SFA Application: Through the Forest and Into the Weeds

The Road Carriers Local 707 Pension Fund , which was the first plan to seek bailout money under the PBGC Special Financial Assistance (SFA) program for troubled multiemployer plans, has their 425-page application uploaded on the SFA website.

Don’t be daunted. The first 411 pages are backup material. It is the last 14 pages where they get to calculating bailout money. Here is a précis with page numbers and what the PBGC found wrong with this application.

2) Submission signed: August 12, 2021

4) Amount requested: $706,400,534

7) Contributing Employers not revealed since plan has under 10,000 participants

9) “The Trustees of the Plan have decided to pay back the restored benefits in a lump sum check as allowed by ERISA Section 4262 effective July 1, 2021, the effective date. The aggregate amounts of payments is $121,316,426.”

18-28) SFA Checklist

29-154): Latest three actuarial valuation reports

155-164) Recent plan amendments

165-168) Plan asset data

170-172) Latest IRS Determination Letter on Plan – October 2, 2015

173-255) Plan Document

256-310) Latest 5500 filing including accountant opinion (though this is public information)

311-364) Bank information including listing of PBGC financial assistance so far ($49,664,300)

365-411) PPA Rehabilitation plan in place

412-425) SFA calculations which is a fairly simple spreadsheet calculating the present value of the liabilities of all current participants (pages 419-420) and coming up with one amount ($706,400,534) to cover all their liabilities through 2051. New entrants presumably will be covered by new negotiated contributions and, after 30 years though if any of the current participants survive until 2051 they will presumably need another bailout.

The problem PBGC has with this filing appears to be that an interest rate of 5.32% was used for valuing liabilities which happens to be 2% plus the first HATFA Segment Rate when it is the third PPA Segment Rate to which the 2% should have been added. Per the IRS website (scroll down a little to Funding Table 3), that rate would likely have been the April, 2021 rate of 3.52% which would have made 5.52% the rate to be used for valuing liabilities (thus lowering the liability value as the higher the interest rate the lower the value). The tricky part is that the PPA third Segment Rate has been going down and is now 3.34% as of October, 2021.

5 responses to this post.

  1. Posted by Ray Shorter on October 25, 2021 at 1:20 pm

    In simple English, what’s the problem and what’s the solution?

    Reply

    • 707 used the wrong interest rate for valuing liabilities. We have computers now so in the type of system I am used to working with this would take about two minutes to rerun the spreadsheet. The unknown may be which interest rate to use and rates are dropping again and holding off could mean a higher lump sum payout.

      Reply

      • Posted by Ray Shorter on October 25, 2021 at 10:21 pm

        If that’s the only problem, they’ve got to be getting close to the end. Can you believe 600, 700 page application.

        Reply

  2. Posted by aon12345 on November 8, 2021 at 7:30 pm

    And once again you prove your ignorance. While the rate that was used is incorrect it is known what rate to use. The application set the timing of the rate and that cannot change (as stated in the law). They may have looked up the wrong rate but the correct table is known and will simply be corrected.

    Reply

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