November 21, 2019601 Pennsylvania Avenue, N.W.Suite 900, South BuildingWashington, D.C. 20004-2601Tel: 202-220-3172 Toll-Free: 1-866-360-7197Email: [email protected] Website: www.nrln.org Facebook:www.facebook.com/nrln1 Twitter: www.twitter.com/nrln3Board of DirectorsBill Kadereit, President / Janet Seefried, VP – Secretary /Treasurer / Ed Beltram, VP – Communications / Vern Larson, VP –Membership Development / Bob Martina, VP – GrassrootsNetwork / Dana Oliver, VP - Regulatory / Joe Sciulli, VP – SocialMedia / Judy Stenberg, VP – Legislative Affairs / Jane Banfield /Martha Deahl / Cynthia Hadsell /Jay Kuhnie / Bob TompkinsWashington StaffAlyson Parker, Executive DirectorMichael Calabrese, Legislative -------------The NRLN advocates the rights of more than 2 millionAmerican retirees from Aetna / Agere / Agilent / Albertson / American Airlines / AT&TAmeritech-SBC / AMF / American Mutual / Amica Mutual /Archdiocese of Boston / ARXE, Inc. / AT&T / Avaya / Avin Meritor /Avon / Ball Aerospace / Baltimore Public Schools / Bell Atlantic /Bell Helicopter / BellSouth / Bendix / BOC Group / Boeing /California State Employees / Caterpillar / C & P Telephone /CenturyLink / Chrysler / City of San Diego / College of NewRochelle / CO DOT / CO PERA / Commonwealth Edison /Commscope / Connectivity Solutions / Consolidated Edison /Continental Airlines / Continental General Tire / Cooper Tires/CORBE,Inc./ Cox Media / CSX Transportation / CWA / Datatronics /Del Monte / Delphi / Delta Air Lines / Dept. of Justice / DetroitEdison / Detroit Diesel / DHS-FEMA / Diamond State / DigitalEquipment / DTE Energy / DuPont / Eastman Chemical Co. /Embarq / Enco Alloys / Entergy Operations, Inc. / Exelon / FedEx /Fidelity / Fisher Scientific Co. / Ford / General Electric / GeneralMotors/ General Telephone / Gulf Oil / Hartford / HoechstCelanese / Holophane / Honeywell Vorr / Hughes Aircraft / HWB /IBEW / IBM / Illinois Bell / Illinois Teachers Assn. / Indiana Bell / J.I. Case Corp. / John Deere / JNJ / Johns Manville / Johnson &Johnson / Kaman Corp. / Kansas City Schools / Kodak / LockheedMartin / Lucent / Marlboro / McDonnell Douglas / MCI / MetLife /Mich Con / MI Public Schools / Mobil Oil / Monsanto/Solutia /MST&T Co. / NARFE / NASD / NEA / Net Co. / Nevada Bell /Niagara Mohawk Power / NJEA / NJ Public Employee / Nokia /North Memorial Medical Center / NSTAR / Northwest Airlines /Northwestern Bell / NYNEX / NY Teachers / Ohio Bell / OKTeachers / Oregon PERS / OSRAM Sylvania / PacBell / PBGC / PECOEnergy / Pension Actuary / Pfizer / Phila Electric Co. / Polaroid /Port Authority of NY & NJ / Portland GE-Enron / Prudential / PSERSof PA / Public Service of Colorado / Raytheon / RECSEA / RockTenn Co. / Rocky Mount Mills / Rohm & Haas Co. / Rouse Co./Salis / Sears / SEIU/CSEA / Sempra Energy / Southern New EnglandTel / Southwestern Bell / Spherion Corp. / Springs Mills / Sprint /State of MI / Supermedia LLC / Teamsters / Telesector ResourcesGroup / Telcordia / Tennessee Valley Authority / TexasInstruments / TIAA-CREF / Transamerica / UCLA / Ullico / UnionPacific / UnitedHealthCare / United Airlines / United Telephone /University of California / UPS / U.S. Air Force / U.S. Airways / U.S.Bureau of Reclamation / U.S. Marine Corp. / U.S. Air Force / U.S.Army / U.S. Navy / USAF Trucking / US West-Qwest / USPS /Verizon / Visteon / WA PERS / Wells Fargo / Western Union /Weyerhaeuser / Xerox/Office of Regulations and InterpretationsEmployee Benefits Security Administration, Room N–5655U.S. Department of Labor200 Constitution Avenue NWWashington, DC 20210RE: Default Electronic Disclosure by Employee Pension BenefitPlans Under ERISA, RIN 1210–AB90To Whom It May Concern:Formed in 2002 and based in Washington, D.C., the NationalRetiree Legislative Network (NRLN) is a non-partisan,grassroots coalition. As a non-profit organization, the NRLN isdedicated to representing the interests of more than 2 millionretirees and future retirees who came to the NRLN from 200different companies and public entities. They live in all 50states and in 75% of the nation’s Congressional districts. Theyaffiliate with the NRLN through retiree associations, chaptersand as individual members. The NRLN and its members areworking to secure federal legislation for retirement incomesecurity and reduce the cost of health care along withpreserving Social Security and Medicare.We are writing today because we have deep concerns about theproposed regulation on Default Electronic Disclosure, which wouldundermine the retirement security of millions of workers andretirees who depend on their paper retirement disclosures toenable them to enforce their rights. While the world is changing,and more and more people use electronic media, this is notrelevant when it comes to an effective system for consumerdisclosures, particularly for seniors, and what should be the defaultmethod for making them. Besides, access to the internet, email andwebsites are not uniform or equitable. In fact, studies show thataccess to the internet and broadband still varies substantially byeducation, age, income, and geography. Making electronic deliverythe default means of delivering retirement information wouldeffectively weaken consumer protections for participants andbeneficiaries, the very people whom the disclosures are intendedto protect.ERISA requires administrators of retirement plans to furnish severalunderstandable, important disclosures to workers, retirees andspouses such as the Annual Funding Notice so that they know theirrights, know what benefits they’re entitled to, are aware of thefees they’re being charged, and can be a watchdog that their planis being managed to protect their interests. These disclosures arecritical to helping workers plan for and achieve retirement incomesecurity.Page 1 of 3
Currently, longstanding regulations require plans to furnish disclosures and take steps to ensure actual receipt ofthe disclosure by participants and beneficiaries. Generally, plans must send paper disclosures by mail as thedefault means of delivery, but employers can send electronic disclosures to their employees who work withcomputers, or they can offer consumers the choice to opt in to electronic delivery. This system of delivery hasworked well to ensure that consumers automatically receive paper – the more reliable method of delivery -- andthose who prefer to receive information electronically may do so.However, DOL’s new proposed regulation would institute a new disclosure delivery system called “notice andaccess” that reverses the system from one of actual receipt of the default of paper disclosures sent by mail to adefault system of electronic hide and seek. Under this new system, plans would not even need to send anelectronic version of the disclosure to the consumer. They would only need to electronically notify (by email, text,phone, etc.) the participant that a disclosure document is available on a website, then the burden would entirelyfall on the participant or beneficiary to take the many steps involved in finding it. The proposal also fails toprovide adequate consumer protections, regardless of which delivery method is used.The proposed rule contemplates that any deficiencies in its proposal are cured, or at least neutralized, by itsprovisions enabling participants and beneficiaries to receive one initial paper disclosure informing them of theirability to “globally” opt out of all electronic disclosures. They can also request a paper version of specificdocuments. But there are no requirements for how the opt-out process will work, or whether the significance ofthe failure to opt out must be adequately explained. Opting out to get paper should be easy; those who preferpaper should not be required to write a letter requesting paper.The proposed regulation for “Notice and Access” has next to no protections to ensure that individuals actuallyreceive these disclosures:The proposed regulation allows notice by any technology: There is no requirement to use email. Plans would beallowed to notify consumers of the availability of a disclosure with a text message, or a phone call/robocall, whichare not verifiable or easily preserved.Email addresses can be made up: The proposed rule would allow plan administrators to assign or even make upemail addresses for participants and beneficiaries.No actual receipt required - There is no requirement whatsoever that the administrator confirm that an emailnotice was actually opened by the recipient. Thus, if the email goes to a spam folder, or gets buried or misfiled,the recipient never actually receives the notice or the disclosure. Nor is there any requirement that the recipientactually have accessed the document. This is despite the fact that both actions are easily determined by the planadministrator with this technology.The Ability to get information on websites is an Alice in Wonderland scenario: The proposed rule will sendretirees down the rabbit hole in search of information. Consumers should not be forced to wade throughmarketing communications or several webpages in order to find the disclosures.Spousal rights not adequately protected – The proposed rule makes no exception for important actiondocuments that are currently required to be in writing, such as notices to spouses of their right to a survivorannuity and that their consent is required to waive that right.Finally, this new proposed regulation is a giveaway to the financial services industry and shifts costs on toconsumers. According to the regulatory analysis, this new framework will save plan administrators 2.4 billionover 10 years. As one plan administrator put it in Plan Sponsor magazine "Imagine if the agency had adopted thisproposal, say, 10 years ago. We would all be 2.4 billion richer." Plan sponsors and administrators have a fiduciaryduty to make decisions for the benefit of the participants and beneficiaries. Yet, this NPRM imposes absolutely norequirement for plans to pass on those savings, e.g., by adding to the pension fund corpus, or by reducing 401(k)fees. It simply allows them to pocket the windfall and then shifts costs to retirees by requiring them to havepurchased and maintain internet access and the hardware, software, supplies needed to access disclosures. Thatis deeply unfair.Page 2 of 3
This proposal is being promulgated in response to a decades-long lobbying effort of the financial services industry,without any serious attempt to grapple with the new framework’s admitted adverse impact, and without anyevidentiary support or reasonable explanation of how participants and beneficiaries will be at least as well-protected asthe current, well-balanced framework. The proposed rule’s framework and the specifics of the proposal impose all of thedisadvantages of technology, but confer none of its advantages, for the benefit of participants and beneficiaries. Instead,it shifts all of the risks, burdens, and costs of ensuring adequate disclosure away from plan administrators and on toparticipants and beneficiaries. This proposal should be withdrawn, or at least extensively overhauled to ensure actualreceipt of disclosures and adequate consumer protections.x The NRLN not only objects to the automatic “opt in to electronic disclosure”, but also urges the DOL to makecommon sense changes to the DOL Annual Funding Notice (AFN). The NRLN believes that a simplified AFN isneeded so that the plan’s actual funding status is understandable and relevant to retirees. One of the changesthat we believe is needed to make sure retirees are fully informed is a simplified version of the Funding TargetAttainment Percentage on Page 1 of the AFN.x Additionally, we would like the Plan Funding Status table to use the fair market value of plan assets andliabilities as of the last day of the plan year to calculate the Percentage of Plan Liabilities Funded.x We would like a table added to the PBGC section explaining distress terminations and benefit guarantees so thatretirees know the “Percentage of PBGC Termination Liability Funded” as of the last day of the plan year.x Finally, we are also proposing other simplified measures to ensure the retiree is fully informed. These aredetailed in our Annual Funding Notice Whitepaper which is attached.Thank you for your consideration of our views.Sincerely,Bill Kadereit, President,National Retiree Legislative NetworkPhone: 972-722-5928Email: [email protected] 3 of 3
Companies sponsoring defined benefit pension plans are required to provide a funding noticeannually to all participants and beneficiaries. In the Pension Protection Act (PPA) of 2006, Congressdefined the content of this Annual Funding Notice (AFN) and required that it be furnished by the 120thday following the end of the plan year. In the Bipartisan Budget Act of 2015 (BBA), Congress added atemporary supplemental notice that shows the impact on reported funding levels due to adjustedliability discount rates – the 25-year interest rate averaging initially enacted in 2012 (the MAP-21 Act)– that plan sponsors can use to reduce the minimum required contribution for a plan year.Unfortunately, neither the PPA nor BBA required a disclosure of a pension plan’s actual fundedstatus in a manner that is both understandable and most relevant to plan participants andbeneficiaries. Attached to this paper, the NRLN proposes several common-sense changes to theDepartment of Labor’s model Annual Funding Notice that recast the AFN from the plan participant’sperspective. DOL’s model AFN provides a standardized format and legal safe harbor that most planadministrators follow. We agree with the DOL’s stated goal, which is “ensuring that workers receivetimely and accurate notification annually of the funded status of their defined benefit pension plans.”To achieve that goal, several changes are needed to make the AFN “timely and accurate” from theparticipant’s perspective, and not merely from the plan sponsor’s perspective.Most fundamentally, the NRLN proposes a few changes to the headline table, on page one, that iscurrently captioned “Funding Target Attainment Percentage,” or FTAP. The main problem is that theFTAP is a regulatory construct that plan sponsors calculate for an entirely different purpose: todetermine their minimum contribution at the beginning of each plan year. However, disclosing theplan’s 16-month-old FTAP does not necessarily reflect the actual percentage of liabilities the plan isable to fund at the time of the notice – which is by far the most important information sought byretirees and other participants.There are three key shortcomings of using the FTAP from a participant perspective:xThe table discloses Plan Assets and Liabilities as of the first day of the plan year – valuations16 months out of date – even though the fair market value of plan assets and the plan’sliabilities on the last day of the plan year are disclosed lower down in the AFN.xThe table discloses Plan Liabilities calculated, most commonly, using a 25-year average ofinterest rates (interest rate “smoothing”) legislated for a different purpose (to determineminimum funding contributions). This rate does not necessarily reflect market rates, or therates used by the Pension Benefit Guarantee Corporation when it values plan liabilities andassesses variable rate premium payments. This non-market “adjusted rate” is also notdisclosed.
xDespite using the FTAP concept (which is unfamiliar to the typical retiree or participant), thetable does not disclose the Minimum Required Contribution for the plan year.The NRLN proposes a simplified version of the FTAP table that is the same number of lines, butwhich is recast and recaptioned as disclosing “Plan Funding Status.” This revised table disclosesthe “Percentage of Plan Liabilities Funded” (line 4) as a straightforward division of Total Plan Assets(line 2) and Total Plan Liabilities (line 3) as of the last day of the plan year and using market rates –both of which the DOL model AFN requires to be in the AFN, in what is now the “Year-End Assetsand Liabilities” section, which our amended model deletes to avoid redundancy.From a participant’s perspective, a more timely and accurate (market-based) disclosure of PlanFunding Status is both most appropriate and imposes no significant added burden on plan sponsors.Currently plans are valued as of the 1st day of the plan year, but AFNs are not received until 120 daysafter the end of that plan year, 16 months later. AFNs should disclose plan valuations effective on thefinal day of the plan year (typically December 31), which is more accurate and feasible considering thatthe fair market value of the plan’s assets and liabilities on the last day of the plan year are reported inthe AFN (in narrative, although only for the current plan year).The NRLN proposes three additional changes to DOL’s model AFN: First, the section of the AFN thatexplains the impact of a distress termination and PBGC benefit guarantees should include a shorttable showing the “Percentage of PBGC Termination Liability Funded” as of the last day of theplan year (and using the same assumptions as the Plan Funding Status table noted above). As theAFN should explain, the PBGC calculates termination liability using a discount rate derived from aperiodic survey of insurance industry rates and published on the PBGC website. It is an indication ofthe downside risks of a “distress” plan termination. This same PBGC termination liability is currentlyestimated and reported to the PBGC by plans falling below the 80 percent funding threshold, alongwith other data.Second, the NRLN proposes that the AFN’s current disclosure of “Participant Information” bedisplayed in tabular form and – like other AFN disclosures – show the Plan Year and the two previousplan years. Since the other funding disclosures allow a comparison over three years, providingcomparable data with respect to changes in the number of covered participants by type (active,retired, separated but vested) can assist retirees and others understand or ask more informedquestions about year-to-year changes in funding status.Finally, the NRLN proposes adding one line to the Assets Allocation table showing the AverageReturn on Assets for the Plan Year. This can provide useful context, particularly where the AFNshows a large swing in a plan’s Percentage of Plan Liabilities Funded.In sum, retirees deserve a more relevant and timely disclosure of the Percentage of PlanLiabilities Funded, both on a fair market value basis (using the non-adjusted PPA discount rate) andalso based on the PBGC measure of Termination Liability. Congress can again improve the utilityand relevance of the AFN for the average participant by authorizing the DOL to make the commonsense changes proposed above.
Proposed Pension Annual Funding Notice ChangesIntroduction and BackgroundCompanies sponsoring defined benefit pension plans are required to provide a funding noticeannually to all participants and beneficiaries. Congress thought it adequately addressed pension planfunding and disclosure issues when it passed the Pension Protection Act (PPA) in 2006, but a decadelater the disclosures provided to retirees and other participants show the PPA did not go far enough.The PPA requires plan sponsors to provide each participant an Annual Funding Notice (AFN) thatdiscloses the funded status of the plan, including detailed actuarial and financial data on plan assetsand liabilities as of the beginning of each plan year, carryover and prefunding balances, at-riskliabilities and certain other data. The focal point of the AFN is the Funding Target AttainmentPercentage (FTAP) table – typically displayed on page one – which claims to show how well the planis funded based on this data.Also included, further down in the text of each AFN, is an accounting of the Fair Market Value (FMV)of plan assets and estimated liabilities as of the last day of each plan year, information about the typeand number of plan participants, funding investment policies including an asset allocation table, andan explanation of participant rights and Pension Benefit Guarantee Corporation (PBGC) benefitinsurance protection. The AFN reports most of this data for the most recent plan year and for the twoprevious years.PPA required that AFNs be furnished by the 120th day following the end of the plan year (typicallyApril 30). In 2015 the Department of Labor adopted its final regulations on the content of AFNs,including separate Model Notices for single employer and multiemployer plans.1 DOL’s model AFNprovides a standardized format and legal safe harbor that most plan administrators follow.In the Bipartisan Budget Act of 2015 (BBA), Congress added a temporary supplemental notice thatshows how reported funding levels (the plan’s FTAP) vary based on the plan sponsor’s decision touse a liability discount rate based on a 25-year average of interest rates, as first adopted in 2012 (theMAP-21 Act), rather than the three-year average provided in the Pension Protection Act. Averagingthe liability discount rate over 25 years does not reduce a plan’s liabilities, but it does allow plansponsors to reduce the minimum required contribution for a plan year.When Congress passed the PPA in 2006, it included preferential treatment intended to prop upbalance sheets and the need for cash in the airline industry. The Airline Rate Relief exceptionauthorized use of a fixed 8.25% liability discount rate for many industry companies. However,Congress did not require airline plan sponsors to disclose the true funding levels of plans without theuse of the higher rate. This exception resulted in an obscuring of the true risk of these plans. Althoughairline companies may disclose calculations using the lower PPA rate in AFNs, they are not requiredto do so.During the years after the Great Recession began in 2008, the entire economic base of our countryand the viability of companies and their defined benefit pension plans came under pressure.1“Final Regulation: Annual Funding Notice for Defined Benefit Plans,” Fact Sheet, U.S. Department of Labor (Jan. 30, 2015 /fsafndefinedbenefitplans.pdf.The DOL’s model notice is available at ngleEmployerModelAnnualFundingNotice.doc.
Corporate bankruptcies continued and the Federal Reserve’s maintained, even as of year-end 2016,a monetary policy premised on historically-low interest rates to stimulate and sustain economicgrowth. Unfortunately, since a low discount rate results in substantially higher projected long-termpension liabilities, the corporate bond yield curve adopted in 2006 to calculate plan liabilities resultedin lower reported funding levels (FTAPs) and sharply higher minimum required contributions.Corporations appealed to Congress for temporary pension plan funding relief in the form of higherliability discount rates, at least temporarily, until unexpected low market rates returned to “normal.”Accordingly, in 2012, Congress passed “Moving Ahead for Progress in the 21st Century” (MAP 21), atransportation bill. Included in Title II – Revenue Provisions, is a section on Pension FundingStabilization that contained the funding relief provisions sought by U.S. corporate plan sponsors. Asthe economy slowly recovered, this “temporary” option to use a discount rate based on a 25-yearaveraging of interest rates was extended twice, most recently as part of the 2015 Bipartisan BudgetAct.Unfortunately, neither the PPA nor BBA required a straightforward and up-to-date disclosure of thepension plan’s actual funded status in a manner that is both understandable and most relevant toplan participants and beneficiaries. The National Retiree Legislative Network (NRLN) contends thatthe individuals most affected by changes in pension plan risk, the plan participants, deserve nothingless than full and open disclosure.In this paper the NRLN proposes several common-sense changes to the Department of Labor’smodel notice that recast the AFN from the plan participant’s perspective. Retirees agree with theDOL’s stated goal, which is “ensuring that workers receive timely and accurate notification annually ofthe funded status of their defined benefit pension plans.” But to achieve that goal, several changesare needed to make the AFN “timely and accurate” from the participant’s perspective, and not merelyfrom the plan sponsor’s perspective.Survey of AFNs Reveals the Need for Disclosure ChangesThe NRLN’s analysis of disclosure issues is based, in part, upon data collected from the 2012 AnnualFunding Notices (AFNs) for 26 plans provided by retirees from 18 large corporations that numberamong the more than 175 employers whose retirees have affiliated with the NRLN. A summary profileof AFN data follows:18 U.S. corporations from 13 different industries.226 Defined Benefit Pension Plans.10 company plans are in Milliman’s top 50, ranked by FMV of assets.4 company plans are ranked in Milliman’s top 10.More than 2,225,000 participants are covered by these 26 plans, which is nearly 10percent of the 28 million total participants in single-employer plans.3o Total Plan Assets in these 26 plans were 220 billion and total liabilities 206 billion, on abeginning-of-year MAP 21 basis, leaving a 14 billion surplus.ooooo2Includes the General Motors management Plan AFN for 2011.See Employee Benefit Security Administration, U.S. Dept. of Labor, “Private Pension Plan Bulletin Historical Tables and Graphs1975-2014” (Sept. 2016), at p. 5, available at 3
o On a year-end fair market value basis, total plan assets in these 26 plans were 224 billionand liabilities were 267 billion (calculated without MAP 21 relief), leaving a 43 billionshortfall.Although the BBA of 2015 – which extended the rate relief initially enacted in MAP-21 – requires asupplemental table comparing the FTAP calculated with adjusted and non-adjusted discount rates,the average plan participant focuses on the inflated value of the FTAP on page one, not evenrealizing it is calculated with non-market rates. Airline industry AFNs are the least accurate. TheAirline Rate Relief exception in PPA authorized a fixed 8.25% liability discount rate for the industry.Airlines simply report inflated FTAPs on the headline, page one table as if they had a basis in reality.The following examples from the NRLN’s survey show how retirees who rely on the primary FTAPtable as a measure of their plan’s funding level are being misled, since the non-adjusted FTAP(calculated using the Treasury Department’s corporate bond yield curve) is far more reflective ofreality:Examples:Delta Air LinesAmerican AirlinesChryslerDTE EnergyAT&TAdjusted FTAP58.0%86.389.390.996.1Non-Adjusted FTAP (PPA Basis)42.1%Voluntary DisclosureUnknown Airline exemption76.5Disclosed but misleading77.1Disclosed but misleading83.2Disclosed but misleadingIn addition, the NRLN surveyed leadership at member retiree associations representing participantsin these plans and others. These individual associations have received substantial feedback fromretirees in particular about the relevance, timeliness and clarity of the AFNs they receive each year.The recommendations below represent a synthesis of the above data and feedback from retireemembers.Disclose the “Percentage of Plan Liabilities Funded”: More Relevant, More TimelyMost fundamentally, the NRLN proposes a few changes to the AFN’s headline table (on page one)that is currently captioned “Funding Target Attainment Percentage,” or FTAP. Section 101(f) ofERISA requires that Annual Funding Notices disclose, first and most critically, “whether the plan’sPercentage of Plan Liabilities Funded . . . for the plan year to which the notice relates, and for the 2preceding plan years, is at least 100 percent (and, if not, the actual percentages).”4 In the Departmentof Labor’s model AFN, this disclosure is the focus of the table on page one – and includes estimatesof the “total plan assets” and “total plan liabilities” used to calculate the plan’s funded status.Unfortunately, Section 101(f) also directs plans to report the Funding Target Attainment Percentage(FTAP) as a proxy for “the plan’s Percentage of Plan Liabilities Funded.” The main problem is that theFTAP is calculated for an entirely different purpose than disclosure of the actual funded status of theplan at the end of the plan year. The FTAP is a regulatory construct that plan sponsors use for adifferent purpose: to determine their minimum contribution for that plan year. However, disclosing theplan’s 16-month-old FTA
Retiree Legislative Network (NRLN) is a non-partisan, grassroots coalition. As a non-profit organization, the NRLN is . rights, know what benefits they’re entitled to, are aware of the fees they’re being charged, and can be a watchdog that their plan . Archdiocese of Boston / ARXE,