Under ERISA, enacted in 1974, the Pension Benefit Guaranty Corp. has separate insurance funds established for private employer plans and multiemployer plans. A multiemployer plan was a plan resulting from one or more collective bargaining agreements involving two or more unrelated employers.
The multiemployer fund is estimated to apply to 10.9 million workers in 1,400 plans. In addition to 18 multiemployer pension plans that had reduced benefits pursuant to the Multiemployer Pension Reform Act of 2014, the PBGC estimated that an additional 200 multiemployer plans were in danger of becoming insolvent in the near term. An estimated 2 to 3 million workers or retirees were projected to lose their full benefits. The PBGC projected that its multiemployer pension insurance program would become insolvent in 2026.
As a result of these projections, the American Rescue Plan Act of 2021 included in Section 9704 a provision for a special financial assistance program for multiemployer plans funded with $94 billion. Unlike earlier PBGC assistance under ERISA, which provided financial assistance loans to pay guaranteed assistance amounts, the SFA funds provided by the PBGC are not required to be repaid.
The PBGC estimates that the SFA program will insure solvency for the multiemployer pension insurance program at least through 2051.
In implementing Section 9704 of ARPA, the PBGC, in consultation with the Treasury Department, issued an interim final rule in July 2021. On July 8, 2022, the PBGC issued its final rule.
Eligible plans
In order to be eligible for SFA, a multiemployer plan must meet one of four criteria:
1. A plan in critical and declining status (within the meaning of ERISA Section 305(b)(6)) in any plan year beginning in 2020, 2021 or 2022;
2. A plan with a suspension of benefit approved under ERISA Section 305(e)(9) as of March 11, 2021;
3. A plan certified to be in critical status under ERISA Section 305(b)(2) that has a modified fund percentage of less than 40% and a ratio of active to inactive participants that is less that 2 to 3, in
any plan year beginning in 2020, 2021 or 2022; or,
4. A plan that became insolvent for purposes of IRC Section 418-E after Dec. 16, 2014, and which has remained insolvent and has not terminated under ERISA Section 4041A as of March 11, 2021.
Changes from the interim rule
The final rule makes a number of changes from the interim final rule, generally in response to comments received with respect to provisions in the interim rule:
- The application procedures are clarified, and a “lock-in application” procedure is established.
- The SFA measurement dates are modified.
- Changes are made to provide more accurate rate-of-return projections.
- More flexible investment options are provided, permitting up to 33% of the pension fund to be invested in return-seeking assets.
- Conditions are imposed on a plan that merges with a plan receiving SFA.
- Benefits are restored for 18 multiemployer pension plans that cut benefits under the MPRA, affecting approximately 80,000 workers and retirees.
- Withdrawal liability conditions are established, including a partial phase-in of SFA.
The only issue upon which additional comments are invited under the final rule is with respect to this last change — the phased recognition of SFA in a plan’s determination of withdrawal liability. Although comments may be sent by mail, the PBGC encourages comments to be sent electronically at www.regulations.gov or by email to reg.comments@pbgc.gov. Comments are to refer to PBGC, Special Financial Assistance by PBGC, RIN 1212-AB53. All comments will be made public.
Effective date
The final rule will become effective 30 days after publication in the Federal Register. Plans must apply for SFA, and plans that have applied for financial assistance in the past must file a supplemental application. The final rule includes a discussion of the comments received in response to the interim final rule and why that comment was accepted in whole or in part or rejected.
Summary
The SFA program is expected to help protect retirement benefits for 2 to 3 million workers and retirees in some 200 multiemployer plans that otherwise might have become insolvent in the near term. It also retroactively restores retirement benefits for around 80,000 workers and retirees in 18 multiemployer plans that had reduced retirement benefits under MPRA. The funding for the SFA program is expected to postpone possible insolvency of the multiemployer pension insurance program from 2026 to at least 2051.
However, rather than being funded by funds coming from the employers of the plans, as was the case originally under ERISA, the $94 billion in funding for the SFA program will come from general government revenues with no requirement for repayment from the employers involved with the multiemployer plans.
