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PBGC Finally Publishes Final Rule On Special Financial Assistance Program – Employee Benefits & Compensation

Seyfarth Synopsis: On July 8, 2022, the
Pension Benefit Guaranty Corporation (“PBGC”) published
its final rule (“Final Rule”) on the Special Financial
Assistance (“SFA”) Program established under the American
Rescue Plan Act of 2021 (“ARPA”). The Final Rule contains
a number of significant developments and amendments from the
interim final rule (“IFR”), including for example,
expanding investment options for SFA assets, providing for separate
interest rate assumptions for SFA versus non-SFA assets, loosening
restrictions for benefit increases, and adding a new condition for
phased recognition of SFA assets in calculating withdrawal
liability. The Final Rule becomes effective on August 8, 2022.
There is a thirty (30) day public comment period solely on the new
phase-in condition for withdrawal liability starting from the Final
Rule publication date.

Under the SFA Program, a financially troubled multiemployer
pension plan may receive a one-time lump sum payment intended to be
sufficient to allow it to pay all benefits due from the date the
SFA payment is received through the last day of the plan year
ending in 2051. We previously wrote about the IFR and explained the
various eligibility conditions for SFA and the calculations
involved. (Click here for our earlier Legal Update titled PBGC
Issues Much Anticipated Interim Final Rule On Special Financial
Assistance Under American Rescue Plan Act)

The following is a high level summary of the key changes and
developments from the Final Rule.

Separate Interest Rate Assumptions for SFA and Non-SFA

Under the Final Rule, the SFA amount will now be calculated
using two different interest rate assumptions: one for SFA assets
and another for non-SFA assets. This is an important development
because the interest rates are used to calculate the total SFA
amount, and with this new approach, plans should receive more in
financial aid in most instances. Previously under the IFR, plans
were required to use the same interest rate assumption for both SFA
and non-SFA assets. This did not take into account that the IFR
also required SFA and non-SFA assets to be segregated, with SFA
assets limited to more conservative investments. Thus, using the
same interest rate assumption for both pools of assets was not an
accurate way for plans to project actual expected investment
returns. This also meant that the SFA could fall short of the
amount the plan would need to pay all benefits due through the plan
year ending 2051.

Recognizing this issue, the Final Rule now bifurcates the
required interest rate assumptions as follows:

  1. For Non-SFA assets, the interest rate is the lesser of: (i) the
    rate used by the plan for zone certification status before January
    1, 2021; and (ii) the third segment funding rate plus 200 basis
    points; and

  2. For SFA assets, the interest rate is the lesser of: (i) the
    rate used by the plan for zone certification status before January
    1, 2021; and (ii) the average of the three funding segment rates
    plus 67 basis points.

For plans whose applications are approved on or before August 8,
2022 (i.e., the Final Rule date), a supplemental
application must be filed with the PBGC to take advantage of the
two different interest rate assumptions. If an application is still
pending as of August 8, 2022, then the plan will need to withdraw
the application, revise and refile.

Investment of SFA Assets

The Final Rule allows plans to invest up to 33% of SFA assets in
return seeking investments (e.g., publicly traded common
stock, equity funds that invest primarily in public shares, bonds,
etc.), with the remaining 67% restricted to investment grade fixed
income securities. Previously under the IFR, 100% of SFA assets
were required to be invested in investment grade fixed income
securities. This development adds an important element in the
investment of SFA assets, and it could significantly increase the
likelihood that plans will be able to avoid insolvency through

For plans receiving SFA amounts before August 8, 2022, the
investment restrictions under the IFR will continue to apply unless
a supplemental application is filed with the PBGC.

MPRA Plans

The Final Rule revises the methodology for determining the SFA
amount for plans that suspended benefits under the Multiemployer
Pension Reform Act of 2014 (“MPRA”).

Previously under the IFR, a single method was used to calculate
SFA amounts for plans that suspended benefits under the MPRA
(“MPRA plans”) and those that did not (“non-MPRA
plans”). Under the MPRA, benefit suspensions were approved if
plans could demonstrate that such suspensions would enable the plan
to avoid insolvency indefinitely. To qualify for SFA, MPRA plans
must permanently reinstate any suspended benefits. However, under
the IFR, an MPRA plan would only receive amounts necessary to avoid
insolvency through 2051. Thus, under the IFR, MPRA plans were faced
with the dilemma of either keeping any benefit suspensions in place
to avoid insolvency indefinitely, or receiving SFA, reinstating
benefits, and risking insolvency in the future.

To help alleviate this issue, the Final Rule provides that the
SFA amount for MPRA plans is the greater of the following:

  1. The SFA amount calculated without regard to any benefit
    suspensions (i.e., a non-MPRA plan);

  2. The lowest SFA amount that is sufficient to ensure the
    plan’s projections demonstrate increasing assets in 2051;

  3. The SFA amount equal to the present value of reinstating
    suspended benefits through 2051 (including make-up payments).

Retroactive Benefit Increases

The Final Rule allows retroactive benefit increases beginning
ten years after receiving SFA, provided the plan can demonstrate to
the PBGC that it will continue to avoid insolvency. The IFR did not
permit retroactive benefit increases at all during the SFA period
(i.e., through 2051), and only permitted prospective
benefit increases when certain conditions were satisfied.

Merger Involving SFA Plans

The IFR contained a number of restrictions and conditions,
including PBGC approval, that are applicable in the event of merger
of a plan receiving SFA. The Final Rule, however, removes
restrictions on prospective benefit increases, allocation of
assets, and allocation of expenses. The PBGC explained that such
conditions would “unduly impede beneficial mergers.” In
addition, a merged plan may apply for a waiver of certain other

Transfer From SFA Plan To Health Plan

While the PBGC was initially hesitant to permit reallocation of
contributions between SFA plans and other employee benefit plans,
the Department of Labor suggested that there may be circumstances
that would justify good faith reallocations of income or expenses
between plans (e.g., health benefit cost increases due to
legislative changes).

Addressing this narrow circumstance, the Final Rule now permits
an SFA plan to apply to the PBGC for permission to temporarily
reallocate to a health plan up to 10% of the contribution rate
negotiated on or before March 11, 2021. The SFA plan must
demonstrate that the reallocation of contributions is necessary to
address an increase in healthcare costs required by a change in
Federal law, and that the reallocation does not increase the risk
of insolvency for the SFA plan. Plans can begin applying five years
after receiving SFA, and reallocation of contributions relating to
any single change in Federal law can last for no more than five
years, with a limit of ten years cumulatively for all reallocation

Withdrawal Liability

The Final Rule adds a “phase-in” feature intended to
ensure that SFA funds are not used to subsidize employer

Under the IFR, all SFA funds must be included as plan assets in
determining unfunded vested benefits. As a result, it is likely
that withdrawal liability would be significantly reduced when
calculated immediately after plans receive SFA funding. After the
changes in the Final Rule, however, the reduction in withdrawal
liability will be more gradual, as plans are required to
“phase-in” the recognition of SFA assets.

The phase-in period begins the first plan year in which the plan
receives SFA and extends through the end of the plan year in which
the plan expects SFA to be exhausted. To determine the amount of
SFA assets excluded each year, the plan multiplies the total amount
of SFA by a fraction, the numerator of which is the number of years
remaining in the phase-in period, and the denominator is the total
number or years in the phase-in period. The phased recognition of
SFA assets does not apply to plans that received SFA funds under
the terms of the IFR unless a supplemental application is filed. If
the plan files a supplemental application, the phased recognition
applies to withdrawals occurring on or after the date the plan
files the supplemental application.

Solely for this new condition for determining withdrawal
liability, there is a thirty (30) day public comment period
starting on July 8, 2022, the date of publication of the Final Rule
in the Federal Register.

SFA Measurement Date and Lock-In Applications

To provide filers with more flexibility, the Final Rule
redefines the “SFA measurement date” as the last day of
the third calendar month preceding the plan’s initial
application date. Previously under the IFR, the SFA measurement
date was defined as the last day of the calendar quarter
preceding the plan’s initial application date.

In addition, the Final Rule creates a mechanism to permit plans
in priority groups 5, 6, and any additional priority groups
established by the PBGC, to file a “lock-in application.”
A lock-in application allows the plan to freeze its base data
(i.e., SFA measurement date, census data, non-SFA interest
rate assumption, and SFA interest rate assumption) when it is
unable to file an application because the PBGC has temporarily
closed the filing window. Eligible plans may file lock-in
applications after March 11, 2023, and on or before December 31,


As practitioners continue to digest the new Final Rule, there
may be other issues that come up that are not addressed. As noted
above, there will also be a thirty (30) day public comment period
solely on the phase-in approach to calculating withdrawal
liability, which may lead to additional changes. We will continue
to monitor for further developments in that regard, and for any
additional clarifying guidance from the PBGC. Stay tuned…

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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