Compliance News | December 21, 2023
The PBGC has adopted a final rule clarifying for multiemployer plans the interaction between Special Financial Assistance (SFA) and the determination of withdrawal liability. Specifically, the final rule addresses how amounts:
The final rule, which took effect on December 7, 2023, is consistent with informal guidance that the PBGC issued earlier in the year.
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The PBGC provides SFA to certain financially troubled multiemployer plans that apply and meet certain conditions. The application process and conditions for acceptance were detailed in a PBGC final rule issued on July 8, 2022 and summarized in our insight “PBGC Final Rule on Multiemployer SFA: Solvency Through 2051.” One such condition is that SFA assets be phased in over time for the purpose of calculating withdrawal liability. PBGC provided for a 30-day comment period solely on this condition. Other conditions include the required make-up payment of benefits that had been suspended due to plan insolvency or a suspension of benefits as provided under the Multiemployer Pension Reform Act and the required repayment to the PBGC of traditional financial assistance.
On January 26, 2023, the PBGC published a final rule regarding an exception to the SFA withdrawal liability rules. The January 2023 final rule is summarized in our insight “PBGC Adds Exception to SFA Withdrawal Liability Rules.” After publication of the rule, the PBGC received questions asking for further clarification of the interaction between withdrawal liability phase-in and the other conditions.
On July 19, 2023, the PBGC addressed these questions in informal guidance in the form of frequently asked questions (FAQs) posted on its website.
The guidance in the final rule, which is identical to the guidance in the FAQs, is summarized below.
For purposes of determining the plan’s unfunded vested benefits for calculating withdrawal liability, the final rule provides for a phase-in of SFA assets each year over the projected life of the SFA assets, assuming that plans will use SFA assets first in paying out benefits and expenses. A portion of the total amount of SFA assets is subtracted each plan year from the total plan assets to determine withdrawal liability.
Total Plan Assets*
Total Amount of SFA Assets**
Number of Years Remaining
Assets Used to Determine Withdrawal Liability
Total Number of Years
* Total plan assets include non-SFA assets plus remaining SFA assets.
** This includes interest from the measurement date to the date of SFA payment to the plan, but excludes amounts paid as make-up payments to plan participants and beneficiaries and amounts paid to the PBGC in traditional financial assistance if repaid by the determination date.
Note that at the end of the first plan year in which SFA amounts are received, the numerator and the denominator of the phase-in fraction are the same; therefore the total amount of SFA assets is subtracted from total plan assets used for determining withdrawal liability. The final rule clarifies that the net assets used for calculating withdrawal liability, after subtracting the phased-in SFA amount, cannot be less than zero.
The final rule also increases the maximum lump sum that can be paid in a closeout of a multiemployer plan from $5,000 to $7,000. That change is consistent with the updated dollar limit allowed as of January 1, 2024 under the SECURE 2.0 Act. See our insight “SECURE 2.0 Retirement Reform Becomes Law” for discussion of this and other SECURE 2.0 provisions.
As noted above, the final rule is consistent with the earlier informal guidance on withdrawal liability exclusion of SFA amounts and repayments. No changes are expected in the calculation of withdrawal liability for SFA-recipient plans as a result of this final rule.
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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.