered status (Plan Status Code "E") if its funded percentage as of the first day of the plan year is less than 80% or if it is has an accumulated funding deficiency for the current plan year or is projected to have an accumulated funding deficiency for any of the next six plan years. A seriously endangered plan (Plan Status Code "S") generally has a funded percentage of 70% or less at the beginning of the plan year. A plan is in critical status (Plan Status Code "C") if its funded percentage is less than 65% and not projected to improve its funded percentage over the next seven years.  Code Section 432, added by PPA 2006, provides additional funding rules for multiemployer plans in endangered or critical status. If the Plan Status Code on line 4a of Schedule MB is an E, S, or C, a summary of either the Funding Improvement Plan (for plans with E or S codes) or the Rehabilitation Plan (for a plan with a C code) must be attached to Schedule R. The attachment must be labeled "Schedule R, Summary of Funding Improvement Plan" or "Schedule R, Summary of Rehabilitation Plan."

The attachment should include the following details as in effect at the end of the plan year:

• Name of plan sponsor, its EIN, and the plan number shown at line 1b of Form 5500 along with the plan name;
• Description of the various contribution and benefit schedules that are being provided to the bargaining parties and any other actions taken in connection with the rehabilitation plan or the funding improvement plan, such as the use of the shortfall funding method or extensions of the amortization period.
• A schedule of the expected progress for the funded percentage or other relevant factors under the rehabilitation plan or the funding improvement plan.
• The annual update of the rehabilitation or funding improvement plan, as required under Code Section 432(c)(6) and Code Section 432(e)(3)(B). 

Attachments for ALL Multiemployer Defined Benefit Pension Plans.  All multiemployer defined benefit pension plans that are subject to minimum funding standards must provide additional information as an attachment labeled "Schedule R, Certain Information for Multiemployer Plan." 

Note!  Perhaps the best way to become familiar with the information to be provided on this attachment is to look at Part V of the 2009 Schedule R and the related instructions. [click here] for those pages. With one exception, the information that is required as an attachment to the 2008 Schedule R is physically incorporated into the 2009 Schedule R, at lines 13-17. In total, six separate issues must be disclosed.

Item 1.   The first item to be displayed on the attachment is not found on the 2009 Schedule R.  Begin the labeled "Schedule R, Certain Information for Multiemployer Plan" by reporting the total number of employers obligated to contribute to the plan in 2008.

It is worth noting that the number of employers should be viewed through the lens of executed collective bargaining agreements, rather than the paymaster to the employees. For example, in the motion picture industry it is common to have separate collective bargaining agreements for each movie. However, workers on the film who are covered by the agreement may be paid by Entertainment Partners regardless of the production. In other words, the studios contract with Entertainment Partners to manage the payroll but it is the signatory on the collective bargaining agreement that is counted as an "employer" for purposes of this item. From a worker's perspective, they may work on three different movie projects in a given year but all of their paychecks come from Entertainment Partners. Generally, there would be three different collective bargaining agreements and three different employers involved -- each making separately negotiated contributions to the plan.

Another reference point is the EIN of the employer signing the collective bargaining agreement.  Any two or more contributing employers that have the same EIN should be aggregated and counted as a single employer for this purpose.

Note!  The information described above will be reported at line 7 of the 2009 Form 5500 for any type of multiemployer plan, not just defined benefit pension plans.

Item 2.   Next, the attachment must identify contributing employers that individually contributed more than 5% of the plan's total contributions for the 2008 plan year. The attachment should sort the employers in descending order according to the dollar amount of their contributions to the plan and disclose the following for each 5% employer:

• Name and EIN of the contributing employer
• Dollar amount contributed
• The date the collective bargaining agreement expires.  If the employer has multiple collective bargaining agreements requiring contributions to the plan, all expiration dates must be disclosed even if the separate agreement does not meet the 5% threshold.
• The contribution rate in dollars and cents per contribution base unit and indicate whether the base unit is hourly, weekly, or some other basis.  If the contribution rate changed during the year, show the terms in effect at the end of the plan year. Again, if the employer has multiple collective bargaining agreements requiring contributions to the plan, all contributions terms must be disclosed even if the separate agreement does not meet the 5% threshold.

Item 3.   The third disclosure looks at the number of participants covered by various agreements, but in a manner that is exclusive to this disclosure. In fact, report only those participants for whom no contributions were made. Count only those participants whose employers or former employers had withdrawn from the plan by the beginning of the relevant plan year.  Do not count deferred vested and retired participants of employers who have not withdrawn from the plan.

Report such participants counts separately for the 2008 plan year, the 2007 plan year, and the 2006 plan year (the current and two immediately preceding plan years).

Note!  Withdrawal liability payments made by employers that have withdrawn from the plan are not treated as contributions for purposes of this disclosure.

Item 4.   Before calculating the percentages to disclose here, it should be noted that the values in item 3 (above) are adjusted to include all deferred vested and retired participants of employers still active in the plan but for whom no contributions are being made. Again, withdrawal liability payments are not treated as contributions for this purpose.

Enter the ratio of the number of participants on whose behalf no employer had an obligation to make a contribution for:

• the current (2008) plan year to the corresponding number for the preceding (2007) plan year; and
• the current (2008) plan year to the corresponding number for the second preceding (2006) plan year.

Item 5.   If any employers withdrew from the plan during the preceding (2007) plan year, disclose two values:

• The number of employers that withdrew from the plan; and
• The aggregate amount of withdrawal liability assessed against these employers.  If the withdrawal liability is not determined as of the filing date, an estimate is sufficient.

Item 6.   Finally, if assets and liabilities from another plan were transferred to or merged with this plan during the 2008 plan year, the following information must be disclosed:

• The names and EINs of all plans that transferred or merged assets and liabilities; and
• For each plan, including this plan, report the actuarial valuation of the total assets and liabilities for the 2007 plan year, based on the most recent data available as of the last day of the 2007 plan year.

Attachments for ALL Defined Benefit Pension Plans.  Both single-employer and multiemployer must provide an attachment labeled "Schedule R, Funded Percentages of Plans Contributing to the Liabilities of Plan Participants" if any liabilities to participants or their beneficiaries at the end of the plan year consist of liabilities under two or more plans as of the immediately preceding year.

Provide the following information as a separate attachment:

• Names, EINs, and plan numbers of all plans that provided a portion of liabilities of the participants and beneficiaries in question. The current (2008) plan information should be listed first.
• The funded percentage of each plan as of the last day of the prior (2007) plan year.  The funded percentages are ratios calculated where the numerators are the actuarial values of the plans' assets at the end of the 2007 plan year and the denominators are the accrued liabilities of the plans at the end of the 2007 plan year.

Attachments for ALL Defined Benefit Pension Plans Covering 1,000 or More Participants.  This attachment requires any defined benefit plan covering 1,000 or more participants to provide an analysis of the fair market value of plan assets, by investment type, as of the beginning of the plan year.  The attachments should be labeled "Schedule R, Distribution of Assets Information."

Note!  See Part VI of the 2009 Schedule R.

For purposes of this attachment, the participant count is based on the figure reported on line 3d, column (1), of Schedule SB for single-employer plans or on line 2b(4), column (1), of the Schedule MB for multiemployer plans.

The asset categories are as follows: (a) stocks, (b) investment-grade debt instruments, (c) high-yield debt instruments, (d) real estate, and (e) other asset classes. Percentages should be expressed to the nearest whole percent and should reflect the total assets held in each category, without regard to how they are listed on Part I of Schedule H. Also, assets held in master trusts must be disaggregated into the five asset classes and not simply listed as "other asset classes" unless the trust contains no stocks, bonds, or real estate holdings.

To distinguish asset classes, follow the same methodology that is used when disclosing the allocation of plan assets on the sponsor's 10K filings to the Securities and Exchange Commission, if any. Real estate investment trusts (REITs) should be counted as stocks, while real estate limited partnerships should be included in the real estate classification.

If the plan's assets include a debt portfolio, a separate line on the attachment should disclose the average duration of the holdings: (a) 0-3 years; (b) 3-6 years; (c) 6-9 years; (d) 9-12 years; (e) 12-15 years; (f) 15-18 years; (g) 18-21 years; (h) 21 years or more.  If the average falls on the boundary, choose the lower duration.

The average duration is determined by looking at the "effective duration" or any other generally accepted measure of duration, such as the Macaulay duration, Modified duration, or other measure as explained in the attachment.  For multiple bond portfolios, a weighted average of the average durations may be reported.

It is unclear who will take the lead in determining the asset categories and average durations to report on this attachment.  The expertise of the trustee or custodian, the investment advisor(s), the plan sponsor, and the actuary may be utilized for this exercise.

Conclusion
As can be seen, the majority of changes affect only filers for defined benefit plans. Actuaries are taking the brunt of this year's changes!