On July 8th, 2022, the Pension Benefit Guaranty Corporation (PBGC) published a final rule addressing PBGC special financial assistance into the Federal Register. The final rule would allow up to $91 billion for financially troubled multiemployer pension plans. Initially launched in July 2021 under an interim final rule, the PBGC Special Financial Assistance Program had been open for public comment. Subsequently, the changes within the PBGC’s final rule reflect public concerns. In brief, the PBGC promises better protection for worker pensions under eligible multiemployer plans. Earlier, the PBGC joined the U.S. Department of Labor (DOL) and the Internal Revenue Service (IRS) in a final rule to improve 2022 Form 5500 filing.
The PBGC Special Financial Assistance Program
Enacted as a part of the American Rescue Plan Act of 2021 (ARP), the PBGC Special Financial Assistance Program provides funding to multiemployer pension plans that are otherwise underfunded. With the program’s launch, the PBGC estimated that it would pay approximately $94 billion to over 200 plans. In turn, this would benefit more than 3 million workers and retirees. To receive PBGC special financial assistance plans must demonstrate eligibility in the program and calculate the amount of assistance pursuant to ARP and PBGC’s regulations. Under the previous interim final rule, a plan was eligible if it satisfied one of the following criteria:
- The plan is in critical and declining status in any plan year beginning in 2020 through 2022;
- A suspension of benefits has been approved for the plan under the Multiemployer Pension Reform Act of 2014 (MPRA) as of March 11th, 2021;
- In a plan year beginning in 2020 through 2022, the plan is in critical status, has a “modified funding percentage” (as defined by the law) of less than 40 percent, and has a ratio of active to inactive participants of less than two to three (the requirements do not have to be met for the same plan year); or
- The plan became insolvent after December 16th, 2014, has remained insolvent, and has not been terminated as of March 11th, 2021.
Changes to the PBGC Special Financial Assistance Program
The PBGC’s final rule institutes changes to the program according to over 100 public comments the interim final rule received. These changes address the calculation of financial assistance, permissible investments of funds, the terms and conditions eligible plans must follow, and other important aspects. Under the final rule:
- Plans may invest up to 33% of the program’s funds in return-seeking investments like publicly traded common stock and equity funds that invest in public shares. Meanwhile, the remaining 67% must go to high-quality fixed-income investments.
- A modified calculation method will use different interest rates for a plan’s assets within and outside the program. The PBGC also aligned interest rates according to expected investment returns on a plan’s assets.
- A different method for calculating assistance under the program is used for plans that had suspended benefits under MPRA.
More Information
The changes to the PBGC Special Financial Assistance Program allow plans to project that they can pay benefits through 2051. The amount the program will distribute to a plan will depend on their financial status and the economic conditions when applying. The PBGC estimates that, in sum, the program will distribute $74 billion to $91 billion to eligible plans. At the time of this post, the final rule is available for public comment until August 8th, 2022. However, comments only apply to the final rule’s withdrawal liability condition. The condition will require a phased-in recognition of program assets for computing withdrawal liability. Meanwhile, employers should retain individual records related to employee benefits under these plans for at least six years.