The American Academy of Actuaries has provided suggestions to the ERISA Advisory Council of the Employee Benefits Security Administration on improvements it feels would be beneficial to the Annual Funding Notice for Defined Benefit Plans (AFN).
The notices are sent each year to defined benefit plan participants, any representative unions and to the Pension Benefit Guaranty Corporation -- that last one either upon the PBGC’s request or if the plan is poorly funded.
The notices are intended to provide those interested parties with information on how well the plan is funded, as well as the value of the plan's assets and liabilities and how those assets are invested.
They also tell participants how much the Pension Benefit Guaranty Corporation (PBGC) can legally pay them should the pension plan end.
In a comment letter, the Academy’s pension committee made three suggestions: narrowing the focus of the notices, encouraging helpful narrative and providing generic information on the Internet.
The letter doesn’t pull punches about why existing notices need improving, saying, “the AFN as it stands is an example of a good idea gone wrong. The AFN should provide plan participants with useful, comprehensible information regarding the security of their pension benefits. The regulations even go so far as to forbid adding additional information designed to obscure the intended message. But the AFN overwhelms participants with a flood of numbers that they will have neither the context nor technical expertise to interpret—leading to the very confusion the regulations specifically seek to prevent.”
Pointing out that the statutory requirements are lengthy and extensive, the letter suggests restricting the AFN to focus on a single liability measure so that it’s more comprehensible to those without the expertise to take in all the details included in existing notices.
While plan sponsors are allowed to provide additional information that is “necessary or helpful,” the comments acknowledge that the Department of Labor has “actively discouraged” some types of information that participants might find useful, leading to sponsors being reluctant to “deviate from the model” even when doing so might be helpful.
Giving sponsors more flexibility and encouraging them to use it, the comment letter says, could make the AFN more helpful to recipients.
Last but not least, putting generic information on the Internet rather than in the AFN could compensate for the additional length that the first two recommended changes might result in.
Those without Internet access could be advised that such information can also be requested from the plan administrator.