PBGC, IRS Issue Further Guidance on Special Financial Assistance

The Pension Benefit Guaranty Corporation (PBGC) and the IRS on July 7 issued fresh guidance on special financial assistance (SFA) applications. 

More specifically, the PBGC issued a final rule setting forth the requirements for SFA applications and related restrictions and conditions in accordance with the American Rescue Plan Act of 2021 (ARPA). For its part, the IRS issued Revenue Ruling 2022-13, which describes the determination of deemed critical status regarding the merger of a multiemployer defined benefit plan that receives SFA from the PBGC into a multiemployer DB plan that does not receive it.

PBGC Interim Final Rule

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. The PBGC is making changes to its regulation in response to public comments it received. The just-issued final rule is applicable to plans that apply or have applied for special financial assistance.

Under the final rule, for a plan that received SFA under Section 4262 of ERISA (which creates a program to enhance retirement security by providing SFA to financially troubled multiemployer plans and sets forth the provisions for SFA) before this PBGC rule is effective:

• ERISA Section 4262.14 will not apply unless and until the plan files a supplemented application. Before the date that the plan does so, the rules under Section 4262.14 in effect before the rule is effective apply to the plan. 
• ERISA Section 4262.16(g)(2) also will not apply unless the plan files a supplemented application under this final rule. If the plan does so, Section 4262.16(g)(2) applies to the plan in determining withdrawal liability for withdrawals occurring on or after the date the plan files the supplemented application.

Following are summaries of regulatory changes that the interim final rule makes. 

Expansion of SFA Permissible Investments 

The final rule amends ERISA Section 4262.14 to allow plans to invest up to 33% of SFA assets in return-seeking assets, e.g., U.S. equities. 

Determination of the Amount of SFA

Regarding the use of a separate interest rate applied for the projection of SFA assets, the final rule amends Section 4262.4 to include a separate interest rate assumption applicable for the projected SFA assets in the calculation used to determine a plan’s SFA amount. 

Regarding the calculation methodology for plans with an approved MPRA benefit suspension as of March 11, 2021, the final rule amends Section 4262.4 to specify a revised methodology for the calculation of SFA for plans with an approved suspension of benefits under the Multiemployer Pension Reform Act of 2014 (MPRA) as of March 11, 2021. 

Conditions Relating to Benefit Improvements 

The final rule amends Section 4262.16(b) to add a process by which a plan may request a determination from the PBGC for an exception from the conditions prohibiting prospective and retrospective benefit increases if future plan circumstances permit the benefit increases without endangering the plan’s ability to pay all benefits. 

Under the new provision, beginning 10 years after the end of the plan year in which a plan receives payment of SFA, the plan may apply for an exception by demonstrating to the satisfaction of PBGC—taking into account the proposed benefit increase—that the plan will avoid insolvency.

Conditions Relating to Allocation of Contributions and Other Income 

The final rule amends Section 4262.16(e) to add a process by which a plan may request a determination from the PBGC for a limited exception from the condition prohibiting a decrease in the proportion of contributions allocated to a plan that receives SFA if future plan circumstances permit the reallocation of contributions without endangering the plan’s ability to pay all benefits. 

Under the new provision, beginning five years after the end of the plan year in which a plan receives payment of SFA, the plan may apply for an exception by demonstrating to the satisfaction of PBGC, taking into account the proposed reallocation of contributions, that the plan will avoid insolvency and that the reallocation is needed due to a significant increase in health benefit costs due to a change in federal law. 

Condition Related to Withdrawal Liability 

The final rule amends Section 4262.16(g) to modify the period for which a plan must use the interest assumptions in appendix B to 29 CFR part 4044 of the PBGC’s regulations in determining the UVBs of the plan under Section 4213(c) of ERISA for purposes of determining an employer’s withdrawal liability. 

Under Section 4262.16(g) of the interim final rule, the interest assumptions in appendix B to part 4044 are applicable until the later of 10 years and the last day of the plan year in which the plan no longer holds any SFA assets. The final rule revises the latter date to the last day of the plan year in which the plan projects that it will exhaust any SFA assets (extended by the number of years, if any, that the first plan year of payment is after the plan year that includes the SFA measurement date). 

The final rule under Section 4262.16(g)(2) adds a condition relating to withdrawal liability for a plan that receives SFA. This condition requires plans to recognize over time the amount of SFA received by the plan for the purpose of determining the plan’s UVBs for calculating withdrawal liability. The amount of SFA is phased in for withdrawal liability purposes each year over the projected life of SFA assets (determined as if SFA assets and earnings thereon are exhausted before other plan assets are used to pay benefits and expenses).

Conditions Applicable to Merged Plans 

The final rule amends Section 4262.16(f) to provide that there are conditions will not apply after the merger to the merged plan; specifically, conditions relating to:

• prospective benefit increases under Section 4262.16(b)(2);
• allocation of plan assets under Section 4262.16(c); and 
• allocating expenses under Section 4262.16(e) 

In addition, as part of a request for approval of a merger between plans where one or more plans are SFA plans, the PBGC will provide a waiver of the conditions on retroactive benefit increases and contribution decreases in Section 4262.16(b)(1) and (d) if prescribed requirements are met. 

If the requirements for a waiver are not met, the final rule provides that these two conditions will apply, as applicable, to participants in, or employers, that have an obligation to contribute to, the SFA plan immediately before the merger. The withdrawal liability conditions in Section 4262.16(g) will not be waived. Those conditions, however, are limited to the determination of UVBs that arose under the SFA plan before the date of the merger for purposes of allocating UVBs under subpart D of part 4211 and determining withdrawal liability for employers that participated in the SFA plan.

Finally, the restrictions on SFA in Section 4262.13(b) and conditions in Sections 4262.16, 4262.16(h), 4262.16(i) and 4262.16(j) continue to apply to the merged plan.

Revenue Ruling 2022-13

Rev. Rul. 2022-13 addresses the applicability of section 432(b)(7) following a merger involving a multiemployer defined benefit plan that has received special financial assistance.

The IRS says that after a merger of a multiemployer DB plan that has received SFA from the PBGC with a second multiemployer DB plan that has not received SFA—with the second plan designated as the ongoing plan after the merger—the ongoing plan is not deemed to be in critical status under Code Section 432(b)(7) solely because of the merger.

Public Comments Invited 

The PBGC will accept comments, but they should address only the withdrawal liability condition in Section 4262.16(g)(2). They must be received on or before 30 days after the interim final rule appears in the Federal Register.

Comments may be submitted by any of the following methods: 

• Through the federal eRulemaking Portal: https://www.regulations.gov. Follow the online instructions for submitting comments. 
• By email to [email protected]. 
• By mail or hand delivery to: Regulatory Affairs Division, Office of the General Counsel, Pension Benefit Guaranty Corporation, 1200 K Street NW, Washington, DC 20005–4026. 

All submissions must include the agency’s name (Pension Benefit Guaranty Corporation, or PBGC) and title for this rulemaking (Special Financial Assistance by PBGC) and the Regulation Identifier Number for this rulemaking (RIN 1212-AB53). 

Effective Date

The PBGC’s final interim rule will be effective 30 days after it appears in the Federal Register, which is set to occur on July 8, 2022. IRS Revenue Ruling 2022-13 will appear in Internal Revenue Bulletin 2022-30, which will be issued on July 25, 2022.

Additional Rules Possible 

The PBGC says that it is considering issuing guidance to address the records and information that plans that receive SFA will need to maintain and retain to comply with title I of ERISA.