Technical Update 96-3: Annual Financial and Actuarial Information Reporting

Introduction

The Retirement Protection Act of 1994 added Section 4010 to ERISA. Section 4010 requires certain controlled groups maintaining plans with large amounts of underfunding to submit financial and actuarial information annually to the Pension Benefit Guaranty Corporation.

On December 20, 1995, the PBGC published a final rule setting out the information required under Section 4010 of ERISA (29 CFR Part 2628, 60 Fed. Reg. 66054). This Technical Update addresses questions that the PBGC has received about the regulation. Employers may rely on the answers provided in this guidance in applying the regulation.

Table of Contents

I. Reporting Dates

II. $50 Million Unfunded Vested Benefits Threshold

III. Census Data and Plan Provisions

IV. Benefit Liabilities

V. Financial Information

VI. Funding Waivers

VII. Extensions

VIII. Miscellaneous

I. Reporting Dates

Q1. When do employers have to file their first reports under Section 4010?

A1. The first reports for most companies are due April 15, 1996 (105 days after the end of the calendar year). The only entities that have a later due date are those in controlled groups in which all members (other than "exempt entities") have the same non-calendar fiscal year. These entities must file 105 days after the end of their fiscal year.

Q2. If all United States members of a controlled group have a July 1 fiscal year but a foreign member of the controlled group has a September 1 fiscal year, must the entire controlled group file on a calendar-year basis?

A2. Yes, unless the foreign member is an exempt entity. A controlled group may request a waiver to allow the group to file its report on the basis of the fiscal year of its United States members. Any request for a waiver must be filed in writing with the PBGC no later than 15 days before the date the filing is due without a waiver.

The PBGC already has granted one waiver in a similar situation, conditioned on receipt of certain information (the controlled group's most recent financial statements and the plan's most recent Form 5500 and actuarial valuation report) by April 15, with subsequent information to be filed based on the fiscal year of the United States controlled group members. The PBGC anticipates that any similar waiver will be conditioned on the filing of similar information, appropriate to the controlled group requesting the waiver. Filers are urged to request the waiver as early as possible so that they can submit the required information by April 15.

Q3. For what period is the required financial and actuarial information reported?

A3. Financial information is reported for each member's fiscal year ending within the filer's "information year." Actuarial information is reported for each plan's plan year ending within the information year.

Q4. Must an entity or a plan be included in the annual information report if the entity or the plan is no longer in the controlled group as of the last day of the information year?

A4. No. Controlled group members and their plans are determined as of a "snapshot" taken on the last day of the information year.

II. $50 Million Unfunded Vested Benefits Threshold

Q5. As of what date are unfunded vested benefits determined for purposes of the $50 million filing threshold?

A5. Unfunded vested benefits for a plan are determined as of the last day of the plan year that ends within the filer's information year. If a controlled group has plans with different plan years, the unfunded vested benefits at the end of each plan's plan year are totalled to determine whether the controlled group has more than $50 million in unfunded vested benefits for the controlled group's information year.

Q6. If a plan does not pay a variable rate premium because it is at the full funding limit, must the plan be counted for purposes of determining whether aggregate unfunded vested benefits exceed $50 million?

A6. Yes. All plans with unfunded vested benefits are counted for purposes of the $50 million threshold.

Q7. Must "exempt plans" be counted for the $50 million threshold?

A7. Yes.

Q8. Are only active participants counted for purposes of the 500 participant exempt-plan rule?

A8. No. For purposes of determining whether a plan is exempt, all participants (active, retired, etc.) must be counted. (See Section 2610.2 of the PBGC's premium regulation.)

Q9. How are unfunded vested benefits calculated?

A9. There are three possible methods for calculating unfunded vested benefits: (1) using the general method used to calculate the PBGC's variable rate premium, (2) using the alternative calculation method used to calculate the PBGC's variable rate premium, or (3) using the general method with the optional assumptions described in the Section 4010 regulations.

Q10. Must the same method be used for premium purposes and for Section 4010?

A10. No. A filer may use a different method for calculating unfunded vested benefits for premiums and unfunded vested benefits for Section 4010.

Q11. May different methods be used for different plans?

A11. Yes.

Q12. What interest rates and asset values are used to calculate unfunded vested benefits under Section 4010?

A12. The following chart summarizes these rules:

Calculate Unfunded Vested Benefits Under Section 4010

For 1995 calendar-year plans, the 30-year Treasury rate is 6.06 percent and 80 percent of the 30-year rate is 4.85 percent.

Q13. May contributions paid after the end of a plan year be included in assets for purposes of determining whether the plan has more than $50 million in unfunded vested benefits, the threshold for reporting under Section 4010?

A13. The PBGC will permit a filer to include contributions made by the timely filing date, but only to the extent the contributions are attributable to the prior plan year for funding purposes under ERISA Section 302(c)(10) and Code Section 412(c)(10). Contributions used to satisfy quarterly contribution requirements for a plan year may not be included in plan assets as of the end of the prior plan year.

Q14. How are the above rules applied when the filing year and the plan year are different?

A14. Under the funding rules, only contributions made within 8½ months after the end of a plan year may be credited to the prior plan year. Contributions made after this date may not be credited to prior years for purposes of Section 4010.

Q15. May contributions made between a timely filing date (by April 15, 1996 for calendar-year filers) and the extended due date for submitting certain actuarial information be included in the value of plan assets?

A15. No. Neither the filing extension available for certain actuarial information nor any other extension that the PBGC will grant will extend the period during which contributions can be counted as plan assets for the prior plan year.

Q16. Does a filer have to discount the value of contributions paid after the end of a plan year?

A16. Yes.

Q17. What rate is used for discounting contributions paid after the end of a plan year?

A17. The discount rate depends on the premium method used to calculate unfunded vested benefits for purposes of Section 4010. If unfunded vested benefits are determined under the general method, use the plan's asset valuation rate. If unfunded vested benefits are determined under the alternative calculation method, use the premium interest rate which is 4.85 percent for a contribution being discounted to December 31, 1995. See the premium regulations at 29 CFR 2610.23(b)(2) and (c)(4).

Q18. What mortality table is used to calculate unfunded vested benefits for the 1995 plan year?

A18. For the 1995 plan year, filers must use (with limited exceptions) the GAM-83 mortality tables prescribed in Revenue Ruling 95-28, 1995-1 C.B. 74, regardless of the method used to calculate unfunded vested benefits. (For plan years beginning before 1995, filers must use the GAM-83 mortality tables if they use the optional actuarial assumptions.)

Q19. Are the other actuarial assumptions (other than interest rate and mortality) identical to those used to calculate the plan's current liability?

A19. Generally, yes. Actuarial assumptions (other than interest rate and mortality) must be identical to those used to calculate the plan's current liability for funding purposes, unless different assumptions are required to reflect a significant event.

Q20. If unfunded vested benefits are more than $50 million but unfunded benefit liabilities are less than $50 million must the controlled group report?

A20. Yes.

III. Census Data and Plan Provisions

Q21. Must a funding valuation to calculate unfunded vested benefits be done as of the end of the plan year?

A21. No. Under the general method, a plan may determine the value of its end-of-year unfunded vested benefits based on an existing funding valuation so long as (i) the actuary adjusts the valuation to reflect appropriately the plan's provisions and population as of the last day of the plan year, and (ii) the actuarial assumptions and methods used are the same assumptions and methods used for funding purposes for the plan year (except as necessary to reflect the occurrence of significant events). The plan's actuary shall decide, in a manner consistent with generally accepted actuarial principles and practices, whether to perform a separate valuation for premium purposes or to rely on an existing valuation. See 54 FR 28944, 28948 (July 10, 1989).

Under the alternative calculation method, a plan may determine its unfunded vested benefits using the plan's Form 5500, Schedule B, for the plan year, provided that the results are properly adjusted to the end of the plan year.

Q22. May plans use projected (rolled forward) census data for calculating unfunded vested benefits for purposes of the $50 million filing threshold?

A22. Yes, provided the census data is rolled forward (consistent with generally accepted actuarial principles) to appropriately reflect the actual population as of the last day of the plan year ending within the information year.

Q23. May plans use projected (rolled forward) census data for calculating benefit liabilities?

A23. Yes. Benefit liabilities are calculated as of the last day of the plan year ending within the information year, using the PBGC's termination assumptions in effect on that date. Thus, for calendaryear plans, benefit liabilities would be calculated as of December 31, 1995. (The timing of the filing was designed so that most filers could calculate benefit liabilities at the same time and using the same census data used to determine pension obligations for financial statement purposes (as prescribed under SFAS 87)). The census data used to value benefit liabilities may be based on a rollforward of data (consistent with projections used for financial statement purposes) from any date within the plan year (including the first day) to the last day of the plan year (or, in certain circumstances, to the first day of the next plan year). Adjustments may need to be made to reflect the occurrence of significant events.

Q24. May the actuary use sampling techniques to determine a plan's population?

A24. Yes. For calculating unfunded vested benefits or benefit liabilities, the actuary may determine the plan's population on the basis of either an actual census or a representative sample of the plan's population. The actuary shall determine, in accordance with generally accepted actuarial principles, what data to collect and what sampling techniques to use.

Q25. May a plan take into account changes in plan provisions that will become effective after the last day of the plan year but before the last day of the information year?

A25. No. Both unfunded vested benefits and benefit liabilities should reflect only those plan provisions in effect on the last day of the plan year. For example, for a calendaryear plan, benefit increases negotiated in 1995 but effective in 1996 or later are not taken into account. Similarly, an amendment to decrease or eliminate a benefit not protected by Code Section 411(d)(6) should be recognized only if it is effective by the end of the 1995 plan year.

IV. Benefit Liabilities

Q26. How should a plan value its benefit liabilities?

A26. Benefit liabilities are determined using the PBGC's termination assumptions, as if the plan had terminated at the end of the plan year. A plan is required to value each participant's entire benefit, not merely vested accrued benefits, in the manner set forth in the PBGC's valuation regulations (29 CFR Part 2619).

Q27. What expected retirement age should be used to value each participant's benefit?

A27. If the benefit has not commenced and no election of the starting date has been made on or before the valuation date, the starting date will be the expected retirement age (XRA) determined under Sections 2619.61 through 2619.65 of the PBGC regulations. The plan must value a benefit for every plan participant, including nonvested participants. In calculating the XRA for each participant, the participant's benefit payable at normal retirement age should be used to determine whether the participant is in the low, medium, or high retirement rate category. The plan administrator should use the participant's full accrued benefit rather than the participant's guaranteed benefit for this purpose.

Q28. When are assets valued for purposes of reporting the fair market value of assets under section 4010?

A28. The fair market value of assets is determined on the last day of the plan year ending within the filer's information year, without regard to any contributions received by the plan after the end of the plan year. This should be the same value used for financial statement purposes.

V. Financial Information

Q29. Are filers required to prepare audited financial statements?

A29. No. There is no requirement to prepare either audited or unaudited financial statements. However, if either audited or unaudited financial statements are prepared they must be submitted.

Q30. If audited financial statements are not available by the due date, may unaudited statements be filed?

A30. Yes. However, if unaudited financial statements are submitted, audited financial statements must be filed within 15 days after they are prepared. (Filers that routinely prepare audited financial statements later than 105 days after their fiscal year end may apply for an exemption that permits a later due date.)

Q31. If neither audited nor unaudited financial statements are available by the due date, may copies of federal tax returns be filed?

A31. Yes. However, if copies of federal tax returns are submitted, audited and/or unaudited financial statements must be filed within 15 days after they are prepared.

VI. Funding Waivers

Q32. Is the $1 million funding waiver reporting threshold applied on an aggregate controlled-group basis?

A32. No. The $1 million reporting threshold for funding waivers applies separately to each plan. If a plan has more than one funding waiver with outstanding balances, the amounts of the waivers, when granted, are aggregated.

Q33. If a plan was granted a funding waiver in excess of $1 million but the outstanding balance of the waiver was less than $1 million at the end of the plan year, must the controlled group report under Section 4010?

A33. Yes. An unamortized minimum funding waiver is considered outstanding unless the plan meets the three-part test relating to offsetting credit balances described in 29 CFR 2628.4(c). If the remaining balance of a funding waiver is de minimis and the controlled group is not otherwise required to report under Section 4010, the filer may file a written request for a waiver with the PBGC at least 15 days before the applicable due date.

Q34. If outstanding funding waivers of less than $1 million were granted to two separate plans but the plans subsequently merged, must the merged plan report if the waivers when granted totalled more than $1 million?

A34. Yes.

VII. Extensions

Q35. What if the actuarial information is not available by the filing due date?

A35. Two types of actuarial information are required: (1) the values of each plan's assets and benefit liabilities, which must be filed by the due date, and (2) actuarial information related to the actuarial valuation report prepared for minimum funding purposes, which has an automatic extension to the extent not available by the due date. For the information eligible for the automatic extension, the filer should state in its initial filing what information is unavailable. The filer must submit the unavailable information by the alternative due date (15 days after the deadline, including extensions, for filing the plan's Form 5500 for the plan year ending within the filer's information year).

VIII. Miscellaneous

Q36. Can filers rely on a Section 4010 filing to comply with the reportable events requirements in ERISA Section 4043?

A36. No, filers may not substitute a Section 4010 annual information filing for a reportable event filing. A plan administrator or contributing sponsor filing a reportable event notice under Section 4043 is permitted, in lieu of submitting any required information to the PBGC, to refer to information previously submitted as part of a Section 4010 filing.

Q37. Will there be any coordination between the new reporting requirements and the PBGC's Top 50 list?

A37. The information submitted under the new reporting requirements is confidential. The PBGC will not use the information for non-confidential purposes (such as the Top 50 list) without the filer's consent.