Defined-benefit retirement plans, commonly referred to as pensions, aren’t as popular as they used to be — and for good reason. Many such plans are underfunded and in danger of failure.
The Pension Benefit Guaranty Corporation (PBGC), a federal agency, recently published a final rule that sets forth requirements for special financial assistance applications, as well as related restrictions and conditions. These requirements come under the PBGC’s Special Financial Assistance (SFA) Program.
The SFA Program was enacted as part of the American Rescue Plan Act (ARPA) of 2021. The program provides funding to severely underfunded multiemployer pension plans.
To qualify for the SFA Program, plans must demonstrate eligibility for assistance and calculate an assistance amount pursuant to ARPA and PBGC regulations. SFA and earnings must then be segregated from other plan assets. Plans aren’t obligated to repay SFA to the PBGC.
Pensions receiving SFA are also subject to certain terms, conditions and reporting requirements. This includes a requirement to provide an annual statement documenting compliance with those terms and conditions. The PBGC is authorized to conduct periodic audits of multiemployer plans that receive SFA.
Interim and final rule
On July 9, 2021, the PBGC issued an interim final rule setting forth the requirements for special financial assistance applications, as well as related restrictions and conditions, pursuant to the ARPA. In response to public comments received, the PBGC revised the interim final rule, which it has now released in final form. Significant revisions include changes to:
- The SFA measurement date,
- The methodology used to calculate SFA,
- Permissible investments of SFA funds,
- The application of conditions on a plan that merges with a plan that receives SFA, and
- The withdrawal liability conditions that apply to a plan that receives SFA.
The final rule is effective August 8, 2022. Generally, the final rule’s provisions 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.
Plans not approved for SFA under the interim final rule can withdraw and revise their applications under the final rule’s terms. If denied, plans may also revise their applications. The final rule describes how plans that filed applications under the interim final rule may supplement or revise their applications.
Additional comment period
The PBGC has included a 30-day public comment period solely on the change to the withdrawal liability condition requiring a phased-in recognition of SFA assets for purposes of calculating employer withdrawal liability. Contact us for more information on the final rule, as well as for any assistance you might need in managing the financial challenges of your organization’s pension.
We highly recommend you confer with your Miller Kaplan advisor to understand your specific situation and how this may impact you.