The Special Financial Assistance (SFA) Program was enacted as part of the American Rescue Plan Act (ARPA) of 2021. Here’s an update on developments since the previous update in March 2023.

Summary of application activity. According to a PBGC press release, as of September 22, 2023, PBGC has approved about $53.5 billion in SFA to plans that cover approximately 767,000 workers, retirees and beneficiaries.

According to the application status tracker as of September 22, 2023, 23 plan applications are under PBGC review and 111 plans are on the waiting list.

PBGC financial outlook continues to improve. Consistent with last year, enactment of ARPA has continued to improve the financial outlook of PBGC insurance. PBGC’s Fiscal Year 2022 Projections Report showed that the Multiemployer Insurance Program Solvency is likely to remain solvent for more than 40 years. “These projections clearly reflect the positive impact ARP has made on the multiemployer pension system and on the pension security of millions of workers and retirees covered by troubled multiemployer plans,” said PBGC Director Gordon Hartogensis in a press release. “And the positive outlook for PBGC insurance programs is good news for the defined benefit pension system overall,” Hartogensis said.

Estimated total of SFA funds. The expected total amount of SFA to be distributed under the program is $79.7 billion, PBGC estimated in the latest projections report. The updated estimate incorporates data from plan applications and is lower than PBGC’s previous estimate of $82.7 billion and lower than CBO’s September 2022 estimate of $90.4 billion.

PBGC Adds FAQs on Permissible Investments for SFA Assets

PBGC regulations specify how SFA assets can be invested and require plans to segregate SFA assets from legacy assets. Key restrictions on the investment of SFA funds are:

• 67% must be in investment-grade fixed income investments (IGFI).
• 33% can be invested in return-seeking assets (RSA).

PBGC released FAQs providing definitions and examples of permissible IGFI securities and RSA on July 19, 2023.

New questions about permissible investments include the following:

• What do terms like “investment grade,” “fixed rate,” “debt security,” “leverage” and “common stock” mean in the context of permissible investments for SFA?
• Will PBGC identify whether a particular asset class, sub-asset class, fund structure or investment strategy is permissible before a plan invests?
• What are some examples of permissible investment-grade fixed income securities?
• What is an IGFI permissible fund vehicle?
• What are some examples of permissible return-seeking asset securities?
• What is a return-seeking asset permissible fund vehicle?
• What is a “Rule 144A” security? How are “Rule 144A” debt securities, which are permissible RSA under the SFA regulation, different from private credit, which isn’t a permissible investment?
• When does the 33 percent limit on RSA apply?
• What does “predominantly” mean in the context of the type of permissible fund vehicles SFA assets may be invested in?

Auditing update. Plans that had previously suspended benefits under the Multiemployer Pension Reform Act (MPRA) and received SFA funds, should be aware that the Department of Labor (DOL), in coordination with the Treasury Department, has the responsibility to ensure that plans reinstate suspended benefits going forward and pay makeup payments equal to the previously suspended benefit payments, according to a statement on the interim final rules. Some legal experts report that DOL has begun investigations of some MPRA plans.

“DOL investigations appear focused on plan policies and procedures related to SFA as well as the make-up payments to participants and beneficiaries who experienced suspension of their benefits as part of MPRA. These investigations also are looking at plan procedures for the identification of missing participants and more. The DOL’s investigation into plans that received SFA funds is expected to continue and expand to other plans over time,” according to Mary A. Petrovic, an associate at Morgan, Lewis & Bockius.

Application process updates. Plans that are eligible for SFA should be aware of the following new processes established by PBGC on July 27, 2023.

• Census data. The SFA application instructions were modified to require full census data of all terminated vested participants that were included in SFA projections. The census data will enable PBGC to perform an independent death audit to identify deceased pension plan participants.
• Assumptions summary spreadsheet. Template 10 is called, “Pre-2021 Zone Certification, Baseline Details, and Final SFA Assumption Summaries”
• Withdrawing and revising an application. SFA Application Amendment Cover Letter is for plans, in certain circumstances, to request to withdraw a previously filed application and seek expedited review of their revised application. This change is intended to make PBGC’s review process more efficient.
• Revising a lock-in application. If a plan becomes aware before filing a revised application for PBGC review that it did not meet the eligibility requirements for SFA as of the lock-in application filing date, the plan may file a “revised lock-in” application when it subsequently becomes eligible.

Annual statement of compliance by plans that received SFA. Plans receiving SFA are subject to certain terms, conditions and reporting requirements, including an annual statement documenting compliance with the terms and conditions. On July 27, 2023, PBGC clarified the types of documents to be attached to the annual compliance statement and added a template that filers may use to submit the required account and investment information (ACH Enrollment Form).

The International Foundation will be watching for any DOL guidance on records retention and information that plans will need to maintain for compliance purposes as well as any new developments.

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