PBGC Implements Special Financial Assistance Program for Financially Troubled Multiemployer Pension Plans

PBGC Implements Special Financial Assistance Program for Financially Troubled Multiemployer Pension Plans

The Pension Benefit Guaranty Corporation (PBGC) has released an interim final rule that focuses on special financial assistance (SFA) applications and related restrictions and conditions pursuant to the American Rescue Plan Act of 2021 (ARPA). Read more about ARPA’s provisions to transfer federal funds to severely underfunded pension plans in an amount equal to all accrued benefits, without reduction, through the last day of the plan year ending in 2051 in a previous blog: What the American Rescue Plan Act Means for Financially Troubled Multiemployer Pension Plans.

More than 200 plans are likely eligible for SFA, impacting more than three million participants, said PBGC Director Gordon Hartogenesis during a PBGC briefing on July 12, 2021. The law will provide an estimated $94 billion in payments to eligible plans. These estimates cover all eligible groups of plans and include $550 million to make up payments for participants whose plans previously suspended benefits under the Multiemployer Pension Reform Act (MPRA) as well as $150 million for eligible insolvent plans. The SFA program will not only protect the pension benefits of workers and retirees but, in so doing, also will prevent the PBGC’s multiemployer insurance program from becoming insolvent in 2026, as previously projected, DOL said in a statement.

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During the briefing, PBGC officials outlined how SFA will be calculated, the logistics of the application and review process, as well as restrictions on the use of funds and reporting requirements. A recording and slides of the briefing are available here. Here are my key takeaways.

Special Financial Assistance

SFA payments will be funded by Treasury general revenue directed to PBGC and not PBGC premiums, said Ted Goldman, PBGC director of policy research and analysis at PBGC. This is the first time that PBGC will pay benefits through appropriated funds. ARPA does not specify how the assistance would be calculated, simply stating that plans would receive such amounts required for the plan to pay all benefits due through 2051. In this rulemaking, PBGC determined that the SFA amount will take into account plans’ existing assets, contributions and earnings.

Goldman described the SFA amount as a plan’s “obligations less resources,” defined as the following:

  • Obligations: All expected future benefit payments for current retirees as well as future retirees and all administrative expenses that were anticipated to be necessary to keep the plan going over the period through 2051
  • Resources: Existing assets in the plan, expected future contributions that may come in over the next 30 years, including withdrawal liability payments to the plan, and the interest earnings on those assets using the rates specified in ARPA.

PBGC subtracts the resources from the obligations to arrive at the final amount of SFA.

Goldman emphasized the significance of arriving at the correct lump sum: “We get one bite at the apple to calculate the SFA as accurately as we can and make that payment. There’s no condition for adjusting that [payment] or reviewing that up or down into the future.”

Application and Review Process

Ross Marcelin, the director of plan compliance, said PBGC’s goal, consistent with the statute, is to conduct an expeditious and thorough review of plan applications, which is why the rule created priority groups (1 through 6). Plans that are in priority category 1 or 2 are insolvent or have had participants’  benefits reduced via MPRA suspensions or partitions. They are considered to need the SFA payment sooner in order to reinstate benefits that have been cut and to raise them to the full benefit level. Marcelin noted that these plans are allowed to reinstate full benefits even prior to receiving SFA under Treasury regulations.

PBGC believes that plans that are in lower priority categories or plans that are not in a priority category but are eligible for special financial assistance will not be harmed by receiving financial assistance later because all payments will keep the plans going through 2051.

Six Priority Groups of Plans

Application Period Is Open for Priority Group 1

PBGC will accept as many applications from funds in Priority Group 1 that the agency estimates it can process within 120 days. Once the number of applications reaches that level, the application period will temporarily close until PBGC has capacity to process more applications. If capacity to process applications exceeds expectations, the schedule may be accelerated. Marcelin noted that PBGC will notify Priority Group 5 and 6 plans at least 21 days in advance if the application date is accelerated.

 “Plans and their plan professionals will be expected to monitor pbgc.gov [for updates],” Marcelin said. Status information can be found on the PBGC’s dedicated SFA page.

If an eligible plan is running out of money, it will have the ability to file an emergency application. See emergency instructions on page two under “When to file an application,”  where PBGC describes the emergency filing process.

Restrictions and Conditions

Plans that receive SFA are subject to certain conditions and restrictions aimed at making sure that the money is used appropriately as outlined in the law. Both SFA and any earnings thereon are covered by these restrictions. SFA assets must be segregated from other plan assets. “It will be at the discretion of the plan with respect to which of those assets they would like to use first to pay for expenses and benefits,” Marcelin said.

PBGC Guidance on Assumptions

Jim Donofrio, chief negotiating actuary, talked about PBGC guidance on projection assumptions for factors such as contribution base units, interest rate, expected benefit payments and future participants, which are key to establishing both eligibility for SFA and the amount of SFA.

Key Special Financial Assistance (SFA) Assumptions Project Experience Through 2051

PBGC Resources

PBGC has resources for plans that are seeking to apply for SFA intended to help them submit a successful application.

Role of Departments of Treasury and Labor

Treasury and DOL have key responsibilities related to SFA. Both agencies have access to applications. Treasury is required to consult with PBGC on plan applications that propose a change in assumptions. Treasury funds PBGC’s SFA payments to plans and PBGC’s associated administrative costs.

Treasury provides guidance on reinstatement of benefits previously suspended under MPRA or for insolvency of an ongoing plan after enactment of MPRA while the DOL ensures that benefits are reinstated and previously suspended benefits are made up.

“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 and to encourage all eligible plans to apply for SFA without raising potential fiduciary liability concerns about undoing current or precluding future MPRA suspensions,” according to a statement.

What’s Next?

Comments on the interim final rule are due August 11, 2021.

The Employee Benefits Security Administration (EBSA) intends to issue compliance assistance guidance for plans and plan fiduciaries that receive special financial assistance addressing: (1) the impact of the SFA rule on the annual funding notice requirements of the Employee Retirement Income Security Act (ERISA), (2) summary plan description and summary of material modification disclosures to participants and beneficiaries, (3) maintenance of records related to reinstatement of suspended benefits and the make-up payments, and (4) the interaction of the ERISA Section 203(a)(3)(B) suspension rules with the reinstatement and make-up payment provisions of the SFA rule and related Treasury Department guidance. EBSA will post compliance updates here.

DOL is interested in learning about other areas in which eligible plans would benefit from compliance assistance guidance.

PBGC intends to hold additional sessions for plan trustees and service providers. The objectives of the sessions are to provide information to the applicant plans, optimize the application and review process, and provide more detail on the assumptions and conditions. Recordings will be posted.

The International Foundation is following ARPA and will continue to alert members to any developments. Find updates on MPRA and other pension news on our multiemployer pension reform resource page.

[Realted Reading: What the American Rescue Plan Act Means for Financially Troubled Multiemployer Pension Plans]

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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Comment (1)

  1. bobby stukes

    All I can say at this time is thanks for the update .

    Reply

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