Compliance News | August 21, 2023

GAO: PBGC's SFA Interest Rates OK Under Appropriations Law

The Government Accountability Office (GAO) has determined that the PBGC did not violate its appropriations authority when adopting two interest rates for projecting the amount of multiemployer DB relief in the form of special financial assistance (SFA) needed.

The GAO’s narrow decision on appropriations law was in response to a query from the PBGC’s Inspector General whether the PBGC’s final rule approach raised issues under the Antideficiency Act.

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The American Rescue Plan Act (ARPA) amended ERISA to provide SFA to certain distressed multiemployer pension plans in amounts sufficient to pay all benefits due and administrative costs through 2051. ARPA did not limit the cost of that relief other than to set assumptions for determining the amount of financial need. The PBGC was required to issue regulations or guidance on the SFA program, including SFA calculations.

The PBGC’s regulations

The PBGC issued an interim final rule (IFR) implementing the SFA program. The IFR required plans to use a single interest rate to project the shortfall of plan resources to expected benefit payments and expenses. The PBGC’s final rule uses two interest rates — one for non-SFA plan assets and one for SFA assets.

The PBGC explained in the preamble to the final rule the reason for using two interest rates: Because plans are required to segregate SFA assets from other plan assets and invest the SFA assets mainly in investment-grade bonds, the use of a separate interest rate assumption for projecting the value of SFA amounts needed was appropriate. (See our July 7, 2022 insight on the final rule.)

The Antideficiency Act

The Antideficiency Act prevents a government agency from spending funds that were not appropriated by Congress for an authorized expense.

The query from the PBGC’s Inspector General

On August 10, 2022, PBGC’s Inspector General requested a determination from GAO as to whether PBGC exceeded it appropriations authority in setting a separate interest rate for SFA assets as opposed to non-SFA assets which are not subject to the same investment restrictions. The use of the separate rate resulted in an increase in the PBGC’s projected amount of SFA payments.

GAO found no appropriations violation

In a decision issued on August 9, 2023, the GAO determined that the PBGC was authorized to use the funds necessary to provide SFA and, therefore, had not violated the Antideficiency Act.

The GAO decision resolves concerns regarding the PBGC’s appropriations authority, which is welcome news to active participants, retirees and beneficiaries in both SFA-recipient plans and SFA-eligible plans.

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This page is for informational purposes only and does not constitute legal, tax or investment advice. You are encouraged to discuss the issues raised here with your legal, tax and other advisors before determining how the issues apply to your specific situations.