Disclosure to Participants

SUMMARY: The Pension Benefit Guaranty Corporation is proposing

regulations to implement a new notice requirement under section 4011 of

the Employee Retirement Income Security Act of 1974. Section 4011

requires plan administrators of certain underfunded plans to provide

notice to plan participants and beneficiaries of the plan's funding

status and the limits on the PBGC's guarantee.

DATES: Comments must be received on or before April 27, 1995.

ADDRESSES: Comments may be mailed to the Office of the General Counsel,

Pension Benefit Guaranty Corporation, 1200 K Street, NW., Washington,

DC 20005-4026, or delivered to Suite 340 at the above address. Comments

will be available for public inspection at the PBGC's Communications

and Public Affairs Department, Suite 240.

FOR FURTHER INFORMATION CONTACT: Harold J. Ashner, Assistant General

Counsel, or Catherine B. Klion, Attorney, Office of the General

Counsel, PBGC, 1200 K Street, NW., Washington, DC 20005-4026, 202-326-

4024 (202-326-4179 for TTY and TDD).

SUPPLEMENTARY INFORMATION: On December 8, 1994, section 775 of the

Retirement Protection Act of 1994 (subtitle F of title VII of the

Uruguay Round Agreements Act, Pub. L. No. 103-465, 108 Stat. 4809

(1994)) added section 4011 to ERISA. Under section 4011, a plan subject

to the variable rate premium under section 4006(a)(3)(E) must provide a

notice (the ``Participant Notice'') unless the plan meets one of the

exemptions discussed below.

DRC Exception Test

A plan does not have to provide the Participant Notice for a plan

year if it meets the DRC Exception Test in Sec. 2627.3(b) for that plan

year or the prior plan year. In general, a plan passes that test if it

is exempt from making a deficit reduction contribution (``DRC'') by

reason of section 302(d)(9) of ERISA.

Prior Plan Year Option

The Participant Notice for a plan year must be provided during that

plan year. Because in many cases the DRC is not available until after

the end of the plan year, Sec. 2627.3(a) provides that the plan

administrator may determine whether a Participant Notice is required

for a plan year by applying the DRC Exception Test to that plan year or

the prior plan year.

1994 Plan Year

A plan administrator may test whether a Participant Notice is

required for the 1995 plan year by applying the DRC Exception Test to

the 1994 plan year. Because the exemption from the DRC under section

302(d)(9) applies only to post-1994 plan years, Sec. 2627.3(b)(2)

includes a rule for determining whether a plan meets the DRC Exception

Test for the 1994 plan year: the plan must satisfy any requirement in

section 302(d)(9)(D)(i) for any two of the plan years beginning in

1992, 1993, and 1994.

Special Relief Rules for Small Plans

1995 Exemption

A plan that is exempt from the DRC for either the 1994 or 1995 plan

year because it is a ``small plan'' under section 302(d)(6)(A) (100 or

fewer participants) does not have to give the Participant Notice for

the 1995 plan year (Sec. 2627.5(a)).

Small Plan DRC Exception Test

For a post-1995 plan year, a plan is not exempt from the

Participant Notice requirement solely because it is a small plan. Like

all plans, a small plan is exempt for a post-1995 plan year if it meets

the DRC Exception Test for that plan year or the prior plan year.

Because small plans do not ordinarily perform the calculations

necessary to determine whether they are exempt from the DRC

requirement, the proposed regulation provides several optional

simplified rules that small plans may use in applying the DRC Exception

Test.

First, Sec. 2627.5(b)(1) provides that for purposes of applying the

DRC Exception Test, a small plan may determine its funded current

liability percentage (under section 302(d)(9)(C)) by using the

beginning-of-plan-year market value of assets and the beginning-of-

plan-year current liability for total benefits that it reports on

Schedule B to Form 5500 (e.g., on the 1994 form, line 6c and column (3)

of line 6d(iv)).

Second, Sec. 2627.5(b)(2) includes a special rule for determining

whether a small plan satisfies the requirements of section

302(d)(9)(D)(i) for a pre-1995 plan year. (This rule only affects

Participant Notices for 1996, 1997, and 1998 plan years.) Under this

special rule, a small plan satisfies those requirements for a pre-1995

plan year if the ratio of the plan's assets (without subtracting any

credit balance under section 302(b)) to its current liability (using

the highest allowable interest rate under section 302(d)(7)(C)) for

that plan year was at least 90 percent.

Third, Sec. 2627.5(b)(3) provides a special rule that a small plan

may use to adjust its current liability to reflect the difference

between the top interest rate in the permissible interest rate corridor

for the plan year and the interest rate the plan used. A small plan

that chooses not to recalculate its current liability using the higher

interest rate may adjust its current liability by decreasing the

current liability by one percent for each tenth of a percentage point

by which the top interest rate in the permissible corridor exceeds the

interest rate the plan used.

For example, assume that a small plan's current liability as of

January 1, 1996, is $200,000, based on an interest rate of 7.43

percent. Assume further that the top rate in the corridor for the 1996

plan year is 8.17 percent. Because 8.17 exceeds 7.43 by 0.74, the

current liability could be reduced by 7.4 percent to $185,200 (92.6

percent of $200,000).

New Plans

Section 2627.4 exempts new and newly-covered plans from the

Participant Notice requirement for their first plan year of coverage by

the PBGC insurance system.

Mergers, Consolidations, and Spinoffs

The PBGC invites comments on how to address DRC testing and other

related issues where a plan has been involved in a merger,

consolidation, or spinoff since the prior plan year.

Persons Entitled to Receive Notice

Section 2627.6 requires that the Participant Notice be issued to

participants, beneficiaries, alternate payees, and any employee

organization that represents participants for purposes of collective

bargaining. Plan administrators may select, as the date for determining

who is entitled to receive the Participant Notice for a plan year, any

date between the last day of the prior plan year and the day on which

the Participant Notice is due. A plan administrator may select the same

or a different date for each plan year, as long as a change in dates

between plan years does not exclude a substantial number of

participants and beneficiaries.

Time Limit for Issuing Notice

Under Sec. 2627.7, the plan administrator must provide the

[[Page 16027]] Participant Notice for a plan year no later than two

months after the deadline, including extensions, for filing the annual

report (Form 5500 series) for the prior plan year (see 29 CFR

2520.104a-5(a)(2)). This is also the time limit for furnishing the

summary annual report for the prior plan year (see 29 CFR 2520.104b-

10(c)). Section 2627.7 allows the PBGC to extend the time limit for

issuing the Participant Notice when the President of the United States

declares that a major disaster exists.

Manner of Issuing Notice

Section 2627.8 requires plan administrators to issue the

Participant Notice in a manner reasonably calculated to ensure actual

receipt. Methods acceptable for furnishing the summary annual report

are acceptable; plan administrators may not merely post the Participant

Notice at worksite locations.

The plan administrator may issue the Participant Notice for a plan

year together with another document, such as the summary annual report

for the prior plan year, so long as the Participant Notice is in a

separate document.

Content of Notice

Section 2627.9 requires that the Participant Notice include (1)

certain identifying information, (2) information on the plan's funding

status (the ``Notice Funding Percentage,'' a statement that the funding

level may be substantially lower if the plan terminates, identification

of any plan years during the five immediately preceding plan years for

which the IRS granted a minimum funding waiver, and identification of

any plan years for which the plan has not received the minimum

contribution required under section 302 of ERISA), and (3) information

on the PBGC's guarantee (the nature of the guarantee, a summary of the

types of benefits that are not guaranteed, and the limitations on the

guarantee, e.g., the maximum benefit guaranteed). Participants must be

informed that they can obtain additional information on the guarantee

by requesting a PBGC booklet from Box YGP, Pueblo, Colorado 81009, and

advised of the current price of the booklet. (The booklet will be

available for $1.25 beginning January 1, 1996. The PBGC anticipates

that it will provide information on any future price increases.)

Notice Funding Percentage

The Notice Funding Percentage is the plan's ``funded current

liability percentage,'' as that term is defined in section 302(d)(9)(C)

of ERISA (i.e., assets are not reduced by any credit balance and the

highest allowable interest rate is used). This is the same percentage

that is used to determine whether the Participant Notice is required.

The Participant Notice may include the Notice Funding Percentage for

either the plan year for which the Participant Notice is issued or for

the prior plan year. A small plan may determine its funded current

liability percentage for a plan year using the simplified rules in the

Small Plan DRC Exception Test.

A plan's funded current liability percentage will not necessarily

reflect the plan's funding level if the plan were to terminate.

Different actuarial assumptions are used to calculate current liability

and termination liability. In addition, the PBGC's experience is that a

plan's funding level often drops just prior to termination. In the

interest of consistency and administrative simplicity, the PBGC

proposes to base the Notice Funding Percentage on the plan's funded

current liability percentage.

Model Notice

The Appendix includes a Model Participant Notice as an example of a

Participant Notice that meets the requirements of the proposed rule.

Foreign Language Requirements

As in the case of the summary annual report (29 CFR 2520.104b-

10(e)), when specified numbers or percentages of participants are

literate only in the same non-English language, the plan administrator

is required to provide them with a Participant Notice that prominently

displays a legend, in their common foreign language, offering them

assistance in that language.

Relationship to 70 Percent Disclosure Requirement

The plan administrator of a plan that is less than 70 percent

funded must disclose the plan's funding percentage in the annual report

and the summary annual report (sections 103(d)(11) and 104(b)(3) of

ERISA). The Department of Labor has advised the PBGC that if a plan

administrator provides the Participant Notice under section 4011, the

Department of Labor will treat the plan administrator as having

complied with the requirement to disclose the plan's funding percentage

(for the prior plan year) in the summary annual report. (The plan

administrator still will be required to disclose the plan's funding

percentage in the annual report.)

Penalties for Non-Compliance

Failure to issue a Participant Notice in accordance with the

requirements of this part would constitute a violation of title IV of

ERISA. The PBGC may remedy violations of notification requirements by

assessing a penalty under section 4071. Section 4071 authorizes the

agency to assess a penalty, payable to the PBGC, against a plan

administrator who fails, within the specified time limit, to provide

any Participant Notice, or who omits material information from a

Participant Notice. (The penalty may not exceed $1,000 for each day for

which the failure continues.)

If a plan administrator issues a Participant Notice for the 1995

plan year that meets the requirements of this proposed rule, the PBGC

will not assess section 4071 penalties based on a failure to comply

with any different requirements of a final rule implementing section

4011.

Effective Date

The Participant Notice requirement applies for plan years beginning

on or after January 1, 1995.

E.O. 12866 and the Regulatory Flexibility Act

The PBGC has determined that this action is not a ``significant

regulatory action'' under the criteria set forth in Executive Order

12866. The provisions in this proposed rule will implement policy

decisions made by Congress in imposing a participant notice

requirement. They reflect the PBGC's interpretation of the statutory

standards and prescribe the time, form, and manner of issuance of the

required notice.

Under section 605(b) of the Regulatory Flexibility Act, the PBGC

certifies that, if adopted, this proposed rule will not have a

significant economic impact on a substantial number of small entities.

Accordingly, as provided in section 605 of the Regulatory Flexibility

Act (5 U.S.C. 601, et seq.), sections 603 and 604 do not apply.

Small plans are exempt from the Participant Notice requirement for

the 1995 plan year. For subsequent plan years, neither the cost of

determining whether a plan is subject to the Participant Notice

requirement nor the cost of preparing and issuing the Participant

Notice is expected to be significant for a substantial number of small

entities. The proposed regulation contains special rules designed to

simplify the Participant Notice requirement for small plans.

[[Page 16028]]

List of Subjects--29 CFR Part 2627

Employee benefit plans, Pension insurance, Pensions.

For the reasons set forth above, the PBGC proposes to amend

subchapter C, chapter XXVI of 29 CFR by adding a new part 2627 to read

as follows:

PART 2627--DISCLOSURE TO PARTICIPANTS

Sec.

2627.1 Purpose and scope.

2627.2 Definitions.

2627.3 Notice requirement.

2627.4 Exemption for new and newly-covered plans.

2627.5 Small plan rules.

2627.6 Persons entitled to notice.

2627.7 Time of notice.

2627.8 Manner of issuance of notice.

2627.9 Form of notice.

Appendix to part 2627

Authority: 29 U.S.C. 1302(b)(3), 1311.

Sec. 2627.1 Purpose and scope.

(a) Purpose. This part prescribes rules and procedures for

complying with the requirements of section 4011 of the Act.

(b) Scope. This part applies for any plan year beginning on or

after January 1, 1995, with respect to any single-employer plan that is

covered by section 4021 of the Act.

Sec. 2627.2 Definitions.

For purposes of this part:

Act means the Employee Retirement Income Security Act of 1974, as

amended.

Participant has the meaning in Sec. 2617.2 of this chapter.

Participant Notice means the notice required pursuant to section

4011 of the Act and this part.

Plan administrator means the administrator, as defined in section

4001(a)(1) of the Act.

Sec. 2627.3 Notice requirement.

(a) General. Except as provided in Secs. 2627.4 and 2627.5(a), a

plan is subject to the Participant Notice requirement for a plan year

if--

(1) A variable rate premium is payable for the plan under section

4006(a)(3)(E) of the Act and part 2610 of this chapter for that plan

year; and

(2) The plan does not meet the Deficit Reduction Contribution

(``DRC'') Exception Test in paragraph (b) of this section (which may be

applied using the Small Plan DRC Exception Test rules in

Sec. 2627.5(b), where applicable) for that plan year or for the prior

plan year.

(b) DRC Exception Test. (1) Basic rule. A plan meets the DRC

Exception Test for a plan year if it is exempt from the requirements of

section 302(d) of the Act for that plan year by reason of section

302(d)(9), without regard to the small plan exemption in section

302(d)(6)(A).

(2) 1994 plan year. A plan satisfies the DRC Exception Test for the

1994 plan year if, for any two of the plan years beginning in 1992,

1993, and 1994 (whether or not consecutive), the plan satisfies any

requirement of section 302(d)(9)(D)(i) of the Act.

(c) Penalties for non-compliance. If a plan administrator fails to

provide a Participant Notice within the specified time limit or omits

material information from a Participant Notice, the PBGC may assess a

penalty under section 4071 of the Act of up to $1,000 a day for each

day that the failure continues.

Sec. 2627.4 Exemption for new and newly-covered plans.

A plan (other than a plan resulting from a consolidation or

spinoff) is exempt from the requirement to provide a Participant Notice

for the first plan year for which the plan must pay premiums under part

2610 of this chapter.

Sec. 2627.5 Small plan rules.

(a) 1995 plan year exemption. A plan that is exempt from the

requirements of section 302(d) of the Act for the 1994 or 1995 plan

year by reason of section 302(d)(6)(A) is exempt from the Participant

Notice requirement for the 1995 plan year.

(b) Small Plan DRC Exception Test. In determining whether the

Participant Notice requirement applies for a plan year beginning after

1995, the plan administrator of a plan that is exempt from the

requirements of section 302(d) of the Act by reason of section

302(d)(6)(A) for the plan year being tested may use any one or more of

the following rules in determining whether the plan meets the DRC

Exception Test for that plan year:

(1) Use of Schedule B data. For any plan year for which the plan is

exempt from the requirements of section 302(d) of the Act by reason of

section 302(d)(6)(A), provided both of the following adjustments are

made--

(i) The market value of the plan's assets as of the beginning of

the plan year (as required to be reported on Form 5500, Schedule B) may

be substituted for the actuarial value of the plan's assets as of the

valuation date; and

(ii) The plan's current liability for all participants' total

benefits as of the beginning of the plan year (as required to be

reported on Form 5500, Schedule B) may be substituted for the plan's

current liability as of the valuation date.

(2) Pre-1995 plan year 90 percent test. A plan that is exempt from

the requirements of section 302(d) of the Act for a pre-1995 plan year

by reason of section 302(d)(6)(A) satisfies the requirements of section

302(d)(9)(D)(i) for that pre-1995 plan year if the ratio of its assets

to its current liability for that plan year is at least 90 percent. For

this purpose, the plan's assets are valued without subtracting any

credit balance under section 302(b) of the Act, and its current

liability is determined using the highest interest rate allowable for

the plan year under section 302(d)(7)(C).

(3) Interest rate adjustment. If the interest rate used to

calculate current liability for a plan year is less than the highest

rate allowable for the plan year under section 302(d)(7)(C) of the Act,

the current liability may be reduced by one percent for each tenth of a

percentage point by which the highest rate exceeds the rate so used.

Sec. 2627.6 Persons entitled to receive notice.

The plan administrator must provide the Participant Notice to each

person who is a participant, a beneficiary of a deceased participant,

an alternate payee (as defined in section 206(d)(3)(K) of the Act), or

an employee organization that represents any group of participants for

purposes of collective bargaining. To determine who is a person that

must receive the Participant Notice, the plan administrator may select

any date during the period beginning with the last day of the previous

plan year and ending with the day on which the Participant Notice for

the plan year is due, provided that a change in the date from one plan

year to the next does not exclude a substantial number of participants

and beneficiaries.

Sec. 2627.7 Time of notice.

The Participant Notice for a plan year must be issued no later than

two months after the deadline for filing the annual report for the

previous plan year (see Sec. 2520.104a-5(a)(2) of this title). When the

President of the United States declares that, under the Disaster Relief

Act of 1974, as amended (42 U.S.C. 5121, 5122(2), 5141(b)), a major

disaster exists, the PBGC may extend the due date for providing the

Participant Notice by up to 180 days.

Sec. 2627.8 Manner of issuance of notice.

The Participant Notice shall be issued by using measures reasonably

calculated to ensure actual receipt by the persons entitled to receive

it. It may be issued together with another dcoument, such as the

summary annual report required under section 104(b)(3) of the Act for

the prior plan year, but must be in a separate document.

[[Page 16029]]

Sec. 2627.9 Form of notice.

(a) General. The Participant Notice shall be written in a manner

calculated to be understood by the average plan participant and not to

mislead recipients. The Model Participant Notice in the Appendix of

this part (when properly completed) is an example of a Participant

Notice meeting the requirements of this section.

(b) Content. The Participant Notice shall include--

(1) Identifying information (the name of the plan and the

contributing sponsor, the employer identification number of the

contributing sponsor, the plan number, the plan year for which the

notice is given, and the name, address, and telephone number of the

plan administrator and of the individual(s) who can answer questions

about the plan's funding);

(2) The Notice Funding Percentage for the plan year, determined in

accordance with paragraph (c) of this section;

(3) A statement that the funding level of the plan may be

substantially lower if the plan terminates;

(4) If the plan has been granted a minimum funding waiver under

section 303 of the Act for any of the five plan years immediately

preceding the plan year and the amortization base established as a

result thereof has not (as of the end of the prior plan year) been

reduced to zero, a statement identifying each such plan year and an

explanation of a minimum funding waiver;

(5) If the plan has not received the minimum contribution required

under section 302 of the Act for any prior plan year, a statement

identifying each such plan year;

(6) A summary of plan benefits guaranteed by the PBGC, with an

explanation of the limitations on such guarantee; and

(7) A statement that further information about the PBGC's guarantee

may be obtained by requesting the booklet ``Your Guaranteed Pension''

from Box YGP, Pueblo, Colorado 81009, along with the current price of

the booklet.

(c) Notice Funding Percentage.

(1) General Rule. The Notice Funding Percentage that must be

included in the Participant Notice for a plan year is the ``funded

current liability percentage'' (as that term is defined in section

302(d)(9)(C) of the Act) for that plan year or the prior plan year.

(2) Small plans. A plan that is exempt from the requirements of

section 302(d) of the Act for a plan year by reason of section

302(d)(6)(A) may determine its funded current liability percentage for

that plan year using the Small Plan DRC Exception Test rules in

Sec. 2627.5(b).

(d) Additional information. The plan administrator may include in

the Participant Notice a statement that a plan's underfunding will not

necessarily lead to its termination and that the risk of benefit loss

in the event of its termination depends on its funding level and the

financial condition of the companies responsible for its funding. The

plan administrator may include in the Participant Notice any other

information not required by paragraph (b) of this section only if it is

in a separate document.

(e) Foreign languages. In the case of a plan that (as of the date

selected under Sec. 2627.6) covers the numbers or percentages specified

in Sec. 2520.104b-10(e) of this title of participants literate only in

the same non-English language, the plan administrator shall provide

those participants an English-language Participant Notice that

prominently displays a legend, in their common non-English language,

offering them assistance in that language, and clearly setting forth

any procedures participants must follow to obtain such assistance.

Appendix to Part 2627

Paragraph A is an example of a Participant Notice that satisfies

the requirements of Sec. 2627.9 when the required information is filled

in (subject to Secs. 2627.9(d)-(e), where applicable). Paragraph B is a

table of maximum guaranteed benefits (which the PBGC will update

yearly).

A. Model Participant Notice

Notice to Participants of [Plan Name, EIN, PN] Sponsored by

[Contributing Sponsors] [Plan Year 19XX]

We are required by law to provide you with information on the

funding level of your defined benefit pension plan and the benefits

guaranteed by the Pension Benefit Guaranty Corporation (PBGC), a U.S.

government agency.

Your Plan's Funding

Your plan has [INSERT NOTICE FUNDING PERCENTAGE] percent of the

funds needed for benefits promised to employees and retirees.

Experience has shown that the funding level may be substantially

lower if the plan terminates.

A plan's funding and the financial condition of a company must

be considered when determining the potential risk of benefit loss.

(Include the following paragraph only if the plan has been granted a

funding waiver in any of the previous five plan years.)

Your plan received a funding waiver for [List any of the five

previous plan years for which a funding waiver was granted]. 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 sentence only if the plan has not received a

minimum contribution required from the employer.)

Your plan has not received the minimum contribution required

from the employer for [LIST APPLICABLE PLAN YEARS].

PBGC Guarantees

The fact that a plan is underfunded does not mean that it will

terminate. If this does occur, the PBGC guarantees all pension

benefits for most people. However, some people may lose some

benefits.

The PBGC pays pension benefits, up to certain maximum limits.

The maximum guaranteed benefit is [INSERT FROM TABLE]

per month or [INSERT FROM TABLE] per year for a 65-year-old person

in a plan that terminates in [INSERT APPLICABLE YEAR].

The maximum benefit may be reduced for an individual

who is younger than age 65. For example, it is [INSERT FROM TABLE]

per month or [INSERT FROM TABLE] per year for an individual who

starts receiving benefits at age 55.

The maximum benefit will also be reduced when a benefit

is provided for a survivor.

The PBGC does not guarantee certain types of benefits.

The PBGC does not guarantee benefits for which you do

not have a vested right when a plan terminates, usually because you

have not worked enough years for the company.

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 does not pay lump sums exceeding $3,500.

Where To Get More Information

Your plan administrator is [Name], [Title], at [Business Address

and Phone Number]. If you would like more information about the

funding of your plan, contact [Name], [Title], at [Business Address

and Phone Number].

For more information about PBGC and the benefits it guarantees,

you may request a copy of ``Your Guaranteed Pension'' for $1.25 by

writing to Box YGP, Pueblo, Colorado 81009. [``Your Guaranteed

Pension'' will not be available until January 1, 1996.]

B. Table of Maximum Guaranteed Benefits

[[Page 16030]]

------------------------------------------------------------------------

The maximum guaranteed benefit for an individual

starting to receive benefits at the age listed

below is the amount (monthly or annual) listed

If a plan terminates below:

in-- ---------------------------------------------------

Age 65 Age 55

---------------------------------------------------

Monthly Annual Monthly Annual

------------------------------------------------------------------------

1995................ $2,573.86 $30,886.32 $1,158.24 $13,898.88

------------------------------------------------------------------------

Issued in Washington, DC, this 20th day of March 1995.

Martin Slate,

Executive Director, Pension Benefit Guaranty Corporation.

[FR Doc. 95-7548 Filed 3-27-95; 8:45 am]

BILLING CODE 7708-01-P