Pension Benefit Guaranty Corp. issues final rule to help struggling pensions

The Pension Benefit Guaranty Corporation (PBGC) issued a final rule enacting changes to the Special Financial Assistance (SFA) Program for financially troubled multiemployer pension plans.

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The SFA Program, enacted as part of the American Rescue Plan Act of 2021 (ARP), provides funding to severely underfunded multiemployer pension plans. It was launched via an interim final rule in July of 2021. Since then, PBGC has approved over $6.7 billion in Special Financial Assistance to plans that cover over 127,000 workers and retirees.

The PBGC received over 100 public comments on many provisions of the interim rule, including the methodology plans must use to calculate the amount of SFA, permissible investments of SFA funds, the conditions imposed on plans that receive SFA, and several other aspects of the interim rule. This final rule includes various changes that came through the public comments.

“Today, President Biden’s American Rescue Plan fulfilled the promise of a secure retirement for millions of America’s workers for decades to come,” U.S. Secretary of Labor Marty Walsh, chair of the Pension Benefit Guaranty Corporation Board of Directors, said. “Without this Special Financial Assistance, the pension benefits of many hardworking union members and their families, through no fault of their own, were in danger. Today’s final rule will improve the financial wellbeing of multiemployer plans receiving Special Financial Assistance and improve their ability to pay pension benefits through 2051.”

Under the final rule, plans can invest up to 33 percent of their SFA funds in return-seeking investments, such as stocks, with the remaining 67 percent restricted to high-quality fixed-income investments. It also modifies the SFA calculation method to use separate interest rates for plans’ SFA and non-SFA assets. It aligns the interest rates used to calculate SFA with reasonable expectations of investment returns on plans’ SFA assets. Further, the final rule provides a different methodology for calculating SFA for plans that implemented benefit suspensions under the Multiemployer Pension Reform Act of 2014. These changes enhance plans’ ability to project that they will be able to pay benefits through 2051.

“The Special Financial Assistance Program provides a lifeline to protect the retirement security of millions of American workers, retirees, and their families,” PBGC Director Gordon Hartogensis said. “The final rule makes thoughtful improvements to the interim final rule and puts severely underfunded pension plans on stronger financial footing.”

The final rule also helps ensure that SFA funds do not subsidize employer withdrawals by requiring plans to phase-in recognition of SFA funds for purposes of computing employer withdrawal liability. In addition, it clarifies the conditions applicable to a plan that merges with a plan that receives SFA and makes changes to the restrictions on plan benefit increases and reallocation of contributions to other plans.

Based on these updates, PBGC estimates that the range of SFA funds to be distributed to plans is likely between $74 billion and $91 billion. The final rule becomes effective on August 8, following a 30-day public comment period.