PBGC Special Financial Assistance Final Rule: Permissible Investments

The Pension Benefit Guaranty Corporation (PBGC) staff have recorded a webcast series for trustees and practitioners on the final regulation of the special financial assistance (SFA) program for financially troubled multiemployer plans under the American Rescue Plan Act of 2021 (ARPA). Read our previous blog for more background.

Status of Applications

The first SFA program applications were submitted in August 2021. Fourteen months later, as of October 24, 2022, PBGC has approved 33 plans to receive SFA under the interim final rule. None have been denied. PBGC has approved over $7.8 billion to plans that cover nearly 157,000 workers, retirees, and beneficiaries.

There are 38 plans under review as of October 24, 2022. Three of those applied under the interim final rule before August 8, 2022. Final rule applications (and supplemented applications) could be submitted effective August 8, 2022. Nine plans have filed applications under the final rule since August 8, 2022. Twenty-six plans that already received SFA under the interim final rule have submitted a supplemented application under the final rule. The deadline for PBGC’s determination process would be December 6, 2022 for the seven supplemented applications that were submitted August 8, 2022.

The upcoming target for PBGC to open the application window to the next priority group is November 15, 2022, when plans projected to become insolvent before March 11, 2026 may apply.

SFA Permissible Investments – American Rescue Plan Act Provision

ARPA provided that SFA funds “shall be segregated from other plan assets, and shall be invested by the plan in investment grade bonds or other investments as permitted by regulations or other guidance issued by the Pension Benefit Guaranty Corporation.” On July 8, 2022, PBGC issued this regulatory guidance. A webcast recorded on August 16, 2022 by PBGC focused on permissible investments for SFA assets. What is considered permissible changed from the interim final rule to the final rule. Below are key takeaways from PBGC staff that could be helpful to trustees and plan service providers.

SFA assets and earnings are segregated from non-SFA assets and may be used any time. SFA assets may be used to make benefit payments and pay plan expenses. The final rule allows for allocation to return-seeking assets (RSA) up to 33%. The remainder of SFA assets—at least 67%—must be allocated to investment grade fixed income (IGFI). These allocations are applicable on the date that an application is filed with PBGC under provisions of final rule.

Rebalancing to 33% Limit on RSA

The 33% limit must be met every time RSA are purchased. Automatic reinvestment of fund distributions are not considered a purchase and the 33% limit must be met once during the past 12 months. PBGC staff noted that return differences in RSA and IGFI or downgrades of IGFI may put RSA over the 33% limit temporarily. Benefit payments can be used to rebalance.

General concepts for permissible investments of SFA assets were listed as the following:

  • Broad, liquid markets
  • Publicly/widely traded
  • Common, simple investments
  • Robust regulatory framework
  • United States markets
  • Derivatives used to gain exposure, not leverage.

The presentation slides listed permissible and impermissible examples for IGFI and RSA.

Check out the full webcast series on PBGC special financial assistance final rule.

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

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