Technical Update 03-17: 2003 Model Participant Notice

Model Participant Notice

The Retirement Protection Act of 1994 requires certain underfunded plans to notify participants and beneficiaries annually of the plan's funding status and the limits of PBGC's guarantee. (See Section 4011 of ERISA and 29 CFR Part 4011.) The regulation includes a model notice that plans can use to meet this requirement.

For the convenience of plan administrators, this Technical Update republishes the Model Participant Notice, updated to reflect the 2003 maximum guaranteed benefits.

Participant Notice Worksheet

This Technical Update also includes a worksheet to help plan administrators determine whether they must issue a 2003 Participant Notice. Generally, the requirement to issue a 2003 Participant Notice applies to the plan administrator of any single employer plan that: (1) pays a variable rate premium for the 2003 plan year, or (2) would pay a variable rate premium for the 2003 plan year using 85% (instead of 100%) of the yield on 30 year Treasury securities for purposes of calculating vested benefits. (See the discussion of the Job Creation and Worker Assistance Act of 2002 (JCWAA) below.) However, no notice is required if the plan meets certain funding requirements, as explained in the worksheet.

Due Dates

The 2003 Participant Notice is due two months after the due date (including extensions) for the 2002 Form 5500. Due dates that fall on a weekend or Federal holiday are extended to the next business day. The following table shows the common filing due dates for calendar year plans:

Effect of Job Creation and Worker Assistance Act of 2002 on 2003 Participant Notice

Premium interest rate

Section 405 of the Job Creation and Worker Assistance Act of 2002 (JCWAA) increases the required interest rate for calculating vested benefits for the PBGC variable rate premium under section 4006(a)(3)(E)(iii) of ERISA from 85% to 100% of the yield on 30-year Treasury securities (the "Treasury yield"). The statutory change applies only to plan years beginning in 2002 or 2003. JCWAA does not allow use of 100% of the Treasury yield to determine whether a plan must issue a Participant Notice. Thus, plans must continue to use 85% of the Treasury yield for this purpose.

Current liability interest rate

Section 405 of JCWAA also increases, for plan years beginning in 2002 or 2003, the maximum interest rate (from 105% to 120% of the specified weighted average of Treasury securities interest rates) that may be used to calculate current liability for purposes of the Deficit Reduction Contribution (DRC) funding requirement. The DRC is an additional funding requirement that applies to certain underfunded single-employer plans under section 302 of ERISA and section 412 of the Internal Revenue Code

The change in section 405 of JCWAA to the maximum interest rate that may be used to calculate current liability for DRC funding purposes can affect both the requirement to issue the 2003 Participant Notice and the plan funding information required to be disclosed in the 2003 Participant Notice.

Issuance Requirement. Section 4011 of ERISA exempts a plan from the Participant Notice requirement for a plan year if it has a "Funded Current Liability Percentage" at or above various specified levels for one or several plan years. For the 2003 Participant Notice, the relevant plan years are 1999 through 2003. (See 2003 Participant Notice Worksheet below.) Under JCWAA, a plan will use the maximum current liability interest rate of 120% (rather than 105%) of the specified weighted average of Treasury securities interest rates to calculate the Funded Current Liability Percentage for the 2002 and 2003 plan years but not for plan years 1999-2001.

The JCWAA maximum interest rate for the 2002 plan year is also used to determine whether a plan qualifies for the full funding limit exemption from the VRP (under 29 CFR 4006.5(a)(5)) for the 2003 plan year and therefore is not required to issue a 2003 Participant Notice.

Notice Funding Percentage. The 2003 Participant Notice must disclose the plan's "Funded Current Liability Percentage" for the 2003 plan year or the 2002 plan year. Under JCWAA, the Funded Current Liability Percentage for the 2003 plan year and the 2002 plan year is determined using the JCWAA maximum current liability interest rate, i.e., 120% (rather than 105%) of the specified weighted average of Treasury securities interest rates.

Special Small Plan Rules. Section 405 of JCWAA also affects the PBGC's Special Small Plan Rules. Small plans may use these rules to determine whether they are required to issue the 2003 Participant Notice and, if so, the information to be disclosed in the Notice. The rules allow a small plan to use current liability figures reported on Schedule B of Form 5500 and to adjust them to approximate current liability calculated using the "highest allowable interest rate." Under JCWAA, the "highest allowable rate" for calculating the Current Funded Liability Percentage for the 2003 plan year or the 2002 plan year is the JCWAA maximum current liability interest rate (i.e., 120% of the specified weighted average of Treasury securities interest rates). This JCWAA maximum current liability interest rate does not apply to calculations of the Current Liability Percentage for earlier plan years.

2003 Model Participant Notice

The following is an example of a 2003 Participant Notice that satisfies the requirements of section 4011.10 when the required information is filled in.

Notice to Participants of [Plan Name]

The law requires that you receive information on the funding level of your defined benefit pension plan and the benefits guaranteed by the Pension Benefit Guaranty Corporation (PBGC), a federal insurance agency.

YOUR PLAN'S FUNDING

As of [DATE], your plan had [INSERT NOTICE FUNDING PERCENTAGE DETERMINED IN ACCORDANCE WITH SECTION 4011.10(c)] percent of the money needed to pay benefits promised to employees and retirees.

To pay pension benefits, your employer is required to contribute money to the pension plan over a period of years. A plan's funding percentage does not take into consideration the financial strength of the employer. Your employer, by law, must pay for all pension benefits, but your benefits may be at risk if your employer faces a severe financial crisis or is in bankruptcy.

[INCLUDE THE FOLLOWING PARAGRAPH ONLY IF, FOR ANY OF THE PREVIOUS FIVE PLAN YEARS, THE PLAN HAS BEEN GRANTED AND HAS NOT FULLY REPAID A FUNDING WAIVER.]

Your plan received a funding waiver for [LIST ANY OF THE FIVE PREVIOUS PLAN YEARS FOR WHICH A FUNDING WAIVER WAS GRANTED AND HAS NOT BEEN FULLY REPAID]. If a company is experiencing temporary financial hardship, the Internal Revenue Service may grant a funding waiver that permits the company to delay contributions that fund the pension plan.

[INCLUDE THE FOLLOWING WITH RESPECT TO ANY UNPAID OR LATE PAYMENT THAT MUST BE DISCLOSED UNDER SECTION 4011.10(b)(6):]

Your plan was required to receive a payment from the employer on [LIST APPLICABLE DUE DATE(S)]. That payment [has not been made] [was made on [LIST APPLICABLE PAYMENT DATE(S)]].

PBGC GUARANTEES

When a pension plan terminates without enough money to pay all benefits, the PBGC steps in to pay pension benefits. The PBGC pays most people all pension benefits, but some people may lose certain benefits that are not guaranteed.

The PBGC pays pension benefits up to certain maximum limits.

• The maximum guaranteed benefit is $3,664.77 per month or $43,977.24 per year for a 65 year-old person in a plan that terminates in 2003. [IF YOU ISSUE THE 2003 PARTICIPANT NOTICE AFTER THE MAXIMUM GUARANTEED BENEFIT INFORMATION FOR PLANS THAT TERMINATE IN 2004 IS ANNOUNCED, YOU MAY ADD OR SUBSTITUTE THAT INFORMATION IN ORDER TO PROVIDE PARTICIPANTS WITH MORE CURRENT INFORMATION. THE PBGC EXPECTS TO MAKE THAT INFORMATION AVAILABLE ON ITS WEB SITE AT WWW.PBGC.GOV IN EARLY NOVEMBER 2003.]
• The maximum benefit may be reduced for an individual who is younger than age 65. For example, it is $1,649.15 per month or $19,789.80 per year for an individual who starts receiving benefits at age 55. [IN LIEU OF AGE 55, YOU MAY ADD OR SUBSTITUTE ANY AGE(S) RELEVANT UNDER THE PLAN. FOR EXAMPLE, YOU MAY ADD OR SUBSTITUTE THE MAXIMUM BENEFIT FOR AGES 62 OR 60. THE MAXIMUM BENEFIT IS $2,895.17 PER MONTH OR $34,742.04 PER YEAR AT AGE 62; IT IS $2,382.10 PER MONTH OR $28,585.20 PER YEAR AT AGE 60. IF THE PLAN PROVIDES FOR NORMAL RETIREMENT BEFORE AGE 65, YOU MUST INCLUDE THE NORMAL RETIREMENT AGE.] [IF YOU ISSUE THE 2003 PARTICIPANT NOTICE AFTER THE MAXIMUM GUARANTEED BENEFIT INFORMATION FOR PLANS THAT TERMINATE IN 2004 IS ANNOUNCED, YOU MAY ADD OR SUBSTITUTE THAT INFORMATION IN ORDER TO PROVIDE PARTICIPANTS WITH MORE CURRENT INFORMATION. THE PBGC EXPECTS TO MAKE THAT INFORMATION AVAILABLE ON ITS WEB SITE AT WWW.PBGC.GOV IN EARLY NOVEMBER 2003.] [IF THE PLAN DOES NOT PROVIDE FOR COMMENCEMENT OF BENEFITS BEFORE AGE 65, YOU MAY OMIT THIS PARAGRAPH.]
• The maximum benefit will also be reduced when a benefit is provided for a survivor.

The PBGC does not guarantee certain types of benefits. [INCLUDE THE FOLLOWING GUARANTEE LIMITS THAT APPLY TO THE BENEFITS AVAILABLE UNDER YOUR PLAN.]

• The PBGC does not guarantee benefits for which you do not have a vested right when a plan terminates, usually because you have not worked enough years for the company.
• The PBGC does not guarantee benefits for which you have not met all age, service, or other requirements at the time the plan terminates.
• Benefit increases and new benefits that have been in place for less than a year are not guaranteed. Those that have been in place for less than 5 years are only partly guaranteed.
• Early retirement payments that are greater than payments at normal retirement age may not be guaranteed. For example, a supplemental benefit that stops when you become eligible for Social Security may not be guaranteed.
• Benefits other than pension benefits, such as health insurance, life insurance, death benefits, vacation pay, or severance pay, are not guaranteed.
• The PBGC generally does not pay lump sums exceeding $5,000.

WHERE TO GET MORE INFORMATION

Your plan, [EIN-PN], is sponsored by [CONTRIBUTING SPONSOR(S)]. If you would like more information about the funding of your plan, contact [INSERT NAME, TITLE, BUSINESS ADDRESS AND PHONE NUMBER OF INDIVIDUAL OR ENTITY].

For more information about the PBGC and the benefits it guarantees, you may request a free copy of "Your Guaranteed Pension" by writing to Consumer Information Center, Dept. YGP, Pueblo, Colorado 81009. [THE FOLLOWING SENTENCE MAY BE INCLUDED:] "Your Guaranteed Pension" is also available on the PBGC's Web site at http://www.pbgc.gov.

Issued: [INSERT AT LEAST MONTH AND YEAR]

Participant Notice Worksheet
2003 Plan Year
Definitions and Special Small Plan Rules

I. Funded Current Liability Percentage (See Special Small Plan Rules below)

The percentage obtained by dividing:

II. Special Small Plan Rules

In calculating its Funded Current Liability Percentage for a plan year, a plan that is a "small plan" (see definition in III. below) for that plan year may use one or both of the following rules:

III. Definition of "Small Plan"

A plan is considered to be a "small plan" for a plan year if it had 100 or fewer participants on each day during the preceding plan year. When determining whether a plan is a "small plan," its participants must be aggregated with the participants of all other defined benefit plans maintained by the same employer or any other member of the employer's controlled group in accordance with ERISA section 302(d)(6)(C).