Important Updates on Annual Funding Notice Requirements: Insights from EBSA's Recent Guidance

Takeaways

• The EBSA issued the notice following amendments from the SECURE 2.0 Act that take effect for plan years starting after December 31, 2023.
• Single-employer plans must now report the “percentage of plan liabilities funded” rather than the funding threshold and actuarial values, while also eliminating the “at-risk” disclosure requirements.
• Large plan administrators may use reasonable estimates for participant counts in the current year but must provide actual numbers for the two preceding years, whereas small plans cannot use estimates at all.
  

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On April 3, 2025, the Employee Benefits Security Administration (EBSA) of the U.S. Department of Labor released Field Assistance Bulleting No. 2025-02 regarding recent changes to the Annual Funding Notice (AFN) requirements, including model notices.

ERISA Section 101(f) requires administrators of defined benefit plans (both single-employer and multiemployer) to furnish an AFN to participants, beneficiaries, the Pension Benefit Guaranty Corporation, and certain other persons.

In 2022, section 343 of the SECURE 2.0 Act of 2022 (SECURE 2.0) amended section 101(f) of ERISA, modifying the AFN requirements effective for plan years beginning after December 31, 2023. FAB 2025-02 contains model AFNs that plan administrators may use to facilitate legal compliance. When plan administrators use the models and adhere to the principles in the FAB, administrators will be treated as complying with the matters addressed in the FAB, provided that the information inputted into the model AFNs is accurate and timely furnished.

Highlights from FAB 2025-02 are:

• SECURE compliant AFN must be furnished for large plans no later than 120 days after the close of the 2024 plan year (e.g., by April 30, 2025, for calendar plan years) or for small plans by (i) the date the plan administrator files its 2024 annual report (Form 5500); or (ii) the latest date by which the 2024 annual report (Form 5500) must be filed (with extensions), whichever is earlier.
• Plan Administrators may no longer rely on the prior model AFNs but can rely on the model AFNs issued in FAB 2025-2.
• Multiemployer pension plans may continue to rely on guidance in FAB 2023-01 regarding special financial assistance.
• The 2024 AFN of a single-employer plan will no longer describe the plan’s funding level in terms of the FTAP and actuarial value of plan assets and liabilities on the valuation date used to determine minimum funding. Instead, the AFN must reflect the “percentage of plan liabilities funded,” which is the ratio between the fair market value of the assets on the last day of the plan year and the value of the liabilities determined as of the last day of the plan year using a market-related interest assumption. Plan administrators may use reasonable estimates, based on standard actuarial techniques, to determine year-end plan liabilities for the notice year but not the two preceding years. The fair market value of plan assets on the last day of the two preceding plan years should be as reported on the Form 5500 Annual Report/Return of Employee Benefit Plan for the relevant year unless the plan administrator knows or has reason to know that the value of assets reported is not correct.
• Plans are not required to disclose the same exact information twice to meet the two different subparagraphs in ERISA, as modified by SECURE 2.0. Accurately disclosing the information once satisfies both subparagraphs.
• SECURE 2.0 eliminated the special at-risk disclosure requirements for the AFN. Accordingly, starting with the 2024 notice year, administrators of single-employer plans do not disclose “at-risk” liabilities or otherwise take the “at-risk” rule into account in determining the plan’s year-end liabilities and the percentage of liabilities funded.
• SECURE 2.0 requires disclosure of specified demographic information in the AFN as of the last day of the plan year and two preceding plan years. Generally, estimates of such disclosures are not permitted. However, a plan administrator of a large plan will not be considered in violation of the AFN disclosure requirements if it uses a reasonable, good faith estimate of the number of participants and beneficiaries for the counts for the notice year but must disclose in the AFN that the counts reflect estimates. With respect to the two preceding plan years, however, the plan administrator of a plan of any size must enter the actual number of participants and beneficiaries as of the last day of those plan years in the table. Administrators of small plans may not use estimates because they have more time (up to 9.5 months) following the end of the plan year to furnish the AFN.
• SECURE 2.0 does not define “average return on assets.” Pending further guidance, plan administrators of both single-employer and multiemployer-defined benefit plans may use one of two methods outlined in Q9 of the FAB to determine the “average return on assets.” Other methods besides these two may also fulfill these requirements.

If you have any questions about the information in this alert, please contact Amy Christen, Jillie Foerster, Tyler Hubert, or your Dykema relationship attorney.