On April 3, 2025, the Department of Labor (DOL) issued Field Assistance Bulletin No. 2025-02 to assist defined benefit pension plan administrators with deciphering the requirements of the SECURE 2.0 Act of 2022 as to annual funding notice (AFN) requirements under Employee Retirement Income Security Act of 1974, as amended (ERISA).
An AFN is a legally required disclosure that defined benefit pension plans must provide to plan participants, beneficiaries, the Pension Benefit Guaranty Corporation (PBGC) and other stakeholders. The AFN requirement aims to improve transparency regarding plan funding and ensure that employees understand the financial health of their pension plans.
Content and disclosure requirements for AFNs have existed for years under ERISA, including a model notice widely used by pension plan sponsors. Recently, Congress revised the statutory framework for AFNs through SECURE 2.0, prompting new compliance challenges for plan sponsors. The bulletin is intended to clarify the act’s compliance expectations for AFNs beginning this year.
SECURE 2.0
SECURE 2.0 modified AFN requirements under ERISA effective for plan years beginning after Dec. 31, 2023, including:
- A shift from disclosing a single-employer plan’s funding level in terms of its funding target attainment percentage (FTAP) to its “percentage of plan liabilities funded”
- A change to the requirement to disclose the number of plan participants (previously determined as of the first day of a plan year, now determined as of the last day of each of the three prior plan years)
- A new requirement to disclose the “average return on assets” for the plan year for which the notice is issued
Highlights from the Bulletin
The bulletin takes the form of 12 Q&As and provides updated model notices for single and multiemployer pension plans. Following are key highlights.
New Model Notices
The existing model AFNs may no longer be relied upon to satisfy applicable requirements. Instead, plan administrators are encouraged to use the updated models, which are optional, provided in the bulletin.
New Methodology for Disclosing Funding Levels
Under SECURE 2.0, an AFN must now report the plan’s “percentage of plan liabilities funded,” which represents the ratio of the plan’s fair market value of assets as compared to its year-end liabilities. This new metric replaces the previous use of FTAPs and actuarial valuations that are tied to the beginning of the plan year. Plan administrators may use reasonable estimates for year-end liabilities based on standard actuarial techniques for the notice year and must disclose that such figures are estimates; however, actual funded percentages must be used for the two preceding plan years.
Elimination of “At-Risk” Liability Disclosures
Previously, “at-risk” single-employer plans were required to disclose liabilities calculated based on “at-risk” assumptions (i.e., plans that are not satisfying certain minimum funding requirements). SECURE 2.0 eliminated this requirement. As of the publication of the 2024 plan year AFNs, plans are no longer required to account for or separately disclose at-risk liabilities in their funding calculations.
New Demographic Reporting Requirements
AFNs now must include a table with participant counts outlined in three categories: (i) retired or separated and receiving benefits, (ii) retired or separated and entitled to future benefits and (iii) active participants. These figures must be reported for the current notice year and the two preceding plan years. Only large plans may use a reasonable, good faith estimate of the number of participants and beneficiaries for the current year, and they must disclose that such figures are estimates. Small plans, which have extended deadlines, must provide actual year-end data.
New Investment Return Disclosures
Plans now are required to report the “average return on assets” for the notice year. The DOL provides two acceptable methods of calculation for these purposes.
New PBGC Guarantee Explanation
The PBGC insures pension plans up to specified limits when a plan sponsor fails to adequately fund promised retirement benefits. The AFN content requirements, as revised by SECURE 2.0, require an explanation that the PBGC may pay vested benefits greater than the guaranteed level of benefits if the applicable terminating single-employer plan has sufficient assets on a termination basis. The bulletin provides model language to satisfy this requirement.
Take-Away for Plan Sponsors
The bulletin states that the DOL recognizes that some plans may have already prepared and distributed their 2024 AFNs. For these plans, the DOL expects the plan administrator to consider the guidance provided in the bulletin in evaluating whether the disclosures were consistent with a reasonable, good faith interpretation of the new requirements, and to take appropriate corrective action if it concludes that the disclosures did not meet the new standards.
As the 2024 AFN deadline for many calendar-year plans approaches, plan sponsors should quickly review their disclosures with their advisers and consider what, if any, additional steps should be taken.