1) PBGC Issues Final Rule on Special Financial Assistance
The Pension Benefit Guaranty Corporation (PBGC) today announced a final rule implementing changes to the Special Financial Assistance (SFA) Program for financially troubled multiemployer pension plans. The changes are responsive to public comments received on PBGC’s interim final rule and will better protect the pensions earned by workers and retirees covered by multiemployer plans eligible for assistance.
“Today President Biden’s American Rescue Plan fulfilled the promise of a secure retirement for millions of America’s workers for decades to come,” said U.S. Secretary of Labor Marty Walsh, Chair of the Pension Benefit Guaranty Corporation Board of Directors. “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.”
“The Special Financial Assistance Program provides a lifeline to protect the retirement security of millions of American workers, retirees, and their families,” said PBGC Director Gordon Hartogensis. “The final rule makes thoughtful improvements to the interim final rule and puts severely underfunded pension plans on stronger financial footing.”
PBGC launched the SFA Program under an interim final rule published in July 2021. 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.
The final rule makes various changes that address the public comments received:
Allows plans to invest up to 33% of their SFA funds in return-seeking investments (e.g., publicly traded common stock and equity funds that invest primarily in public shares); with the remaining 67% restricted to high-quality fixed income investments.
Modifies the SFA calculation method to use separate interest rates for plans’ SFA and non-SFA assets; and aligns the interest rates used to calculate SFA with reasonable expectations of investment returns on plans’ SFA assets.
Provides a different methodology for the calculation of SFA for plans that implemented benefit suspensions under the Multiemployer Pension Reform Act of 2014 (MPRA).
Taken together, these changes enhance plans’ ability to project that they will be able to pay benefits through 2051.
The final rule also makes changes to several conditions applicable to plans that receive SFA:
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.
Clarifies the conditions applicable to a plan that merges with a plan that receives SFA.
Makes changes to the restrictions on plan benefit increases and reallocation of contributions to other plans.
In addition, PBGC adopted changes that address stakeholder comments on the application process, including changes that facilitate plans’ SFA calculations and the preparation of SFA application materials.
Generally, the provisions of the final rule apply to new applications and are available to plans that previously submitted SFA applications under the interim rule if the plan submits a revised or supplemented application under the final rule.
The overall amount of SFA that will be distributed to plans will depend on the financial status of eligible plans and economic conditions at the time plans apply for SFA over the next several years. PBGC has updated its estimates of the cost of the SFA Program to reflect the provisions of the final rule and to incorporate more recent plan and economic data available as of the end of 2021. Based on these updates, PBGC estimates that the likely range of total SFA to be distributed to plans is $74 billion to $91 billion.
The final rule is available for public inspection tomorrow at FederalRegister.gov and is scheduled for publication in the Federal Register on July 8, 2022 [
https://www.federalregister.gov/d/2022-14349]. The final rule becomes effective on August 8, 2022. PBGC has included a 30-day public comment period in this rulemaking, solely on the change to the withdrawal liability condition requiring a phased-in recognition of SFA assets for purposes of computing employer withdrawal liability. All interested parties may submit their comments, suggestions, and views on this provision to reg.comments@pbgc.gov or on
http://www.regulations.gov.
Additional information, including a fact sheet [
https://www.pbgc.gov/sites/default/files/sfa/factsheet.pdf], is available on PBGC’s American Rescue Plan Special Financial Assistance Program webpage [
https://www.pbgc.gov/arp-sfa].
The SFA Program was enacted as part of the American Rescue Plan Act of 2021 (ARP). The program provides funding to severely underfunded multiemployer pension plans and will ensure that millions of America’s workers, retirees, and their families receive the pension benefits they earned through many years of hard work.
The SFA Program requires plans to demonstrate eligibility for SFA and to calculate the amount of assistance pursuant to ARP and PBGC’s regulations. SFA and earnings thereon must be segregated from other plan assets, and plans are not obligated to repay SFA to PBGC. Plans receiving SFA are also subject to certain terms, conditions and reporting requirements, including for an annual statement documenting compliance with the terms and conditions. PBGC is authorized to conduct periodic audits of multiemployer plans that receive SFA.
As of July 6, 2022, under the interim rule, PBGC has approved over $6.7 billion in Special Financial Assistance to plans that cover over 127,000 workers and retirees.
2) FACT SHEET: President Biden Announces Historic American Rescue Plan Pension Relief for Millions of Union Workers and Retirees
The Special Financial Assistance Program will protect millions of workers in multiemployer pension plans who faced significant cuts to their benefits.
Multiemployer plans are created through agreements between employers and a union, with plans typically involving multiple employers in a single industry or related industries. A typical worker whose multiemployer plan became insolvent would see their expected pension benefits slashed substantially. Before the American Rescue Plan, workers and retirees participating in more than 200 multiemployer pension plans faced the prospect of not receiving the full benefits they earned and need to support them and their families in retirement.
These plans are insured by a federal agency, the Pension Benefit Guaranty Corporation (PBGC). PBGC provides partial protection of the benefits of approximately 10.9 million workers and retirees in approximately 1,400 private-sector multiemployer, union-connected plans. Prior to the America Rescue Plan, the PBGC’s multiemployer pension insurance program was projected to become insolvent in 2026.
Named for heroic Ohio union leader and pension advocate Butch Lewis, the American Rescue Plan’s Special Financial Assistance program will provide financial relief to struggling multiemployer pension plans and ensure that millions of families facing benefit cuts will receive their full benefits they earned.
Under the program, financially struggling multiemployer pension plans can apply to the PBGC for assistance. PBGC issued an Interim Final Rule implementing the program in July 2021. Unions, employers, and other key stakeholders provided important comments that PBGC and the three Cabinet agencies that constitute its Board of Directors (the Labor, Treasury, and Commerce Departments) considered in developing the Final Rule. Important policy changes from the Interim Final Rule to the Final Rule include:
Addressing the amount of Special Financial Assistance needed to better achieve the goal of allowing plans to remain solvent until 2051. The interim final rule applied a single rate of return included in the statute that is higher than could be expected for Special Financial Assistance funds given that they were required to be invested exclusively in safe, but low-return, investment-grade fixed income products. The final rule uses two different rates of return for SFA and non-SFA assets so that the interest rate for SFA assets is more realistic given the investment limitations on these funds. This policy fix will help ensure that all multiemployer plans that receive assistance will receive sufficient funds to remain solvent until 2051.
Responsible permissible return-seeking investments: The final rule allows 33% of Special Financial Assistance to be invested in return-seeking assets that are projected to allow plans to receive a higher rate of return on their investments than under the interim final rule, but subject to strict protections. This portion of plans’ SFA funds generally must be invested in publicly traded assets on liquid markets to ensure responsible stewardship of federal funds. These return-seeking investments include equities, equity funds, and bonds. The other 67% of SFA funds must be invested in investment-grade fixed-income products.
Ensure MPRA plans could confidently restore both past and future benefits and enter 2051 with rising assets. PBGC designed the final rule to ensure that no MPRA plan – the 18 multiemployer plans that remained solvent by cutting benefits pursuant to the Multiemployer Pension Reform Act of 2014 (MPRA) – was forced to choose between restoring their benefit payments to previous levels and remaining indefinitely solvent, as required by the Act. The final rule ensures that all 18 MPRA plans avoid this dilemma, with enough assistance so that these plans can both restore benefits and be projected to remain indefinitely solvent going into 2051.
Taken together, these changes ensure that all plans that receive Special Financial Assistance are projected to be solvent and pay full benefits through at least 2051.
https://www.whitehouse.gov/briefing-room/statements-releases/2022/07/05/fact-sheet-president-biden-announces-historic-american-rescue-plan-pension-relief-for-millions-of-union-workers-and-retirees/
3) Remarks by President Biden on the American Rescue Plan’s Special Financial Assistance Program
https://www.whitehouse.gov/briefing-room/speeches-remarks/2022/07/06/remarks-by-president-biden-on-the-american-rescue-plans-special-financial-assistance-program/
4) Statement from Secretary of the Treasury Janet L. Yellen on the Release of the Final Pensions Rule
https://home.treasury.gov/news/press-releases/jy0853
5) Statement from U.S. Secretary of Commerce Gina Raimondo on New Rule Protecting Americans’ Pensions
https://www.commerce.gov/news/press-releases/2022/07/statement-us-secretary-commerce-gina-raimondo-new-rule-protecting
6) Protecting Pensions for America’s Workers by Secretary of Labor Marty Walsh
https://blog.dol.gov/2022/07/06/protecting-pensions-for-americas-workers