PBGC Issues Final Rule on Special Assistance for Financially Troubled Multiemployer Plans

On July 8, 2022, the Pension Benefit Guaranty Corporation (PBGC) issued a final rule regarding special assistance to financially troubled multiemployer pension plans. In response to public comments, the final rule makes several changes to the prior interim final rule (IRF), which we summarized in our July 22, 2021, Compliance Corner article.

The American Rescue Plan Act of 2021 established the Special Financial Assistance (SFA) Program to provide funding for severely underfunded multiemployer pension plans. The goal was to enable these plans to pay benefits and administrative expenses through the plan year ending in 2051. The program requires plans to demonstrate eligibility for SFA funds, which are not required to be repaid, and to calculate the amount of assistance. The SFA funds and related earnings are limited in how they can be invested and must be segregated from other plan assets.

The final rule makes changes to the methodology plans used to calculate the SFA amount by providing two separate interest assumptions, one for calculating expected investment returns on the plan’s non-SFA assets, and a separate rate for calculating investment returns expected to be earned on the plan’s SFA assets. This change is intended to align the interest rates used to calculate SFA with reasonable expectations of future investment returns on a plan’s SFA assets.

Additionally, the final rule allows plans to invest up to 33% of their SFA funds in return-seeking investments (e.g., publicly traded common stock and equity funds that invest primarily in public shares), with the remaining 67% restricted to high-quality (investment grade) fixed income investments. This change was meant to address concerns that the investment limitations in the prior guidance would make it difficult for an eligible plan to meet the investment return assumptions and stay solvent through 2051. (The IFR only allowed SFA assets to be invested in high-quality, investment-grade bonds and certain other investments expected to yield similar returns.)

The final rule also modifies certain conditions imposed on plans that receive SFA. For example, retroactive and prospective benefit improvements are permitted after 10 years with PBGC approval, if the plan can demonstrate it will avoid insolvency. The rule also clarifies the conditions that apply after a merger of an SFA plan with a non-SFA plan to encourage beneficial mergers. In determining underfunding for withdrawal liability purposes, the final rule adds a requirement that plans phase-in recognition of SFA assets over the projected SFA payout period. This requirement is designed to ensure that SFA funds do not subsidize employer withdrawals from participation in SFA plans. The rule includes several other changes, including aspects of the SFA application process.

Employers who participate in multiemployer plans should be aware of the guidance and consult with counsel for further information. The final rule is effective August 8, 2022.

Federal Register: Special Financial Assistance by PBGC »