July 2022 Compliance News Article

Pension Benefit Guaranty Corporation (PBGC) issued a final rule that updates the Special Financial Assistance (SFA) Program for underfunded multiemployer defined benefit plans. The Internal Revenue Service (IRS) has also issued Revenue Ruling 2022-13, which describes how the funding status of two merged multiemployer defined benefit plans would be determined when one plan receives SFA.

Background

The American Rescue Plan Act (ARPA), which was signed into law on March 11, 2021, created a way for certain troubled multiemployer plans to receive a lump sum in order to make benefit payments through the last day of the plan year ending in 2051. In July 2021, PBGC issued an interim final rule which provided more information on how plans can apply, under what conditions applications may be approved, and what restrictions plans that receive assistance will face.

Changes

The final rule contains the following changes from the interim rule based on feedback received from public comments:

The SFA calculation method has been modified to use separate interest rates for SFA and non-SFA assets.
Plans will be allowed to invest up to 33% of their SFA funds in return-seeking investments such as equity funds and bonds. The remaining 67% can be invested in high-quality fixed income investments.
A new methodology for the calculation of SFA for plans that implemented benefit suspensions under the Multiemployer Pension Reform Act of 2014 (MPRA).

Additionally, there are several changes to conditions for plans that receive SFA:

If the plan can demonstrate that insolvency will be avoided, retroactive and future benefit improvements can be allowed after 10 years with PBGC approval.
Certain conditions can be removed or waived to allow for the merger of an SFA plan with a non-SFA plan.
With PBGC permission and after 5 years, up to 10 percent of the amount of the contribution rate going to the pension plan can be reallocated to a health plan if the SFA plan can demonstrate that it will not increase the plan’s risk of insolvency and that the reallocation is needed to address an increase in healthcare costs required by a change in federal law.
The calculation of withdrawal liabilities must use “Interest Rate Used to Value Benefits” from appendix B of ERISA 4044. The interest rate requirement applies for the later of 10 years or the projected SFA payout period, rather than the actual depletion of SFA assets. Plans must also phase in recognition of SFA assets over the projected SFA payout period.

The final rule is effective on August 8, 2022 and is applicable to plans that apply or have applied for SFA. Comments on the withdrawal liability condition must include the title, Special Financial Assistance by PBGC, and commenters are encouraged to submit electronically by:

Federal eRulemaking Portal: https://www.regulations.gov. Follow the online instructions for submitting comments.
Email: reg.comments@pbgc.gov.

Revenue Ruling 2022-13

IRS Revenue Ruling 2022-13 describes a scenario in which two multiemployer plans undergo a merger. Plan A is certified by the plan’s actuary to be in critical funding status. The plan applies for and receives SFA from PBGC. That plan then merges with Plan B, which has not applied for or received SFA, and Plan B becomes the ongoing plan. According to the Revenue Ruling, the ongoing plan is not deemed to be in a critical funding status solely as a result of the merger.

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