An interim final rule (IFR) from the PBGC implementing the program addresses:

• Federal funds to the PBGC
• Eligible plans
• Plans with application priority
• Actuarial assumptions and special rules
• Application process
• Amount of SFA
• PBGC determination on applications
• Permissible investment and other restrictions on SFA
• Additional resources

Although the IFR provides a 30-day comment period and may change, as reflected in a final rule in response to comments received, plan sponsors may rely on the IFR to determine plan eligibility, application procedures and the amount of PBGC assistance plans may request. The PBGC has not provided any information on when it will issue a final rule.

Federal funds to the PBGC

The Treasury Department must transfer federal funds to the PBGC to pay the costs of the SFA program and the PBGC’s related administrative expenses. No transfer may be made after September 30, 2030.

Because there is no dollar limitation on the aggregate amount of funding provided under the SFA program, the PBGC emphasizes that plans will not be disadvantaged by not being in the first priority groups (as discussed below).

Eligible plans

Four types of plans are eligible for SFA:

• Plans certified to be in critical and declining zone status for a plan year beginning in 2020 through 2022
• Plans with an approved suspension under the Multiemployer Pension Reform Act (MPRA) as of March 11, 2021
• Plans that in any of the three plan years beginning in 2020 through 2022 have been certified to be in critical zone status; are under 40 percent funded on a current liability basis; and have an active/inactive ratio which is less than 2 to 3 (these conditions for eligibility do not need to be satisfied in the same plan year)
• Plans that became insolvent after December 16, 2014, have remained insolvent and have not terminated as of March 11, 2021

Plans that have elected to be in critical status but are not certified by the actuary to be in critical status are not eligible for SFA.

Plans with application priority

ARPA provided for priority treatment for some plans. The IFR, to allow the PBGC to manage the workflow, has set six priority groups. Plans that are already insolvent or are projected to be insolvent before March 11, 2022 are in priority group 1. These plans may apply for assistance immediately.

Priority group 2 includes plans that have implemented a MPRA suspension as of March 11, 2021, or that are expected to be insolvent within one year of filing an SFA application. These plans may apply beginning January 1, 2022.

The PBGC also set targeted application dates for plans in priority groups 3–6. The application dates for these categories phase in beginning April 1, 2022. The last priority group application date is currently February 11, 2023. Plans not in or added to a priority group will be able to apply beginning March 11, 2023. For a description of the plans in each priority group and relevant application dates, refer to the PBGC’s website.

The PBGC will process applications based on its capacity. It may institute temporary “holds” on acceptance of new applications. The PBGC will accept applications from each group earlier than the group’s target date if it is able to do so (based on workload).

As mentioned above, most plans will have to wait to until mid-2022 or early 2023 to file an application. As new priority groups open, the PBGC will continue to accept applications from earlier priority groups.

Actuarial assumptions and special rules

In determining eligibility, the PBGC must accept the assumptions used in certifications of critical status and critical and declining status that are completed before January 1, 2021, unless those assumptions are clearly erroneous. For certifications completed after December 31, 2020, the determination of critical or critical and declining status must be made using assumptions that the plan used in its most recently completed certification before January 1, 2021, unless those assumptions (excluding the plan’s interest rate) are unreasonable.

In determining the amount of financial assistance, plans must use the interest rate and other assumptions used in its most recent zone certification completed before January 1, 2021. However, the interest rate used cannot exceed the “interest rate limit.” That limit is defined as the third segment bond rate of the 24-month average yield curve, without applying the 25-year corridor, for either the month in which the application is filed or the preceding three months, plus 200 basis points. That interest rate limit is currently just below 5.5 percent.

To determine eligibility and the amount of SFA, a plan may change prior assumptions if use of one or more of them is unreasonable. The PBGC, in consultation with Treasury, must approve proposed changes. Plans are precluded from changing the interest rate required to be used to determine eligibility for and the amount of SFA.

Concurrent with the IFR, the PBGC posted Special Financial Assistance Guidance on its website for changes to certain assumptions that plans and their actuaries may use to determine eligibility and amount of SFA. Plans are not required to follow that guidance.

The IFR also includes rules regarding mergers, transfers and spinoffs. Transactions completed on or after July 9, 2021 are ignored in the determination of the amount of SFA. This also applies to benefit increases or contribution-rate reductions adopted after that date. These rules are intended to preclude an artificial inflation in the amount of SFA to which a plan is entitled.

Application process

Applications must be submitted electronically using the PBGC’s e-filing portal.

Plans applying for priority consideration will satisfy the requirement to submit an application to the PBGC and to Treasury by just submitting to the PBGC, which will transmit a copy to Treasury.

Plans with a partition that was approved prior to March 11, 2021 must use an alternative application provided by the PBGC.

All applications must be submitted no later than December 31, 2025. Revised applications must be filed by December 31, 2026.

Amount of SFA

SFA provided to a plan is intended to be the amount needed to pay benefits through the end of 2051, using the specified interest rate discussed earlier. The amount of SFA is determined by comparing the value of all of the plan’s obligations to the value of the plan’s resources. Special rules apply if the plan is receiving “regular” financial assistance under the PBGC’s loan program.

Based on this formula, it is clear that:

• Many eligible plans in critical, but not critical and declining, status will not be entitled to receive any SFA.
• SFA is not concerned with whether plans remain solvent after the 2051 plan year.

Participants’ benefits are not required to be reduced (other than as otherwise provided under a rehabilitation plan).

Deterministic projections are required to determine the amount of SFA needed to pay benefits due through 2051.

Reinstatement of suspended benefits and make-up payments

SFA amounts include required reinstated benefits that had been suspended under an approved MPRA suspension or due to plan insolvency. Plans that receive SFA must reinstate benefits effective as of the month in which SFA is received as if the benefit reduction had not occurred. SFA amounts also include make-up payments equal to the benefit amounts that were not paid to an individual because of the MPRA suspension or due to plan insolvency.

Make-up payments are paid to participants and beneficiaries in a single, lump sum or in equal installments over a five-year period (without adjustment), as decided by the plan’s board of trustees, subject to approval as part of the application.

PBGC determinations on applications

Timely filed applications are deemed approved unless the PBGC notifies the plan within 120 days that the application is incomplete, proposed changes or assumptions are unreasonable or that the plan is ineligible. Revised applications are subject to the same rules.

The PBGC expects to pay SFA in a single, lump-sum payment within 60 days of approval, but not later than the 90 days from the date of approval or September 30, 2030, whichever is earlier.

Permissible investments and other restrictions on SFA

The IFR places the following restrictions on investment of SFA: SFA (and earnings) are plan assets but must be segregated from other plan assets and must be invested in investment-grade bonds or other permissible investments.

Permissible investments are those held directly though a portfolio of individual fixed income securities or through permissible fund vehicles with a similar risk profile, including commingled funds (such as exchange traded funds), mutual funds, pooled trusts or other commingled securities with assets invested solely in fixed income securities.

The PBGC seeks additional input on permissible investments.

The following conditions apply during the period plans receive SFA:

• Plans may use either existing plan assets or SFA in any order to pay benefits and administrative expenses.
• Boards of trustees may not adopt benefit increases (excluding benefits that have been reinstated) unless the actuary certifies that such increases are paid for by additional employer contributions.
• The IFR does not place significant restrictions on the allocation of existing plan assets. One restriction, however, is that trustees must invest plan assets, including amounts attributable to SFA, so that the plan is able to pay at least one year of projected benefit payments and administrative expenses.
• SFA is included in assets for purposes of determining withdrawal liability. However, plans are required to use the PBGC’s “mass withdrawal liability” interest rate assumptions for withdrawals occurring after the plan year the plan receives SFA for 10 years or until the last day of the plan year the plan no longer holds SFA (or earnings), whichever is later.
• Withdrawal liability settlements of material size (over $50 million) must be approved by the PBGC.
• Plans are subject to new reporting and audit requirements.
• Plans receiving SFA are deemed to be in critical status until 2051; are precluded from applying for a MPRA suspension; and, in the event of insolvency, are subject to the PBGC guarantee.

Additional resources

The PBGC has posted additional resources and guidance on a designated page on its website, including application instructions, templates, FAQs and checklists. The website also includes information as to applicable filing dates for the priority groups.

Action items

Plans considering applying for SFA should consult with their actuary and other plan professionals as soon as possible to determine:

• Whether they are eligible to file for SFA
• When they would be able to file, if eligible
• Most importantly, what the results of receiving SFA would be under the particular circumstances of their plan

The PBGC has taken a conservative approach in the IFR in interpreting the requirements for SFA under ARPA. While the PBGC’s implementation of the SFA program will provide relief to financially troubled plans, some eligible plans will not get any funds, the SFA available to many plans is unlikely to help plans remain solvent beyond 30 years and, for many plans, will provide far fewer than 30 years of solvency. In effect, a permanent fix for the multiemployer plan pension system has been deferred until a later time.

Segal will continue to analyze the IFR and work with clients in determining the best individualized course of action.

The IRS also issued guidance on the SFA program IRS Notice 2021-38, issued and effective on July 9, 2021, provides SFA-related tax guidance. It addresses rollovers of lump-sum make-up payments and changes in the funding standard account. Additionally, it confirms that no filing of the SFA application is required with the Treasury if the requirements of the IFR are met. Segal will publish a separate insight on that guidance.