The SECURE Act 2.0, enacted in December 2022, made several updates to what must be included in annual funding notices ("AFN") issued by defined benefit pension plans. For large plans (as defined below) with a plan year ending 12/31/24, AFNs must be furnished to participants by April 30, 2025.
As background, the SECURE Act 2.0 changes aim to enhance participant understanding and transparency of defined benefit plan financials. The key changes to AFNs introduced by the SECURE Act 2.0 include:
- Enhanced Clarity and Transparency - Each AFN must be written in a manner that can be understood by the average plan participant.
- Additional Required Disclosures -
Each AFN must contain clear statements about plan funding status,
including:
- whether the plan is fully funded or not;
- an explanation of what it means for a plan to be underfunded; and
- an explanation of the consequences of underfunding (e.g., impact on participants or plan stability).
- Statement on PBGC Guarantees - Each
AFN must include a statement about the guarantee provided by the
Pension Benefit Guaranty Corporation
("PBGC"), including:
- a general description of the PBGC guarantee; and
- a statement that benefits may be reduced in certain circumstances (e.g., plan termination with insufficient assets).
The DOL's Employee Benefits Security Administration has issued Field Assistance Bulletin 2025-02 ("FAB 2025-02") to provide additional guidance on how retirement plans may comply with the changes in rules applicable to AFNs. FAB 2025-02 provides interim guidance and solutions pending more formal regulatory being issued by the DOL. The key items addressed by FAB 2025-02 include:
- New Disclosure Requirements
- Percentage of plan liabilities funded. AFNs must disclose this new metric, replacing the "funding target attainment percentage." AFNs may use a reasonable estimate of the notice year-end plan liabilities (e.g., 2024 year-end liabilities for the 2024 AFN), but estimates are not allowed for prior years.
- Participant and beneficiary counts. AFNs must include counts as of the last day of the notice year and the 2 preceding years. Estimates are permitted for the notice year if disclosed as estimates, but estimates are not allowed for prior years.
- Average return on assets. AFNs must disclose the plan's average return on assets for the notice year. FAB 2025-02 provides methods for calculating this figure.
- Material events. AFNs must describe events that are expected to have a material effect on plan funding, such as plan amendments or scheduled benefit increases. The effect of the event must normally be projected to the end of the current year, but FAB 2025-02 makes clear that if the effect is already reflected in the notice year's year-end liabilities a projection is not necessary.
- AFN Distribution Date
- Large plans (i.e., plans with more than 100 participants on each day during the plan year preceding the notice year) must furnish AFNs within 120 days after the end of the plan year (e.g., by 4/30/2025 for plan year ending 12/31/2024).
- Small plans must furnish AFNs by the earlier of the date they file their Form 5500 or the deadline for filing the Form 5500 (as extended).
- Updated Model Notices
- The DOL has published updated model AFNs, which replace the previous models found. Copies of the model notice for single employer plans can be found here: https://www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/field-assistance-bulletins/2025-02-appendix-1.
- Compliance Standards
- While some plans may have already furnished 2024 AFNs to plan participants, the DOL expects plan administrators to consider its guidance and evaluating whether the AFN was consistent with FAB 2025-02. If not, the plan administrator is expected to take corrective action to revise and re-issue the AFN.
- Plan administrators acting in "reasonable, good faith" compliance with FAB 2025-02 will be treated by the DOL as meeting the AFN requirements.
Action Steps
Recommended action steps will depend upon your plan year and whether or not you have already issued the 2024 AFN for your defined benefit pension plan:
- If you have already issued your plan's 2024 AFN, consider the FAB 2025-02 guidance and make sure your AFN was consistent with FAB 2025-02. If not, revise and re-issue the AFN promptly.
- If you have not yet issued your plan's 2024 AFN, you should ensure that your 2024 AFN complies with FAB 2025-02 and is consistent with the new model notice.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
