Five Key Points to Know About PBGC Special Financial Assistance

During a webcast on August 10, 2021 titled Financial Assistance Program Overview for Financially Troubled Multiemployer Pension Plans, speakers shared insights on the Pension Benefit Guarantee Corporation (PBGC) special financial assistance (SFA) program for financially troubled multiemployer plans under the American Rescue Plan Act of 2021 (ARPA). These are the five main things you should know about applying for PBGC special financial assistance.

Five Key Points to Know About PBGC Special Financial Assistance

1. PBGC Welcomes Conversations

Jay K. Egelberg, ASA, EA, FCA, MAAA, consulting actuary with First Actuarial Consulting, Inc. (FACT), noted that in comparison with the MPRA application, the SFA guidance from the PBGC provides plans with more certainty on eligibility, assumptions and what’s coming if they apply. PBGC staff have also indicated that they are available to help plans prior to filing the application.

PBGC welcomes casual conversations with plan trustees and service providers who can share their thought processes and get PBGC staff’s input. This looks like a collaborative approach which would hopefully avoid denials; The SFA application is not an easy one, and there is a lot for actuaries and trustees to discuss, Egelberg said.

2. Metering the E-filing Portal

PBGC created an electronic filing process for six priority groups with estimated dates that the application portal will be available to each group. PBGC said application dates for priority groups 2-6 may be earlier depending on volume, processing time and capacity.

Presuming eligible plans are working on the special financial assistance application now, most plans would want to file ASAP and would benefit from PBGC moving up priority groups, Robert M. Projansky, partner at Proskauer Rose LLP, said.

Projansky further explained how metering would work in conjunction with PBGC’s 120-day review period. If PBGC has received close to as many applications as they can review in 120 days, then PBGC will shut down the e-filing portal. Even if a plan is in the first priority group, PBGC is not going to let the plan apply until they are ready to take their application. The portal will reopen when PBGC is once again ready to accept applications.

If every plan was able to apply at once then PBGC wouldn’t get through the applications within 120 days. PBGC needs to thoroughly review the application because of the large amounts of SFA requested. If PBGC doesn’t respond within the 120 days of application then the application is deemed approved. PBGC is very conscious of that 120 day limit.

Potential Challenge: If a plan is ready to file at a certain point but then the portal is closed, the plan could have to rework the application, depending how long they have to wait until the portal reopens. This is because the SFA measurement date has to be the end of the prior quarter. If a quarter passes, the plan would have to redo all of the calculations because it will be using a new SFA measurement date in the next quarter. This concern was submitted in comments to PBGC by the American Academy of Actuaries.

3. Denial or Withdrawal

Besides approval, Projansky highlighted two possible outcomes for plans after submitting an application for SFA.

  1. PBGC Denies Application: PBGC could deny a plan if it isn’t eligible, the application is not complete, or the assumptions are unreasonable. Upon denial, PBGC is expected to give specific rationale for denial so that the plan can make changes and resubmit without refiling the whole application. In order to resubmit, the plan can only fix that specific piece, keeping everything else in the application the same.
  2. Plan Withdraws Application: A withdrawn application has different follow-up steps. A plan can withdraw an application and submit a completely new application, but PBGC says plans must keep the same application base data (i.e., SFA measurement date, participant census data and interest rate assumptions) used for the initial application in any revised application. Proskauer attorneys share other observations in this alert.

4. DOL Fiduciary Guidance Expected for Plans That Suspended Benefits Under MPRA

In the Department of Labor’s view, 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. This also encourages all eligible plans to apply for SFA without raising potential fiduciary liability concerns over undoing current or precluding future MPRA suspensions.

EBSA intends to issue compliance assistance guidance for plans and plan fiduciaries that receive SFA addressing the interaction of the ERISA section 203(a)(3)(B) suspension rules with the reinstatement and make-up payment provisions of the PBGC’s SFA rule and related Treasury Department guidance.

5. PBGC Reviewing Comments Now

Comments on the IFR were due August 11, 2021 and the 103 comments received are now available to view. PBGC had asked for comments on what other investments could be considered permissible for the segregated SFA funds. Reviewing the comments, “The most common concern is that permissible investments for the funds will not earn the rate used for the calculation of assistance payments.” Amanda Umpierrez wrote in PLANSPONSOR.

Many plans and service providers are waiting to see how the PBGC responds to such comments and if the interest rate rule will be revised in the rulemaking process.

To Learn More

Watch the on-demand webcast,  Financial Assistance Program Overview for Financially Troubled Multiemployer Pension Plans, to hear about:

  • Investment restrictions on SFA funds compared with unrestricted “other plan asset” investments
  • What investment grade bonds mean
  • Concerns that the SFA amount calculations assume the plan will earn a 5.4% interest rate while investment grade bonds typically return 2-3%. The different interest rate assumptions would make it hard for plans to accomplish their funding goals.
  • Good faith allocation of expenses
  • Withdrawal liability
  • Communicating with participants.

[Related Reading: Special Financial Assistance: Filing and Application Tips From PBGC Staff]

Jenny Lucey, CEBS
Manager, Reference/Research Services at the International Foundation

Developed by International Foundation Information Center staff. This does not constitute legal advice. Please consult your plan professionals for legal advice.

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