PBGC Issues Final Rule on SFA for Financially Troubled Multiemployer Pension Plans
The Pension Benefit Guaranty Corporation (PBGC) recently published a final rule implementing changes to the Special Financial Assistance (SFA) Program for financially troubled multiemployer pension plans.
The SFA Program was enacted as part of the American Rescue Plan Act of 2021 (ARPA) and provides funding to severely underfunded multiemployer pension plans. Plans receiving SFA are subject to certain terms, conditions and reporting requirements and may be periodically audited by PBGC.
The SFA Program changes were made in response to public comments received on PBGC’s interim final rule issued on July 9, 2021. PBGC stated that the changes will better protect the pensions earned by workers and retirees covered by multiemployer plans eligible for assistance.
Among other things, the final rule makes various changes that address the public comments received:
- Allows plans to invest up to 33% of their SFA funds in return-seeking investments (e.g., publicly traded common stock and equity funds that invest primarily in public shares), with the remaining 67% restricted to high-quality fixed income investments.
- Modifies the SFA calculation method 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.
- Provides a different methodology for the calculation of SFA for plans that implemented benefit suspensions under the Multiemployer Pension Reform Act of 2014 (MPRA).
The final rule also makes changes to several conditions applicable to plans that receive SFA:
- Helps ensure that SFA funds do not subsidize employer withdrawals by requiring plans to phase-in recognition of SFA funds for purposes of computing employer withdrawal liability.
- Clarifies the conditions applicable to a plan that merges with a plan that receives SFA.
- Makes changes to the restrictions on plan benefit increases and reallocation of contributions to other plans.
In addition, PBGC adopted changes that address stakeholder comments on the application process, including changes that facilitate plans’ SFA calculations and the preparation of SFA application materials.
Generally, the provisions of the final rule apply to new applications and are available to plans that previously submitted SFA applications under the interim rule if the plan submits a revised or supplemented application under the final rule.
The final rule is effective Aug. 8, 2022, and a Fact Sheet is available. PBGC has included a 30-day public comment period solely for the change to the withdrawal liability condition requiring a phased-in recognition of SFA assets for purposes of computing employer withdrawal liability. Comments may be submitted to firstname.lastname@example.org or at Regulations.gov.