Background

Most DB plans must provide participants and the government each year with an AFN by the end of the fourth month following the end of the plan year. For calendar-year plans (other than small plans), this is April 30. The DOL regulations include model AFNs that plans may use to satisfy the requirement.

SECURE 2.0 made legislative changes in the requirements that both multiemployer plans and single-employer plans must satisfy. These changes made the existing model AFNs outdated.

Although plans are not required to use the model AFNs, using them provides plans with assurance that their AFNs meet the statutory standards.

FAB 2025-02

The FAB 2025-02, in addition to providing new model AFNs, explains how plans could comply with the AFN requirement for the 2024 plan year (bold added for emphasis):

The Department acknowledges that this Bulletin does not address all SECURE 2.0-related issues that may arise with respect to annual funding notices. Plan administrators are required to make annual funding notice disclosures in accordance with section 101(f) [of ERISA], as amended by SECURE 2.0. Pending further guidance, the Department will treat compliance with the guidance in this Bulletin as a reasonable, good faith interpretation of the annual funding notice disclosure requirements of section 101(f) of ERISA with respect to the issues discussed in this Bulletin.

Some plans may have already prepared their 2024 annual funding notices, and some may have already begun to furnish them to plan participants. To the extent that a plan has already prepared or begun to prepare the annual funding notice for the 2024 notice year, the Department expects the plan administrator to consider the guidance in this Bulletin in evaluating whether the disclosures were consistent with a reasonable, good faith interpretation of section 101(f), as amended, and to take appropriate corrective action to the extent the plan administrator concludes that the disclosures did not meet that standard.

FAB 2025-02 clarifies that complying with the FAB guidance is considered a “reasonable, good faith interpretation” of the AFN requirement.

If the plan administrator concludes that prior action did not comply with this guidance, plans are to “take appropriate corrective action.”

The single-employer plan AFN

Most of the SECURE 2.0 changes in the AFN were for single-employer DB plans. The funding target attainment percentage (FTAP) has been replaced by a funded percentage as of the year end, which:

• Reflects the market value of assets rather than the actuarial value
• Determines liabilities using current market interest rates instead of an average of historical interest rates
• Disregards prefunding and carryover balances and at-risk liabilities

FAB 2025-02 contains further details on how this calculation is to be made.

SECURE 2.0 also required the reporting of three years of demographic information as of the last day of each plan year and added a disclosure of the average return on assets for the most recent plan year.

SECURE 2.0 did not eliminate the special supplement that addresses smoothed interest rates (over 25 years) and the impact of smoothed interest rates on employer contribution requirements.

The model AFN for single-employer plans is in an Appendix to the FAB.

The multiemployer plan AFN

Multiemployer plans also have to report three years of demographic information as of the last day of each plan year and the average return on assets for the most recent plan year. Additionally, the information provided under FAB 2023-01 for plans receiving Special Financial Assistance remains required. See Segal’s May 1, 2023 insight, which discussed those requirements.

The model AFN for multiemployer plans is in an Appendix to the FAB.

Next steps

Prior to the DOL’s late publication of updated model AFNs, many plans had already adopted new AFNs based on the statutory provisions. The FAB allows plans to continue to use a self-developed AFN if the AFN is a reasonable, good-faith interpretation of the existing law and the SECURE 2.0 changes. In determining whether an AFN is a reasonable, good-faith interpretation, a plan must consider the new guidance in addition to the SECURE 2.0 changes.

Plans that have already issued new AFNs, or are far along in their processing, should consult with their legal counsel as to whether their documents satisfy the reasonable, good-faith interpretation requirement.