Changes to the Special Financial Assistance (SFA) Program announced Wednesday by the Pension Benefit Guaranty Corporation (PBGC) will improve the ability of underfunded multiemployer defined benefit (DB) pension plans to pay benefits to their participants, PBGC and Department of Labor officials say.

PBGC released its final rule for the program that includes changes made in response to public comments received following the release of an interim final rule in July 2021.

SFA was created by the American Rescue Plan Act (ARPA) and will provide $74 billion to $91 billion in assistance to eligible multiemployer plans to pay retirement benefits to participants through 2051. PBGC received the first SFA application in August 2021 and through July 6, 2022 had approved applications and paid SFA to 27 plans totaling $6.7 billion and covering 127,532 participants. In addition, the agency is reviewing 13 applications for nearly $37 billion in SFA covering more than 404,858 participants.

The changes included in the final rule address three key issues: (1) how plans may invest SFA funds, (2) interest rate assumptions used in the calculation of SFA and (3) calculation of SFA for plans that implemented benefit suspensions under the Multiemployer Pension Reform Act of 2014 (MPRA).

“The final rule makes thoughtful improvements to the interim final rule and puts severely underfunded pension plans on stronger financial footing,” said PBGC Director Gordon Hartogensis in a press release announcing the rule.

“SFA is really, fundamentally about one thing, and that is securing the promise of a dignified retirement for millions of retirees,” said Ali Khawar, acting assistant secretary for the Employee Benefits Security Administration (EBSA), during a PBGC briefing on Wednesday.

In his article “Special Financial Assistance: A Lifeline for Struggling Multiemployer Pension Plans?” in the July/August issue of Benefits Magazine, actuary Stanley I. Goldfarb, EA, FSA, MAAA, provided background on the issues that the final rule now addresses.

Permissible Investments

SFA is designed to keep a plan solvent through 2051, but the restrictions on how SFA may be invested could impede achieving this solvency, Goldfarb wrote.

Under the interim final rule, for example, a plan may have calculated its liabilities at, say, 5.5%, but the assets can only be invested to return about 3% (or less) at the start of 2022 because of the requirement to invest in fixed income securities. As a result, Goldfarb noted, liabilities would grow at a faster rate than investment returns, creating a mismatch of assets and liabilities, referred to as negative arbitrage.

He explained that many plans would deplete their financial assistance long before 2051 because of this issue.

What the final rule says: Plans may now invest up to 33% of their SFA funds in “return-seeking investments” such as publicly traded common stock and equity funds that invest primarily in public shares, the PBGC fact sheet states. The remaining 67% must be invested in “high-quality” fixed income investments.

A detailed description of these permissible investments is available in the final rule (§ 4262.14(c)). The expansion of the types of investments for SFA assets increases the potential for achieving higher returns, which will help plans be able to pay benefits through 2051, a PBGC official said during a webinar on the final rule held on Thursday. This is particularly true for plans that have a significant amount of SFA assets compared with non-SFA assets.

The 33% is intended to strike a balance between the potential for higher returns while acknowledging that it comes with higher investment risk, officials said.

Interest Rate Assumptions

Goldfarb explained that the interest rate for determining the amount of SFA a plan would receive under the interim final rule is the lower of its zone certification rate or 200 basis points above the third segment rate, which is set by Treasury and in December 2021 was between 5% and 5.5%. This interest rate applied to both a plan’s SFA and non-SFA assets.

But this interest rate assumption was likely too high because of the restriction on permissible investments for SFA assets and created a mismatch between what SFA funds could reasonably be expected to earn through 2051. As a result, plans would ultimately be unlikely to attain the return rate and fall short of being able to pay benefits.

What the final rule says: The SFA calculation method has been modified to use separate interest rates for plans’ SFA and non-SFA assets and aligns the interest rates used to calculate SFA with “reasonable expectations” of investment returns on plans’ SFA assets, the fact sheet said

The new separate interest rate assumptions for SFA assets are the lower of (1) the interest rate used by the plan in its most recent completed certification of plan status before January 1, 2021 and (2) the average of the three segment rates (24-month average) determined under Section 430(h)(2) of the Internal Revenue Code, plus 67 basis points.

A PBGC official illustrated the impact of this change during the webinar on Thursday: Using the Internal Revenue Service table for a 24-month average segment rate as of May 2022, the non-SFA rate return assumption would be 5.32% and the SFA return assumption would be 2.99%. Under the interim final rule, the rate for all assets would have been based on the 5.32% rate alone. Under the final rule, plans can use separate rates for the SFA and non-SFA assets, which should result in a higher SFA amount for many plans with the introduction of the second rate because lower rates translate into higher SFA amounts.

Special Rules for Plans With Suspended Benefits

There are roughly 18 plans often called “MPRA plans” that applied for and received approval to enact benefit suspensions under the Multiemployer Pension Reform Act (MPRA), Goldfarb wrote. The law was enacted in 2014 to help multiemployer DB pension plans that were facing financial challenges. He explains that these plans reduced benefits for current and future retirees to help put the plan back on a healthy path. But before the issuance of the final rule, plans that received SFA were required to restore the suspended benefits and pay back the missed benefits. And, in general, the amount of SFA that these plans would receive under the interim final rule was far less than the liability added for the restoration. That would mean that plans that were likely healthy and not headed for insolvency would be headed for insolvency in 2051 because of the SFA shortfall. “These plans faced a dilemma of whether they should restore the suspensions and imperil the plan’s future or forgo the restoration (and SFA) in favor of long-term health,” Goldfarb wrote.

What the final rule says: The final rule provides a different methodology for the calculation of SFA for plans that implemented benefit suspensions under MPRA.

According to the PBGC fact sheet, the SFA these plans will receive is now the greatest of the following amounts.

  • The SFA amount for non-MPRA plans
  • The present value of reinstated benefits, accounting for both makeup payments for previously suspended benefits as well as payments of the reinstated portion of the benefits expected to be paid through 2051 (valued using the SFA interest rate)
  • The amount needed for the plan to project increasing assets in 2051

During a press conference on Wednesday, a PBGC senior official said the change means that plans will not be “put in a position where they have to ask themselves whether to keep the suspension and greater certainty of solvency vs. take the SFA.”

Other Changes

PBGC said the final rule also makes changes to several conditions applicable to plans that receive SFA. According to the PBGC fact sheet, these changes include the following.

  • Retroactive and prospective benefit increases are permitted after ten years with PBGC approval if the plan can demonstrate that it will avoid insolvency.
  • The rule clarifies which conditions apply and how they apply after a merger of an SFA plan with a non-SFA plan. It removes certain conditions and allows for waiver of certain conditions to “encourage beneficial plan mergers.”
  • After five years and with PBGC approval, SFA plans may temporarily reallocate to a related health plan up to 10% of the amount of the contribution rate going to the pension plan, under certain conditions.
  • The final rule adds a requirement for the determination of underfunding for withdrawal liability purposes. Plans must phase in recognition of SFA assets over the projected SFA payout period. “The condition helps to ensure that SFA funds do not subsidize employer withdrawals from participation in SFA plans,” the fact sheet said. The final rule includes a 30-day comment period on this provision.

Next Steps

The final rule goes into effect August 8, 2022.

Plans that have already been approved for and received SFA may submit a supplemental application under the final rule. This can be done through the PBGC e-filing portal. Supplemented applications cannot be submitted until August 8. Because of the changes included in the final rule, some plans may be entitled to a larger amount of SFA.

Plans that have applications currently under review have two choices: (1) withdraw the application and resubmit under the final rule or (2) proceed with the current application under the interim final rule and submit a supplemented application when the final rules goes into effect.

Plans that have not submitted their applications can submit their application under the final rule beginning August 8. Plans that wish to submit under the interim final rule may do so through August 7.

PBGC also has added a “lock-in date” to the SFA application process to allow plans to lock in the asset measurement date. This will mean that plans can set assumptions and data in advance of submitting the application. This new application eliminates the need to rework applications not yet submitted and avoids problems if the PBGC has temporarily closed the portal because the number of applications pending has exceeded a PBGC ceiling, the PBGC fact sheet said

Questions can be emailed to [email protected]. PBGC said another webinar for those with detailed questions will be scheduled.

Click here to register for a webcast from the International Foundation happening July 27th at 1:00 p.m. ET.

Kathy Bergstrom, CEBS
Senior Editor, Publications at the International Foundation of Employee Benefit Plans


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Kathy Bergstrom, CEBS

Senior Editor, Publications at the International Foundation Favorite Foundation Product: The Foundation magazines: Benefits Magazine and Plans & Trusts Benefits Related Topics That Interest Her Most: Financial literacy, health and wellness programs Favorite Foundation Conference Moment: Hearing attendees sing “O, Canada” at Canadian Annual in addition to hearing the anthem sung in both French and English. Personal Insight: Whether she’s collecting information for a magazine story or hanging out with her family and friends, you know Kathy is fully engaged. Her listening ear and introspective nature provide reassuring presence to those enjoying her company.

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