By Pension and Benefits Editorial Staff
The Pension Benefit Guaranty Corporation (PBGC) has announced the release of interim final regulations implementing a new Special Financial Assistance (SFA) Program for financially troubled multiemployer defined benefit (DB) pension plans pursuant to the American Rescue Plan (ARP) Act of 2021 (P.L. 117-2). The Act contains provisions to supply an estimated $94 billion in assistance to eligible plans that are severely underfunded to pay all benefits due during the period beginning on the date of payment of the special financial assistance through the plan year ending in 2051. Additionally, it assists plans by providing funds to reinstate previously suspended benefits.
Upon approval of an application, the PBGC will make a single, lump-sum payment to eligible multiemployer plans to enable them to pay benefits at plan levels. Plans are not required to repay special financial assistance, which is funded by general revenues from the U.S. Treasury.
“The American Rescue Plan provides funding to severely underfunded pension plans that will ensure that over three million of America’s workers, retirees, and their families receive the pension benefits they earned through many years of hard work,” said PBGC Director Gordon Hartogensis. “These benefits are critical to the economic security of so many retirees and their families.”
Interim final regs. The interim final regulations provide the information a plan is required to file to demonstrate eligibility for SFA and the formula to determine the amount of SFA that the PBGC will pay to an eligible plan. The regulations cover the content of an application for SFA, the process of applying, the PBGC’s review of applications, and restrictions and conditions. ARP authorizes the PBGC to prioritize SFA applications of plans in specified groups, and the interim final rule identifies the priority order in which the plans are permitted to apply. More specifically, the regulations identify which plans will be given priority to file applications before March 11, 2023. The interim final rule also outlines a processing system, which will accommodate the filing and review of many applications in a limited amount of time. In addition, the regulations specify permissible investments for SFA funds and establish certain restrictions and conditions on plans that receive SFA.
As to critical status plans, the regulations provide that the conditions for eligibility do not need to be satisfied for the same plan year. The PBGC adds this flexibility in recognition that the filing dates for the certification of plan status and the Form 5500 are not the same. Generally, the due date for filing the certification of plan status is well over a year before the due date for filing the Form 5500 for the same plan year.ERISA Sec. 4262(b)(1)(C) requires, as one of the conditions of eligibility, for critical status plans to have a ratio of active to inactive participants that is less than 2 to 3. The statute does not specify what participant count to use. To fill in this gap, the regulations refer to end-of-year participant counts on the Form 5500.
ERISA Sec. 4262(j)(1) defines the SFA amount as the “amount required for the plan to pay all benefits due during the period beginning on the date of payment of the special financial assistance payment under this section and ending on the last day of the plan year ending in 2051….” According to the PBGC, the statutory language, by requiring the payment of all benefits due, mandates by clear implication the consideration of all plan obligations and resources in determining the amount of SFA that is needed or is “necessary.”
According to the PBGC, ERISA Sec. 4262(f) suggests that a plan may have multiple filing dates by providing two applications deadlines: one for initial applications and one for revised applications. There is no limit to the number of times that a plan sponsor may file revised applications as long as the last revised application is filed by the statutory deadline of December 31, 2026. Once the PBGC has accepted an application for processing, the PBGC believes that it is in the best interest of all parties to avoid the duplicative work and delays that would result if a revised application were to use a different interest rate. To prevent multiple filings for purposes of changing the interest rate, the PBGC has established in the regulations that the assumed interest rate will always be the rate used in the plan’s initial application.
The regulations address the possibility that a plan may implement certain changes that could entitle the plan to more SFA than was intended under ERISA Sec. 4262. In these situations, the amount of SFA that would apply to a plan is limited to the amount of SFA determined as if the events had not occurred. These events include mergers, transfers of assets or liabilities (including spinoffs), certain increases in accrued or projected benefits, and certain reductions in contribution rates. The limitation applies to events that occur between July 9, 2021, and the SFA measurement date.
The PBGC’s review of an application for SFA will focus on the reasonableness of the plan’s and the plan actuary’s demonstration regarding the amount of SFA for the plan.
Applications should include plan information; actuarial and financial information (including the amount of SFA requested); a completed checklist (per the SFA instructions on the PBGC’s website at www.pbgc.gov); the signature of an authorized trustee who is a current member of the board of trustees; a signed penalties of perjury statement; a copy of the executed plan amendment providing that, beginning with the SFA measurement date, the plan must be administered in accordance with the specified restrictions and conditions; a copy of the proposed plan amendment to reinstate benefits and pay make-up payments and certification by the plan sponsor that the plan amendment will be adopted timely; and information required by the PBGC to clarify or verify the information in a filed application. If any of the information required under the regulations and in the SFA instructions is missing from the filed application, the application will not be considered complete. The SFA instructions, including templates, supplement the regulation and provide guidance to plan sponsors and practitioners on how to prepare and file the required application information.
ERISA Sec. 4262(c)(3) requires the PBGC to provide an alternative application for SFA that may be used for a plan approved for a partition before March 11, 2021. The regulations provide an alternative application that a plan sponsor of a partitioned plan must use to apply for SFA. The application contemplates PBGC’s rescission of the partition order and other conditions particular to a partitioned plan. One of these conditions is that the plan sponsor must file a single application for SFA consisting of information about the original plan and the successor plan.
The PBGC is establishing “priority” periods during which an application will be accepted only for a plan that is in the category (or one of the categories) to which the period is limited and provides a table showing when applications for each priority group may begin to be filed. As priority groups open, the PBGC will continue to accept applications from plans in earlier priority groups. The PBGC’s website will provide a notification system to keep prospective applicants apprised of when a filing window opens or closes and (if applicable) to what priority groups filing is limited. The PBGC will accept applications for filing for priority group 1 beginning on July 9, 2021. These plans include plans already insolvent or projected to become insolvent before March 11, 2022.
Effective date and comments. The interim final regulations are effective on July 12, 2021. Comments must be received on or before August 11, 2021 to be assured of consideration. All interested parties may submit their comments on the rule’s provisions here: [email protected] or https://www.regulations.gov. They may also submit written comments to: Regulatory Affairs Division, Office of the General Counsel, Pension Benefit Guaranty Corporation, 1200 K Street NW, Washington, DC 20005-4026. The PBGC strongly encourages commenters to submit public comments electronically. The PBGC expects to have limited personnel available to process public comments that are submitted on paper through mail.
FAQs and guidelines. The PBGC has also issued FAQs concerning the American Rescue Plan Act provisions and guidelines on special financial assistance assumptions. The FAQs discuss the effect the Act will have on multiemployer plans and the provisions of the PBGC interim final regulations. The guidelines cover the changes to certain assumptions that plans may use for purposes of determining eligibility for the SFA and the amount of SFA. Plans may, but are not required to, use the guidelines if they are reasonable for the plan. Guidelines are available for contribution base units (CBUs), administrative expenses, mortality, contribution rates, new entrant profiles, and investment expenses.
Source: PBGC Press Release No. 21-05; 86 FR 36598.
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