PBGC Multiemployer Pension Bailout – The Weeds

The Pension Benefit Guaranty Corporation (PBGC) on July 9, 2021 announced an interim final rule implementing a new Special Financial Assistance (SFA) Program for financially troubled multiemployer defined benefit pension plans.

What struck me:

This document contains an interim final rule that sets forth the requirements for special financial assistance applications and related restrictions and conditions pursuant to the American Rescue Plan Act of 2021. (page 1)

This interim final rule adds to the regulations of the Pension Benefit Guaranty Corporation (PBGC) a new part 4262 to implement the requirements under section 9704 of the American Rescue Plan Act of 2021, “Special Financial Assistance Program for Financially Troubled Multiemployer Plans.” (page 3)

It is expected that over 100 plans that would have otherwise become insolvent during the next 15 years will instead forestall insolvency as a direct result of receiving SFA. Section 9704 of ARP amends section 4005 of ERISA to establish an eighth fund for SFA from which PBGC will provide SFA to multiemployer plans under the program created by the addition of section 4262 of ERISA. The eighth fund will be credited with amounts from time to time as the Secretary of the Treasury, in conjunction with the Director of PBGC, determines appropriate, from the general fund of the Treasury Department. Transfers from the general fund to the eighth fund cannot occur after September 30, 2030. (page 6)

Unlike the financial assistance provided under section 4261 of ERISA, which is in the form of a loan and provided in periodic payments, a plan receiving SFA under section 4262 has no obligation to repay SFA, and PBGC must pay SFA in the form of a single, lump sum payment. (page 7)

There are four types of multiemployer plans identified in section 4262(b)(1) of ERISA that are eligible to apply for SFA under § 4262.3 of PBGC’s regulation.  This exclusive list consists of:
(1) A plan in critical and declining status (within the meaning of section 305(b)(6) of ERISA) in any plan year beginning in 2020, 2021, or 2022.
(2) A plan with a suspension of benefits approved under section 305(e)(9) of ERISA as of the date ARP became law (March 11, 2021).
(3) A plan certified to be in critical status (within the meaning of section 305(b)(2) of ERISA) that has a modified funded percentage of less than 40 percent and a ratio of active to inactive participants which is less than 2 to 3, in any plan year beginning in 2020, 2021, or 2022.
(4) A plan that became insolvent for purposes of section 418E of the Internal Revenue
Code (the Code) after December 16, 2014 (the date MPRA became law), has remained insolvent,
and has not terminated under section 4041A of ERISA as of March 11, 2021. (pages 8-9)

Section 4262(m)(1) of ERISA expressly authorizes PBGC, in consultation with the Secretary of the Treasury, to impose reasonable conditions “on an eligible multiemployer plan that receives special financial assistance” relating to certain aspects of plan terms or operations. Such conditions include those relating to the diversion of contributions to, and allocation of expenses to, other benefit plans; increases in future accrual rates and any retroactive benefit improvements; and reductions in employer contribution rates. PBGC’s authority to impose reasonable conditions under section 4262(m)(1) is not limited to restrictions on a plan following its receipt of SFA given that these conditions apply to a plan that “receives” SFA, rather than a plan that has received SFA. (page 22)

PBGC estimates that over the next 3 years an annual average of 60 plan sponsors will file applications for SFA (39 in 2021, 69 in 2022, and 71 in 2023)….PBGC estimates that over the next 3 years an annual average of 49 plan sponsors will file Annual Statements of Compliance (0 in 2021, 39 in 2022, and 108 in 2023). PBGC needs the information in this statement to ensure that a plan is compliant with the conditions imposed upon its receiving SFA. (page 78)

One response to this post.

  1. […] Posted on July 12, 2021July 12, 2021 by Mary Pat Campbell PBGC Multiemployer Pension Bailout – The Weeds […]

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