On September 20, 2021, PBGC released its Fiscal Year (FY) 2020 Projections Report and a Five-Year Multiemployer Program Report. The reports show a substantial improvement in the outlook for PBGC’s Multiemployer Insurance Program due to the enactment of ARPA. The analysis of the impact of ARPA is based on the interim final rule published in July 2021. PBGC is currently reviewing comments received and to the extent that PBGC makes any changes to the SFA program in the final rule, these projections may also change.
“The difference between these projection reports and reports from recent years is night and day,” PBGC Director Gordon Hartogensis said. Prior to enactment of ARPA, PBGC’s Multiemployer Program was projected to become insolvent in FY 2026. By providing SFA to the most financially troubled multiemployer plans, ARPA significantly extends the solvency of PBGC’s Multiemployer Program. The new projections show a continued high likelihood of insolvency but delayed until at least the mid-2030s.
Under most projection scenarios, the SFA provided to eligible plans under ARPA delays the insolvency of PBGC’s Multiemployer Program to a point likely more than 30 years out. The most pessimistic scenario of the 500 scenarios projects the fund to go insolvent in FY 2036, while optimistic scenarios project the fund to remain solvent indefinitely. The median projected insolvency year, post-ARPA, is FY 2055. In addition, 56% of projected scenarios result in insolvency by the end of FY 2060. This uncertainty about whether and when the Multiemployer Program will run out of money is driven by several variables, such as plans’ future asset performance and plans’ contribution income.
Benefit Guarantee Level Unchanged
The Five-Year Multiemployer Program Report reviews the sustainability of the insurance program. Multiemployer plans annually pay PBGC premiums for this insurance—$31 per participant in 2021 and indexed thereafter. Every five years, PBGC is required to conduct a study to determine the premiums needed to maintain the statutory basic-benefit guarantee levels for multiemployer plans and whether such benefit guarantee levels may be increased without raising premiums.
Because the new projections show a continued high likelihood of insolvency at some point in the future, the report concludes that current premium levels—including the statutory increase under ARPA beginning in 2031—would not support an increase in the multiemployer benefit guarantee level at this time. Given the significant uncertainty related to the impact of SFA on the projected solvency of plans, as well as the risk of insolvency of plans not eligible to receive SFA, the five-year report says, it is difficult to determine at this time what corresponding changes in PBGC’s Multiemployer Program will be necessary to maintain long-term solvency.
SFA Applications Submitted in August and September
As of September 17, 2021, five plans have applied for SFA and their applications are under review. These plans are insolvent (priority group 1). More plan details are available for download on the ARPA SFA dedicated page.
Uncertainty About Changes Between SFA Interim Final Rule and Final Rule
On September 21, 2021, PBGC posted new special financial assistance (SFA) questions and answers to provide information about the effect on SFA applications of any changes to PBGC’s SFA interim final rule (IFR).
The Q&As are as follows:
1. I see PBGC received comments on the SFA IFR. Will PBGC make changes to the regulation in response to those comments?
PBGC is reviewing the comments submitted on the IFR and has not yet determined whether, or to what extent, to make changes to the regulation.
2. When will PBGC decide whether it will make changes to the IFR?
PBGC will move to publish a final rule when its IFR comments review process has concluded. The final rule will reflect any changes to the IFR or in the absence of any changes, adopt the IFR “as is.”
3. While PBGC is reviewing comments and considering changes to the regulation, will PBGC still accept applications under the IFR for priority groups that are eligible to file an application during that period?
4. My plan filed an application for SFA under the IFR before publication of a final rule in the Federal Register. What happens if PBGC’s final rule changes how the amount of SFA is determined?
If PBGC issues a final rule that makes any changes affecting the amount of SFA for a plan, any such changes will not reduce the amount of SFA payable to any plan that successfully submitted its initial application for SFA before the publication of the final rule in the Federal Register. Further, PBGC expects that if changes are made in the final rule and such changes would result in a greater amount of SFA for plans that have already applied for, or received, SFA before publication of the final rule, those plans will be able to receive the greater amount.
If a plan submits its initial application after PBGC publishes the final rule, the provisions of the final rule—not the IFR—will be used to determine the amount of SFA.
The Foundation has been closely following the Special Financial Assistance (SFA) Program. Background information can be found here:
- Five Key Points to Know About PBGC Special Financial Assistance – August 30, 2021
- Special Financial Assistance: Filing and Application Tips From PBGC Staff – August 12, 2021
- PBGC Implements Special Financial Assistance Program for Financially Troubled Multiemployer Pension Plans – July 15, 2021
Members can also watch the on-demand webcast, Financial Assistance Program Overview for Financially Troubled Multiemployer Pension Plans, and visit the International Foundation Multiemployer Pension Reform Act (MPRA) webpage.
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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