notified, within a reasonable period
of time, before the effective date of an
amendment that provides for a significant
reduction in benefit accrual.
ERISA Section 105( 1)(B)(i) requires
the administrator of a defined benefit
plan, other than a one-participant plan, to
furnish a pension benefit statement every
three years to each employee participant
who has a nonforfeitable accrued benefit.
Using the latest available information,
the statement should indicate the total
benefits accrued—plus the nonforfeitable pension benefits, if any, that have
accrued—or the earliest date on which
benefits will become nonforfeitable.
In addition, if the plan is integrated
with Social Security, an explanation
of permitted disparity under Internal
Revenue Code (IRC) Section 401(l)
must be provided and, if the plan is a
floor-offset arrangement, an explanation of the manner in which that will
affect the participant’s accrued benefit.
Alternatively, the reporting requirements
can be satisfied if, at least once each year,
the administrator notifies the participant
of the availability of the pension benefit
statement and about how he can obtain it.
ERISA Section 209 provides that
the same information required to be
disclosed under ERISA Section 105(a)
must be provided to participants who
terminate from service or have a one-year
break in service.
Q: What types of defined benefit pension
plans are not subject to Title IV of ERISA
and, therefore, would be exempt from
providing the annual funding notice?
A: Neither “top hat” plans nor “excess
benefit” plans—whether funded or not—
are subject to Title IV. A top hat plan is
an unfunded plan maintained by an
employer primarily for the purpose of
providing deferred compensation for a
select group of management or highly
compensated employees (HCEs).
An excess benefit plan is a plan main-
tained by an employer solely to provide
benefits in excess of the limitations of
IRC Section 415. While these amounts are
indexed annually, the annual benefit that
may be provided under a defined benefit
plan is $215,000, and the maximum
annual addition under a defined contri-
bution (DC) plan is $54,000.
Further, two types of tax-qualified
defined benefit pension plans are not
covered under Title IV—a plan established
and maintained for “substantial owners”
and one established and maintained by a
“professional service employer” that at no
time since the enactment of ERISA has
had more than 25 active participants.
A substantial owner is an individual
who, at any time during the 60-month
period before the determination date, is
either: 1) the sole owner of an unincorpo-
rated trade or business; 2) a partner who
owns, directly or indirectly, more than
10% of either the capital interests or profits
interest in a partnership; or 3) with respect
to a corporation, owns directly or indirectly
more than 10% in value of either the voting
stock or all of the stock of a corporation.
A professional service employer is
any organization: 1) owned or controlled
by professional individuals or the executors or administrators of professional
individuals, the principal business of
which is the performance of professional
services. Professional individuals under
ERISA Section 4021(c)( 2)(B) include,
without limitation, physicians, dentists,
chiropractors, osteopaths, optometrists or
other licensed practitioners of the healing
arts, attorneys, public accountants, public
engineers, architects, draftsmen, actuaries, psychologists, social or physical
scientists, and performing artists.
Q: May a participant request any ERISA
disclosures on his defined benefit pension
A: Yes. ERISA Sections 105(a) and 209(a)
both provide for disclosure upon written
request, though both sections limit, to
one, how many reports must be supplied
during any 12-month period. The DOL
issued proposed regulations under these
two sections in 1980. While the regulations have not been finalized, they provide
the only published guidance upon how
these sections should be administered.
Q: Are there penalties under ERISA
for failure to comply with the disclosure
requirements of the sections of the act
A: Yes. If an employer fails to satisfy the
requirements of ERISA Section 101(j),
it must pay a penalty of $1,632 per day,
subject to cost of living adjustments
(COLAs). If it fails to satisfy ERISA
Sections 101(d), 101(e)( 1), 101(f) and 105(a),
it is subject to a penalty, in the discretion of the presiding district court, not to
exceed $110 per day. A failure to satisfy the
requirements of ERISA Section 209(a)
subjects an employer to a civil penalty of
$28 per employee.
Marcia Wagner is a specialist in pension and employee benefits law, and is the
principal and founder of The Wagner Law Group P.C., one of the nation’s largest
boutique law firms specializing in the Employee Retirement Income Security
Act, employee benefits and executive compensation. A summa cum laude and
Phi Beta Kappa graduate of Cornell University and a graduate of Harvard Law
School, she has practiced law for 30 years, 21 with her own firm.
Failure to satisfy
of ERISA Section
101(j) subjects an
employer to a
penalty of $1,632
per day, subject
to cost of living