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Fast Times for PBGC Special Financial Assistance

Practice Management

Speed has been a hallmark of the Pension Benefit Guaranty Corporation’s (PBGC) Special Financial Assistance (SFA) Program throughout its brief — less than two-years — life. And that’s not changing anytime soon — at least not this year. 

The PBGC indicates it’s not going to waste any time in furthering refinement of SFA procedures. This time, the agency is acting posthaste in response to a recently released report in which the Office of the Inspector General (OIG) found that the PBGC did not conduct all the analyses and assessments that it could have before implementing the program. 

About the SFA Program

 

On March 11, 2021, the American Rescue Plan (ARP) Act of 2021 was enacted. Among its many effects was adding Section 4262 to ERISA, which created the SFA Program administered by the PBGC.

The PBGC scrambled to ready the SFA Program, which is intended to provide eligible multiemployer pension plans with assistance for those plans to pay all benefits due during the period beginning on the date of payment of SFA through the plan year ending in 2051. It quickly drafted SFA regulations, provided guidance for multiemployer plans, established an SFA application review process, and launched the program. 

On July 9, 2021, the PBGC issued an interim final rule setting forth the requirements for SFA applications and related restrictions and conditions in accordance ARPA. One year later, it issued a final rule setting forth the requirements for SFA applications and related restrictions and conditions in accordance with the ARP. 

The PBGC in January 2023 issued another final rule, this time amending the SFA regulation to add an exception process for certain withdrawal liability conditions that apply to a plan that receives SFA. This rule: 

  • sets forth what information a plan is required to file to demonstrate eligibility for SFA and the formula to determine the amount of SFA that the PBGC will pay to an eligible plan; 
  • outlines a processing system, which will accommodate the filing and review of many applications in a limited amount of time; and 
  • specifies permissible investments for SFA funds and establishes certain restrictions and conditions on plans that receive SFA. 

The OIG Findings

 

The OIG suggests that even with the adjustments it has made, the PBGC may have been a bit hasty in crafting the SFA program and implementing its rules. They say that the PBGC did not: 

  • formally assess and document fraud risks;
  • sufficiently define risk tolerances;
  • establish review procedures for exceptions;
  • formalize final review procedures; nor 
  • design a control that would ensure timely review of SFA applications. 

The PBGC’s Office of Negotiations and Restructuring, which oversees much of the review process for SFA applications, did not conduct a fraud risk assessment for the SFA program and specifically document procedures to effectively mitigate potential fraud. A formal fraud risk assessment, the OIG says, might have uncovered additional strategies to mitigate risk. Without such an assessment and other fraud strategies, the OIG warns that the PBGC is at risk for fraud. In addition, it says, eligibility risks will increase as the window opens for multiemployer plans that are not part of a priority group.

Therefore, says the OIG, “current procedures are not sufficient to ensure timely delivery of accurate SFA amounts to eligible plans.” Further, it says that while procedures “are adequate for identifying plans eligible for SFA in priority groups,” additional procedures are needed as the period for assisting those priority groups ends.

OIG Not Alone. The OIG is not the first agency to issue a cautionary report concerning the still-new SFA Program. In a Sept. 30, 2022 letter to Rep. Virginia Foxx (R-NC), then Ranking Member of the House Education and Labor Committee, and Rep. Jason Smith (R-MO), then Ranking Member of the House Budget Committee, the Congressional Budget Office (CBO) said that it expected that the SFA Program would cost $90 billion in a decade. Its findings included that adjustments the PBGC made to its SFA procedures in 2022 that included the use of the lower assumed rate of return, would result in lower total assumed earnings on SFA assets — and therefore a larger amount of total assistance through the program. 

‘To-Do’ List

 

The OIG made eight recommendations for actions that the PBGC Office of Negotiations and Restructuring should pursue to improve the SFA program. 

1. Conduct a fraud risk assessment for the SFA program.
2. Develop mitigation strategies for risks that require remediation. 
3. Develop procedures to detect multiemployer plans that may manipulate ratios to qualify for SFA.
4. Develop procedures for review of changed assumptions that affect the SFA amount by a threshold percentage.
5. Develop procedures to review certain changed assumptions to ensure in-depth analysis and review of exceptions, as well as consistent review of historical data for outliers, one-time items, and other anomalies. 
6. Develop procedures for reviewing the impact of inflation on administrative expenses.
7. Develop and document procedures for management reviews of the concurrence package for SFA applications. 
8. Review the control for timeliness to help ensure that the SFA application review process is completed in 120 days.

PBGC Response 

 

The OIG reports that the PBGC has agreed with the recommendations. Further, the PBGC Office of Negotiations and Restructuring plans to take the following steps: 

  • conduct a formal fraud risk assessment to fully consider specific fraud risks the Corporation and program faces; 
  • develop and implement mitigation strategies for risks that require remediation; 
  • refine its procedures to better document eligibility review procedures including those related to qualifying ratios; 
  • develop and add procedures for additional review of certain changed assumptions that impact SFA amount by a threshold percentage; 
  • design specific procedures documenting the appropriate analysis and review that should be conducted on exceptions, outliers, and anomalies; 
  • document its procedures for reviewing the impact of inflation on administrative expenses and saving supporting documentation in the case file; 
  • develop and document procedures for management’s final review of SFA applications (the concurrence package); and 
  • review the control ensuring timely processing of applications and consider any changes needed We evaluated the Corporation’s response and planned actions and determined they met the intent of the recommendations. 

Coming Soon

 

The OIG says that the PBGC plans to take those steps in the next three to six months. 

Step When the PBGC Plans to Complete it
Conduct a formal fraud risk assessment June 30, 2023
Develop and implement mitigation strategies for risks requiring remediation Sept. 30, 2023
Refine procedures to better document eligibility review procedures  June 30, 2023
Develop and add procedures for additional review of certain changed assumptions that affect SFA amount by a threshold percentage June 30, 2023
Design specific procedures documenting the appropriate analysis and review that should be conducted on exceptions, outliers, and anomalies Sept. 30, 2023
Document procedures for reviewing the impact of inflation on administrative expenses and saving supporting documentation in the case file June 30, 2023
Develop and document procedures for management’s final review of SFA applications June 30, 2023
Review the control to ensure timely processing of applications June 30, 2023

 

“We evaluated the Corporation’s response and planned actions and determined they met the intent of the recommendations,” says the OIG.