The American Rescue Plan Act (ARPA) of 2021 authorized special financial assistance (SFA) through the Pension Benefit Guaranty Corporation (PBGC) to eligible severely underfunded multiemployer plans. ARPA added section 4262 to Title IV of the Employee Retirement Income Security Act (ERISA). The multiemployer plans that cut their retirees’ pension benefits under the Multiemployer Pension Reform Act (MPRA) (referred to here as MPRA plans) must reinstate those benefits and make-up payments if the plans are approved for SFA. As of May 1, 2023, PBGC has approved nearly $47.4 billion in SFA to plans that cover nearly 574,000 workers, retirees and beneficiaries.
All multiemployer defined benefit (DB) pension plans must provide an annual funding notice to participants, beneficiaries and the PBGC about their funding status as required by ERISA section 101(f) and regulations 29 CFR §2520.101-5. Receiving SFA has a material effect on a plan’s assets and subjects a plan to restrictions and conditions that impact the annual funding notice disclosures.
On April 25, 2023, the Department of Labor (DOL) announced that pending further guidance, Field Assistance Bulletin (FAB) 2023-01 constitutes a reasonable, good faith interpretation of the annual funding notice disclosure requirements for multiemployer DB plans that received SFA, have submitted an SFA application or are eligible for SFA (collectively referred to here as SFA plans).
2022 Annual Funding Notices
Plans generally must provide funding notices no later than 120 days after the close of the plan year. The deadline was April 30, 2023 for 2022 calendar-year plans. Therefore, plans that received SFA in 2022 may have already completed their 2022 annual funding notices. DOL expects plans that received SFA in 2022 to consider the FAB guidance in evaluating whether the annual funding notice disclosures relating to SFA were consistent with a reasonable, good faith interpretation. If not, the plan administrator should “take appropriate corrective action,” per the FAB.
FAB 2023-01 covers what annual funding notice content is legally required for SFA plans and what is optional. The guidance also includes model language that plan administrators may use in the annual funding notice.
Below are five key areas of the notice impacted by SFA and future considerations.
- Asset Valuation
– Funded percentage and actuarial value of assets. Neither the funded percentage nor the actuarial value of assets include SFA. Though not legally required, plan administrators may include model language explaining that the chart in the “How Well-Funded Is Your Plan” section of the annual funding notice does not reflect SFA paid to the plan by PBGC. (See FAB Q&A 1.)
– Fair market value of assets. The annual funding notice’s statement of fair market value of assets as of the last day of the notice year and the two preceding years should reflect SFA received by the plan. See Q&A 2 for model language that plan administrators may substitute for the “Year-End Fair Market Value of Assets” in Appendix B of 29 CFR §2520.101-5.
- Receipt of SFA Triggers the “Material Effect” Explanation
– Plan assets. The receipt of SFA is an event that has a “material effect” on plan assets, regardless of the amount of SFA received. If a plan suspended benefits under MPRA, or by reason of insolvency receives SFA, the plan is required to reinstate suspended benefits going forward and pay make-up payments (previously suspended benefit payments) to participants and beneficiaries who were in pay status on the SFA payment date.
– Plan liabilities. Reinstated benefits and make-up payments could have a material effect on plan liabilities. “However, because the amount of SFA attributable to the reinstatement of benefits is expected to offset the increase in liabilities through at least 2051, the plan administrator is not required to project the effect on the plan’s liabilities through the end of the current plan year,” Q&A 3 states.
– Plan year(s) for initial and supplemental SFA. (See Q&A 4.)The material effect explanation must be included for the plan year in which the plan received SFA. If a multiemployer plan receives additional SFA under a supplemented application in a plan year different than under the initial application, the receipt of additional SFA is a material effect.
– How much SFA and when. The material effect explanation must include the amount of SFA and the date it was paid to the plan. If the plan received additional SFA under a supplemented application, the explanation must state the amount and date of the SFA received under the initial and supplemented applications separately along with a statement explaining why the plan is receiving supplemented SFA.
– Conditions for SFA. The explanation for the plan year in which the plan first receives SFA also must include a brief description of conditions for SFA. See Q&A 5 for model language on the conditions under which an SFA plan is required to be administered.
– MPRA plans and insolvent plans. SFA plans that are required to reinstate previously suspended benefits must include a statement in the material effect explanation for the first plan year the plan receives SFA. See Q&A 5 for model language. If a plan receives supplemental SFA in a year following the year it receives SFA under the initial application, the plan administrator does not need to include this model language again.
3. Critical Status Statement Required
– Until 2051. A plan that has received SFA is deemed to be in critical status beginning with the plan year in which the plan first received SFA and ending with the plan year ending in 2051. Q&A 6 provides model language in lieu of the model language in 29 CFR 2520.101-5, Appendix B (Endangered, Critical or Critical and Declining Status | option two).
– Critical status exception for mergers. If a plan that received SFA merges with a second plan that has not received SFA and the second plan is designated as the ongoing plan after the merger, the ongoing plan is not deemed to be in critical status even if the merger occurs prior to 2051. The actual zone status of the ongoing plan is used.
The remainder of the FAB Q&As addresses these areas of the annual funding notice for SFA plans:
– Investment policy description
– Asset allocation of investments
– Summary of rules governing insolvent plans
– Insolvent plan may inform participants that the plan is eligible for SFA
– SFA plans may inform participants that future suspensions are prohibited.
4. Fiduciary Responsibility
According to a DOL statement, ARPA’s “inclusion of plans that suspended benefits under MPRA and the prohibition against a future MPRA suspension for a plan receiving SFA reflects a clear legislative objective to allow plan fiduciaries to restore benefits that were previously suspended and to encourage all eligible plans to apply for SFA without raising potential fiduciary liability concerns about undoing current or precluding future MPRA suspensions.”
5. Three More Assistance Bulletins Expected
DOL intends to issue compliance assistance guidance for SFA plans to ensure that appropriate steps are taken. After MPRA and insolvent plans receive SFA, they must reinstate suspended benefits going forward and pay participants in pay status an amount equal to previously suspended benefit payments. This guidance will address:
– Summary plan description (SPD) and summary of material modification (SMM) disclosures to participants and beneficiaries
– Record retention related to reinstatement of suspended benefits and payment of the make-up payments
– How ERISA suspension rules interact with SFA reinstatement and make-up payment rules and related Treasury Department guidance.
DOL is interested in learning about other areas in which eligible plans would benefit from compliance assistance guidance.
Check out the International Foundation MPRA resources page for background information and SFA program updates.
Developed by International Foundation Information Center staff. This does not constitute legal advice. Please consult your plan professionals for legal advice.