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 2000 maximum guaranteed benefits.
Participant Notice Worksheet
This Technical Update also
includes a worksheet to help plan administrators determine whether they
must issue a Participant Notice. Generally, the requirement to issue a
Participant Notice applies to the plan administrator of any single-employer
plan that pays a variable rate premium for the 2000 plan year. However,
no notice is required if the plan meets certain funding requirements for
the 1999 or 2000 plan year, as explained in the worksheet.
Due Dates
The 2000 Participant Notice
is due two months after the due date (including extensions) for the 1999
Form 5500. The following table shows the common filing due dates for calendar
year plans:
Monday, July 31, 2000 |
Monday, October 2, 2000 |
Friday, September 15, 2000 |
Wednesday, November 15, 2000 |
Monday, October 16, 2000 |
Monday, December 18, 2000 |
(Due dates that fall on a weekend or Federal holiday are extended to
the next business day.)
Model Participant Notice
The following is an example of a 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 ends 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
$3,221.59 per month or $38,659.08 per year for a 65-year-old person in
a plan that terminates in 2000.
-
The maximum benefit may be reduced
for an individual who is younger than age 65. For example, it is $1,449.72
per month or $17,396.64 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 $2,545.06 PER MONTH OR $30,540.72 PER YEAR AT AGE 62; IT IS $2,094.03
PER MONTH OR $25,128.36 PER YEAR AT AGE 60. IF THE PLAN PROVIDES FOR NORMAL
RETIREMENT BEFORE AGE 65, YOU MUST INCLUDE THE NORMAL RETIREMENT AGE.]
- [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 ends, 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 ends.
-
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 from the PBGC Homepage on the World Wide Web
at http://www.pbgc.gov/ygp.htp.
Issued: [INSERT AT LEAST MONTH AND
YEAR]
d
Participant Notice Worksheet
Plan Year 2000
Definitions and Special Small Plan
Rules
I. Funded Current Liability Percentage
The percentage obtained by dividing:
a. The
actuarial value of the plan's assets (not reduced by any credit balance
in the funding standard account), determined as of the plan's valuation
date, by
b. The plan's current
liability (determined using the highest interest rate allowable for the
plan year), determined as of the plan's valuation date.
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:
a. The plan's Funded
Current Liability Percentage may be calculated by substituting for items
I.a. and I.b. above the following numbers that are required to be reported
on the Form 5500, Schedule B, for the plan year for which the percentage
is calculated. Under this special rule, the plan must substitute
both
of the following numbers: (1) the market value of the plan's assets as
of the beginning of the plan year (for I.a. above); and (2) the
plan's total current liability for all participants as of the beginning
of the plan year (for I.b. above).
b. When calculating
current liability under I.a. above (whether or not the plan uses the special
rule in II.a. above), if the plan's current liability is calculated and
reported on Schedule B using an interest rate lower than the highest allowable
interest rate, the current liability at the highest rate may be determined
by reducing the reported current liability by one percent for each tenth
of a percent by which the highest allowable interest rate exceeds the interest
rate used.
Example:
Assume that a small plan's current liability as of January 1, 2000, is
$250,000, based on an interest rate of 7%. Assume further that the highest
allowable interest rate for the 2000 plan year is 7.8%. Because the highest
allowable interest rate exceeds the interest rate used by eight-tenths
of a percent, current liability may be reduced by 8% to $230,000, as follows:
100% - 8(1%) = 92% x $250,000 = $230,000.
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).
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