Special Financial Assistance by PBGC

Federal RegisterJul 8, 2022

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PENSION BENEFIT GUARANTY CORPORATION

29 CFR Part 4262

RIN 1212-AB53

Special Financial Assistance by PBGC

AGENCY:

Pension Benefit Guaranty Corporation.

ACTION:

Final rule with request for comment.

SUMMARY:

On July 9, 2021, PBGC issued an interim final rule setting forth the requirements for special financial assistance applications and related restrictions and conditions pursuant to the American Rescue Plan Act of 2021. PBGC is making changes to its regulation in response to public comments received on the interim final rule, with an additional opportunity for comment solely on the condition requiring a phased recognition of special financial assistance in a plan's determination of withdrawal liability.

DATES:

Effective date:

This final rule is effective on August 8, 2022.

Applicability dates:

This final rule is applicable to plans that apply or have applied for special financial assistance.

For a plan that received special financial assistance under part 4262 in effect before August 8, 2022, § 4262.14 will not apply unless and until the plan files a supplemented application under this part. Before the date that the plan files a supplemented application under this part, the rules under § 4262.14 in effect before August 8, 2022 apply to the plan.

For a plan that received special financial assistance under part 4262 in effect before August 8, 2022, § 4262.16(g)(2) will not apply unless the plan files a supplemented application under this final rule. If the plan files a supplemented application, § 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.

Comment date for withdrawal liability condition in § 4262.16(g)(2):

Comments, which should address only the withdrawal liability condition in § 4262.16(g)(2), must be received on or before August 8, 2022 to be assured of consideration.

ADDRESSES:

Comments on § 4262.16(g)(2) of this final rule may be submitted by any of the following methods:

•

Federal eRulemaking Portal: https://www.regulations.gov.

Follow the online instructions for submitting comments.

•

Email: reg.comments@pbgc.gov.

•

Mail or Hand Delivery:

Regulatory Affairs Division, Office of the General Counsel, Pension Benefit Guaranty Corporation, 1200 K Street NW, Washington, DC 20005-4026.

Commenters are strongly encouraged to submit public comments electronically. PBGC expects to have limited personnel available to process public comments that are submitted on paper through mail. Until further notice, any comments submitted on paper will be considered to the extent practicable.

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). Comments received will be posted without change to PBGC's website,

www.pbgc.gov,

including any personal information provided. Do not submit comments that include any personally identifiable information or confidential business information.

Copies of comments may also be obtained by writing to Disclosure Division, Office of the General Counsel, Pension Benefit Guaranty Corporation, 1200 K Street NW, Washington, DC 20005-4026 or calling 202-229-4040 during normal business hours. If you are deaf, hard of hearing, or have a speech disability, please dial 7-1-1 to access telecommunications relay services.

FOR FURTHER INFORMATION CONTACT:

Daniel S. Liebman (

liebman.daniel@pbgc.gov;

202-229-6510), Deputy General Counsel, Program Law and Policy Department, Hilary Duke (

duke.hilary@pbgc.gov;

202-229-3839), Assistant General Counsel for Regulatory Affairs, or Stephanie Cibinic (

cibinic.stephanie@pbgc.gov;

202-229-6352), Deputy Assistant General Counsel for Regulatory Affairs, Office of the General Counsel, Pension Benefit Guaranty Corporation, 1200 K Street NW, Washington, DC 20005-4026. If you are deaf, hard of hearing, or have a speech disability, please dial 7-1-1 to access telecommunications relay services.

SUPPLEMENTARY INFORMATION:

Executive Summary

Purpose and Authority

On July 9, 2021, the Pension Benefit Guaranty Corporation (PBGC) issued an interim final rule adding to its regulations a new part 4262 to implement the requirements under section 9704 of the American Rescue Plan Act of 2021, “Special Financial Assistance Program for Financially Troubled Multiemployer Plans.”

This program enhances retirement security for millions of Americans by providing eligible multiemployer defined benefit pension plans with special financial assistance (SFA) in the amounts required for the plans to pay all benefits due during the period beginning on the date of payment of SFA through the plan year ending in 2051. In consultation with, and with the approval of, PBGC's board of directors (Board of Directors or Board), PBGC is making changes to part 4262 of its regulations in response to public comments received on the interim final rule, including changes to the methodology to calculate SFA, permissible investments for SFA funds (SFA received and any earnings thereon), the application of conditions on a plan that merges with a plan that receives SFA, and the withdrawal liability conditions that apply to a plan that receives SFA.

The rule was published in the

Federal Register

on July 12, 2021, at 86 FR 36598.

Under section 4002(a) of ERISA, PBGC is administered in accordance with policies established by the Board of Directors, which is made up of the Secretaries of the Department of Labor, the Department of the Treasury, and the Department of Commerce.

PBGC's legal authority for this rulemaking comes from section 4262 of the Employee Retirement Income Security Act of 1974 (ERISA) (Special Financial Assistance by the Corporation), which requires PBGC to issue regulations or guidance setting forth requirements for SFA applications, permits PBGC to provide for how SFA and earnings thereon are to be invested, and permits PBGC, in consultation with the Secretary of the Treasury, to impose reasonable conditions by regulation or other guidance on an eligible multiemployer plan that receives SFA. PBGC's legal authority also comes from section 4002(b)(3) of ERISA, which authorizes PBGC to issue regulations to carry out the purposes of title IV of ERISA, and from section 4003(a) of ERISA, which authorizes PBGC to conduct investigations and audits.

Major Provisions of the Regulatory Action

Part 4262 sets forth what information a plan is required to file to demonstrate eligibility for SFA and the amount of SFA to be paid by PBGC to the plan. The regulation identifies which plans will be given priority to file applications before March 11, 2023, and provides for a processing system to accommodate the filing and review of many applications

in a limited amount of time. This part also establishes permissible investments of SFA funds and other restrictions and conditions on plans that receive SFA.

PBGC is making changes in this final rule that revise part 4262, including changes to the SFA measurement date, the methodology to calculate SFA, permissible investments of SFA funds, the application of conditions on a plan that merges with a plan that receives SFA, and the withdrawal liability conditions that apply to a plan that receives SFA.

Background

PBGC and the Multiemployer Insurance Program

PBGC administers two insurance programs for private-sector defined benefit pension plans under title IV of ERISA: one for single-employer defined benefit pension plans and one for multiemployer defined benefit pensions plans (multiemployer plans). In general, a multiemployer plan is a plan which is maintained pursuant to one or more collective bargaining agreements involving two or more unrelated employers. The multiemployer insurance program protects the benefits of approximately 10.9 million workers and retirees in approximately 1,400 plans. This final rule deals with multiemployer plans.

The multiemployer insurance program provides PBGC with tools to help plans that are insolvent or approaching insolvency to be able to pay guaranteed benefits.

This help is primarily in the form of financial assistance loans under section 4261(a) of ERISA. Under that provision, when a multiemployer plan becomes insolvent, PBGC provides periodic financial assistance payments to the insolvent plan in amounts that, together with existing plan assets and any other plan income, are sufficient to pay guaranteed benefit amounts to participants and beneficiaries. In general terms, a plan is insolvent if it cannot pay benefits under the plan when due during the current plan year.

Multiemployer plan guaranteed benefits are primarily nonforfeitable benefits and the maximum guarantee is set by law under section 4022A of ERISA.

The Multiemployer Pension Reform Act of 2014 (MPRA) created pathways under ERISA to enable certain distressed plans to avoid insolvency. Plans that are in critical and declining status

may apply to the U.S. Department of the Treasury (Treasury Department) for a suspension of benefits under section 305(e)(9) of ERISA, which requires plans to show that the proposed suspension would enable them to avoid insolvency. Without such a showing, the Treasury Department cannot approve the application for a suspension of benefits. Generally, under this process, plans may propose a reduction of benefits to no less than 110 percent of PBGC's guaranteed benefit amount. A plan that has taken all reasonable measures, including applying for a suspension of benefits, may also request partition assistance from PBGC (under section 4233 of ERISA). A partition allows the plan to transfer responsibility for paying monthly guaranteed benefits for a portion of the plan's participants and beneficiaries to a newly created successor plan that receives financial assistance from PBGC. When a partition is approved, the original plan has an ongoing obligation to pay and preserve benefits for all participants at levels above PBGC's guaranteed amounts. All plans approved for benefit suspensions under MPRA as of March 11, 2021, certified—and Treasury confirmed through review of plan applications—that the proposed suspensions (in combination with any partition) would enable the plans to avoid insolvency indefinitely, as set forth in the Treasury Department's implementing regulations.

Amultiemployer plan is incritical and declining status if the plansatisfies the criteria for critical statusunder section 305(b)(2) of ERISA and is projectedto become insolvent within the meaningof section 4245 during the current planyear or any of the 14 succeeding planyears (or 19succeeding plan years if theplan has a ratio of inactive participantsto active participants thatexceeds 2 to 1 or if the funded percentage of theplan is less than 80 percent).

MPRA also allows critical and declining plans to request financial assistance from PBGC upon merging with another multiemployer plan (“facilitated mergers” under section 4231(e) of ERISA) if such financial assistance is necessary for the multiemployer plan to become or remain solvent. Financial assistance to the merged plan may promote mergers with more viable plans and eliminate the need for benefit reductions.

In recent years, Congress considered a range of proposals to address the funding crisis in the multiemployer pension system, including proposals to expand PBGC's partition authority, loan programs, and broader reforms to stabilize multiemployer plans and extend the solvency of PBGC's multiemployer insurance program. Many of the prominent efforts to address issues facing the multiemployer pension system included ideas to effectively reverse MPRA benefit suspensions and provide for reinstatement of the suspended benefits. On March 11, 2021, the President signed into law the American Rescue Plan (ARP) Act of 2021 (Pub. L. 117-2), which amended title IV of ERISA to address the immediate crisis facing severely underfunded multiemployer plans and the solvency of PBGC, and to assist plans by providing funds to reinstate suspended benefits.

American Rescue Plan Act of 2021—Special Financial Assistance Program for Financially Troubled Multiemployer Plans

Section 4262 of ERISA creates a program to enhance retirement security for millions of Americans by providing SFA to financially troubled multiemployer plans. Under current conditions, the SFA program is expected to assist about 200 financially troubled plans. The SFA provided to these plans will forestall their insolvency for many years into the future and includes funds to reinstate suspended monthly benefits going forward, and for make-up payments to restore previously suspended benefits. In addition, the SFA program improves the financial outlook for PBGC's multiemployer insurance program.

Section 9704 of ARP amends section 4005 of ERISA to establish an eighth fund for SFA from which PBGC will provide SFA to multiemployer plans pursuant to section 4262 of ERISA. The eighth fund will be credited with amounts from time to time as the Secretary of the Treasury, in conjunction with the Director of PBGC, determines appropriate, from the general fund of the Treasury Department. Transfers from the general fund to the eighth fund cannot occur after September 30, 2030.

Section 4262 of ERISA sets forth the provisions for SFA, including which plans are eligible to apply, the cutoff date for applications, rules relating to actuarial assumptions and PBGC's determinations on applications, restrictions on the use of SFA, and that certain plans with suspended benefits

must reinstate those benefits prospectively and provide make-up payments to restore previously suspended benefits. Unlike the financial assistance provided under section 4261 of ERISA, which is in the form of a loan, a plan receiving SFA under section 4262 has no obligation to repay SFA.

Plans with suspended benefits pursuant to section 305(e)(9) or 4245(a) of ERISA.

Section 4262 of ERISA requires PBGC to prescribe in regulations or other guidance the requirements for SFA applications, including an alternate application for plans with an approved

partition under section 4233 of ERISA. In addition, PBGC may prioritize applications during the first 2 years after March 11, 2021, prescribe how SFA funds are to be invested, and impose reasonable conditions on plans that receive SFA.

Although PBGC's rulemakings generally involve coordination and consultation with two other agencies that have jurisdiction over pension plans (the Treasury Department and the U.S. Department of Labor (Department of Labor or Department)), section 4262 of ERISA specifically provides for coordination and consultation with the Treasury Department, particularly on SFA applications involving a plan's reinstatement of benefits suspended under section 305(e)(9) of ERISA.

The statute also provides for consultation with the Treasury Department with respect to a plan that proposes in its application to change certain assumptions, with respect to a plan that files an application under PBGC regulations or guidance prioritizing certain applications, and on the conditions imposed on plans that receive SFA.

This final rule is a result of that coordination and consultation, which will continue during the SFA program's operation as plans apply for SFA.

See section 4262(n) of ERISA.

See sections 4262(m) and 4262(n) of ERISA.

Interim Final Rule

On July 9, 2021, PBGC issued an interim final rule on Special Financial Assistance by PBGC. Before the interim final rule was issued, PBGC held listening sessions with interested parties at their request. Representatives of PBGC's Board of Directors (the Secretaries of the Department of Labor, the Treasury Department, and the Department of Commerce) also participated in these listening sessions. Most of the requesters provided letters or agendas outlining their concerns. In addition, other interested parties sent PBGC letters communicating their views. PBGC considered the views and concerns expressed, which helped to inform the interim final rule.

PBGC provided a 30-day comment period

for the interim final rule and received over 100 comment letters from multiemployer plans and associations representing multiemployer plans, contributing employers and associations representing employers, labor organizations, actuarial consulting firms and practitioners, financial services firms, other plan professionals, participants, members of Congress, and other individuals. The comments, PBGC's responses to the comments, and a summary of changes made to the interim final rule are discussed in the next section.

PBGC considered comments received up to 1 week after the 30-day comment period as timely received during the comment period.

Section-by-Section Discussion of Public Comments

Overview and Purpose

The final rule amends part 4262, including changes from the interim final rule regarding the SFA measurement date, the determination of eligibility and the amount ofSFA (including interest rate assumptions and the calculation of SFA for plans with an approved MPRA benefit suspension as of March 11, 2021), the content of an application for SFA, the process of applying, PBGC's review of applications,and restrictions (including permissible investment of SFA funds) and conditions on plans receiving SFA. The final rule also makes other clarifying and editorial changes to part 4262.

In this document, PBGC is providing for a 30-day comment period solely on the condition requiring a phased recognition of SFA in a plan's determination of withdrawal liability in § 4262.16(g)(2), because it is an area of complexity that may benefit from additional public comment. This will provide an opportunity for additional public comment on the condition and will allow PBGC to assess the effectiveness of this withdrawal liability condition, consider adjustments or changes, and determine whether more clarification is needed regarding the condition or the mechanics of implementation. To the extent PBGC determines that adjustments or changes to this withdrawal liability condition are appropriate and authorized, or that further clarification is needed, PBGC may revise the condition accordingly.

Broadly, PBGC is interested in hearing from commenters about whether the condition requiring a phased recognition of SFA in a plan's determination of withdrawal liability strikes the correct balance among stakeholders, or if a different condition might work better. Additionally, PBGC is interested in hearing from stakeholders about what the expected impact of such a condition is likely to be, and whether additional clarification or guidance would be useful.

PBGC also requests comments about whether the phased recognition of SFA, which reflects projected rather than actual market earnings and losses, expenses, and benefit payments, strikes the correct balance. If commenters disagree with this condition, PBGC is interested in comments that articulate the rationale supporting such disagreement. PBGC requests comments on whether the determination of the timeline under the final rule appropriately balances the interests of various stakeholders, or whether a shorter (or longer) phase-in period might protect the financial security of plan participants and beneficiaries without placing an undue burden on withdrawing employers. PBGC is also interested in comments about a partial phase-in condition, including how such a condition might work, and whether a partial phase-in condition has any benefits or drawbacks as compared to the phase-in condition in this rule. Finally, should there be a different phase-in rule for plans that will receive a large amount of SFA compared to their non-SFA assets than for plans that will receive a relatively small amount of SFA compared to their non-SFA assets (so that the SFA account is projected to be exhausted after a relatively short period)?

Definitions—SFA Measurement Date

The SFA measurement date used in calculating the amount of SFA under § 4262.4 was defined in § 4262.2 of the interim final rule as the last day of the calendar quarter immediately preceding the date the plan's application was filed. This date was established by the filing of the plan's initial application for SFA.

A few commenters raised general concerns about the uncertainty of the plan's SFA measurement date and having to change the SFA measurement date immediately after the end of the calendar quarter because of PBGC's metering system described in § 4262.10. One of the commenters recommended that PBGC consider adjusting the SFA measurement date to allow plans intending to file, but unable to file during a temporary closure of the filing window, to use the plan's original intended SFA measurement date. A suggestion was made to allow plans to submit a notice of intent to file. Another commenter recommended that non-priority group plans be given the option to freeze the SFA measurement date as of the earliest date a plan in priority group 6 could apply or the end of the calendar quarter before the date PBGC begins to accept applications for non-priority group plans. The commenters stated this would save plans the burden and expense of having to re-do their applications if the applications cannot be filed until the following calendar quarter.

PBGC understands that some commenters would like greater certainty

about when an initial application may be filed to establish the plan's SFA measurement date. To address timing concerns related to preparing a plan's application, in the final rule, PBGC is changing the definition of the SFA measurement date in § 4262.2 from “the last day of the calendar quarter immediately preceding the date the plan's application was filed” to “the last day of the third calendar month immediately preceding the date the plan's initial application for special financial assistance was filed.” For example, if the plan's initial application was filed on March 15, 2023, its SFA measurement date would be December 31, 2022; if the plan's initial application was filed on July 1, 2023, its SFA measurement date would be April 30, 2023.

In addition, based on a commenter suggestion, PBGC is adding a provision in § 4262.10 to provide a mechanism for plans to file a “lock-in application.” If a plan files a lock-in application, it will be considered the plan's initial application for SFA, establishing the filing date for a plan's initial application and the plan's base data (SFA measurement date, census data, non-SFA interest rate assumption, and SFA interest rate assumption). This provision is described in more detail later in the preamble under the subheading

Lock-in Application.

Eligible Multiemployer Plans

There are four types of multiemployer plans identified in section 4262(b)(1) of ERISA that are eligible to apply for SFA under § 4262.3 of PBGC's regulation. This list is in section 4262(b)(1)(A) through (D) of ERISA and consists of:

(1) A plan in critical and declining status (within the meaning of section 305(b)(6) of ERISA) in any plan year beginning in 2020, 2021, or 2022.

(2) A plan with a suspension of benefits approved under section 305(e)(9) of ERISA as of the date ARP became law (March 11, 2021).

(3) A plan certified to be in critical status (within the meaning of section 305(b)(2) of ERISA) that has a modified funded percentage of less than 40 percent and a ratio of active to inactive participants which is less than 2 to 3, in any plan year beginning in 2020, 2021, or 2022.

(4) A plan that became in solvent

for purposes of section 418E of the Internal Revenue Code (the Code) after December 16, 2014 (the date MPRA became law) and has remained insolvent and has not terminated under section 4041A of ERISA as of March 11, 2021.

A multiemployer plan is regarded as insolvent as of the first day of the plan year in which it is projected to have insufficient resources to pay all benefits under the plan when due during the plan year.

In its interim final rule, PBGC noted that a plan that terminated by mass withdrawal in a plan year that ended before January 1, 2020, is not eligible for SFA under section 4262(b)(1)(A) of ERISA and § 4262.3(a)(1) (plans that are in critical and declining status in any plan year beginning in 2020, 2021, or 2022). This is because the rules under section 432 of the Code, for plans in endangered, critical, and critical and declining status, do not apply to such a plan in any of those plan years.

The interim final rule provided as an example that, if a plan that was in critical and declining status in 2019 terminated by mass withdrawal in that year, the plan would not be eligible for SFA under § 4262.3(a)(1) because it was not in critical and declining status in 2020, 2021, or 2022. To provide further clarification, PBGC notes that for the same reason, a plan that terminated by mass withdrawal in a plan year beginning before 2020 cannot be eligible for SFA under section 4262(b)(1)(C) of ERISA or under § 4262.3(a)(3) (plans that are in critical status in any plan year beginning in 2020, 2021, or 2022).

Section 412(a)(1) of the Code requires a pension plan to satisfy the minimum funding standard applicable to the plan for each plan year. In the case of a multiemployer plan, section 412(a)(2)(C) provides that participating employers must make contributions under the plan for a plan year that, in the aggregate, are sufficient to ensure that the plan does not have an accumulated funding deficiency under section 431 as of the end of the plan year. Section 412(e)(4) provides that the minimum funding rules under section 412 apply to a multiemployer plan until the last day of the plan year in which a plan terminates within the meaning of section 4041A(a)(2) of ERISA (that is, termination by mass withdrawal or a cessation of the obligation of all employers to contribute under the plan). Accordingly, the rules of section 431 of the Code do not apply to such a plan for periods after the plan year of termination.

The Internal Revenue Service (IRS) has informed PBGC that section 432 of the Code, which provides rules for multiemployer plans in endangered status or critical status, likewise does not apply to a multiemployer plan for periods after the plan year of termination within the meaning of section 4041A(a)(2) of ERISA. This is consistent with section 301(c) of ERISA (over which the Secretary of the Treasury has interpretive jurisdiction pursuant to section 101 of Reorganization Plan No. 4 of 1978 (5 U.S.C. App.)), which provides that part 3 of title I of ERISA, including the minimum funding rules parallel to sections 412, 431, and 432 of the Code, applies until the last day of the plan year in which the plan terminates within the meaning of section 4041A(a)(2) of ERISA.

Two commenters stated that plans terminated by mass withdrawal should be eligible to apply for SFA. In particular, one commenter suggested that if a plan terminated by mass withdrawal, but is not currently insolvent, it should be eligible to apply for SFA, arguing that section 4262 of ERISA does not state that any plan terminated before 2020 through mass withdrawal is not eligible for relief. Section 4262(b)(1) of ERISA provides a list of four types of plans that are eligible to apply for SFA, and PBGC cannot extend eligibility for SFA through its regulation to a plan that is not included in that list. As noted above, a plan that is terminated by mass withdrawal in a plan year beginning before 2020 does not meet the eligibility requirements under section 4262(b)(1)(A) or (C) of ERISA or § 4262.3(a)(1) or (3).

Section 4262.3(c)(1) of the regulation provides that aplan that has elected to be in critical status under section 305(b)(4) of ERISA, but is not certified to be in critical status under section 305(b)(2), is not an eligible multiemployer plan. In response to a commenter, PBGC is further clarifying that a plan is an eligible multiemployer plan if it is certified to be in critical status under section 305(b)(2) of ERISA during the 2020, 2021, or 2022 plan years (and otherwise meets the other criteria for an eligible critical status plan under § 4262.3(a)(3)), regardless of whether the plan made an election under section 305(b)(4) of ERISA to be in critical status in a previous year.

In addition, a commenter requested clarification as to how an election under section 9701(a) of ARP affects SFA eligibility. Section 9701(a) of ARP permits a multiemployer plan sponsor to make an election relating to the plan's status under section 432(b) of the Code and section 305(b) of ERISA (section 432 status) for certain plan years. If the plan sponsor makes the election under section 9701(a) of ARP for a plan year, then, notwithstanding the actuarial certification of the plan's status for the plan year, the plan will have the same status as it had for the preceding plan year. IRS Notice 2021-57, 2021-44 IRB 706, refers to an election under section 9701(a)(1) of ARP as a “freeze election,” and a multiemployer plan sponsor may make a freeze election for the first plan year beginning on or after March 1, 2020, or the next succeeding plan year. That guidance also provides that if a freeze election applies for a plan year, then the plan has an elected section 432 status, which may be different than the plan's section 432 status as certified by the plan's actuary under section 432(b)(3) of the Code for that plan year. Accordingly, if a plan is certified to be in critical status (within the meaning of section 305(b)(2) of ERISA) in any plan year beginning in 2020 through 2022 and meets the other criteria for an

eligible critical status plan under § 4262.3(a)(3), the plan would be eligible to apply for SFA regardless of whether the plan has made a freeze election.

To ensure uniformity for applications and clarify what data to use to satisfy eligibility requirements for critical status plans under section 4262(b)(1)(C) of ERISA, § 4262.3(a)(3) and (c)(2) of the final rule specify the data that is used for this purpose on the Form 5500 Schedule MB to determine the “modified funded percentage,” and the data on either the Form 5500 or the Form 5500 Schedule MB to determine the ratio of active to inactive participants.

Section 4262(b)(2) of ERISA defines “modified funded percentage” to mean the percentage equal to a fraction the numerator of which is the current value of plan assets (as defined in section 3(26) of ERISA) and the denominator of which is current liabilities (as defined in section 431(c)(6)(D) of the Code).

The numerator for the plan's funded percentage under § 4262.3(c)(2) is calculated using the current value of assets on line 2a of Form 5500 Schedule MB,

which is also required to be reported on line 1

column (a) of the Schedule H,

and adding to it the current value of withdrawal liability payments due to be received by the plan on an accrual basis reflecting a reasonable allowance for amounts considered uncollectible

(if not already included in the current value of net assets reported on line 2a). The value calculated for the numerator is consistent with the meaning of current value of assets under section 3(26) of ERISA.

The current value of assets includes total cash contributions due to be received on an accrual basis. One commenter suggested that the inclusion of withdrawal liability receivables in the asset value may cause some plans to be ineligible and that, due to the uncertain nature of future withdrawal liability payments, PBGC should consider excluding these payments from the determination of the plan's eligibility for SFA. PBGC considered the comment but is not making the suggested change. The inclusion of withdrawal liability payments due to be received by the plan is consistent with the meaning of current value of assets under section 3(26) of ERISA, and the provision, as drafted, recognizes the uncertain nature of future withdrawal liability payments by providing for an allowance for amounts of withdrawal liability considered uncollectible.

All line references in this section are to the 2021 Form 5500 and schedules.

The 2021 Form 5500 instructions provide that, with certain exceptions, assets reported on line 2a of Form 5500 Schedule MB should be the same as reported on line 1

(column (a)) of the Schedule H.

PBGC notes that Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 960, Plan Accounting—Defined Benefit Pension Plans 960-310-25-3A states: “A multiemployer plan may also have a receivable for a withdrawing employer's share of the plan's unfunded liability. The plan should record the receivable, net of any allowance for an amount deemed uncollectible, when entitlement has been determined.”

The withdrawal liability payments due to be received by the plan are not included in the actuarial value of assets or the fair market value of assets for purposes of sections 431 and 432 of the Code and the corresponding sections 304 and 305 of ERISA.

As explained earlier in this section of the preamble, section 4262(b)(1)(C) of ERISA requires, as one of the conditions of eligibility, that critical status plans have a ratio of active to inactive participants that is less than 2 to 3. The statute does not specify what participant count to use. To fill in this gap, the interim final rule referred to end-of-year participant counts on the Form 5500. On the 2021 Form 5500, these are the number of participants identified on line 6a(2) (for total number of active participants) and the sum of lines 6b, 6c, and 6e (for inactive participants: retired or separated participants receiving benefits, other retired or separated participants entitled to future benefits, and deceased participants whose beneficiaries are receiving or are entitled to receive benefits). One commenter suggested that plans be permitted to use either the participant counts from the Form 5500 or the participant counts reported on the Form 5500 Schedule MB, which the commenter noted may be different for a variety of reasons from the counts reported on the Form 5500. PBGC considered the comment and decided to permit plans to use either the participant counts from the Form 5500, as described above, or the beginning-of-the-year participant counts on the Form 5500 Schedule MB. On the Form 5500 Schedule MB, these are the number of participants identified on line 2b(3)(c) (for total number of active participants) and the sum of lines 2b(1) and 2b(2) (for inactive participants: retired participants and beneficiaries receiving payment and terminated vested participants).

In the final rule, PBGC makes changes to § 4262.3(a)(4) to clarify that an eligible insolvent plan must have become insolvent after December 16, 2014, and remained insolvent and not terminated as of March 11, 2021. In order to have remained insolvent as of March 11, 2021, the plan must have become insolvent before that date.

Summary of Changes Affecting the Amount of Special Financial Assistance

The calculation of the amount of SFA under section 4262 of ERISA has multiple interacting and technical components, including factors that the statute does not define and leaves to PBGC's reasonable interpretation. Congress' instruction to PBGC under section 4262(c) of ERISA to “issue regulations or guidance setting forth requirements for special financial assistance applications” therefore requires PBGC, in coordination with its Board agencies,

to apply its expertise in, and responsibility for, the administration of title IV of ERISA to promulgate regulations and application instructions that comport with the statutory requirements.

The Departments of Labor, the Treasury, and Commerce.

Many commenters argued that PBGC should exercise its discretion to interpret various components of the calculation of the amount of SFA differently than in the interim final rule. PBGC has considered these comments and assessed whether any proposed changes to the interim final rule would better achieve the statutory purpose evidenced by the text of the statute, which is discussed later in the preamble. Following extensive analysis, including projections of various proposed changes on long-term plan solvency and funded status through 2051, as well as implementing the statutory instruction that PBGC consult with the Treasury Department regarding considerations specific to the calculation of the amount of SFA for plans with approved suspensions of benefits under section 305(e)(9) of ERISA as of March 11, 2021 (MPRA plans), PBGC has decided to adjust some of the interpretive choices set forth in the interim final rule on which PBGC received comments. Among the adjustments in this final rule are the expected rate of return on SFA assets to be used in determining the amount of SFA and the calculation of the amount of SFA for MPRA plans.

1. Pay All Benefits Due Through 2051

Section 4262(j) of ERISA sets certain requirements for how much SFA an eligible plan is to receive. Section 4262(j)(1) provides that “[t]he amount of financial assistance provided to a multiemployer plan eligible for financial assistance under this section shall be such amount required for the plan to pay all benefits due during the period beginning on the date of payment of the special financial assistance payment . . . and ending on the last day

of the plan year ending in 2051, with no reduction in” benefits. Section 4262(j)(2) provides that “the funding projections for purposes of this section shall be performed on a deterministic basis.”

Many commenters argued that the mandatory language of section 4262(j)(1) of ERISA, which states that the amount of SFA “shall” be such amount “required for the plan to pay all benefits due” through the end of 2051, means that if an eligible plan does not receive SFA sufficient to project solvency through 2051, taking into account the amount that SFA assets can reasonably be expected to earn given the statutory investment restrictions imposed by section 4262(

), then the statute has not been implemented properly. Section 4262(j)(1) clearly requires an eligible plan's SFA to be the amount necessary for the plan to pay all benefits through 2051. In addition to the use of the term “shall” in section 4262(j)(1) itself, other provisions of section 4262 refer to section 4262(j) as “required” or a “requirement.”

Sections 4262(i)(1) and 4262(n)(1)(B) of ERISA.

2. Interest Rates for SFA and Non-SFA Assets

Plans will necessarily invest—and pay benefits out of—two separate pools of assets between the date of SFA payment and the end of 2051. This is because section 4262(

) of ERISA requires plans to “segregate” SFA assets from “other plan assets” and circumscribes investment of SFA assets. For a plan to project accurately how much SFA is “required” for the plan “to pay all benefits due” through the end of the plan year ending in 2051, it must project the SFA assets, adjusted for earnings, needed to cover each year's benefit payments and expenses until exhausted, and the non-SFA “other plan assets,” adjusted for contributions and earnings, needed to cover each year's benefit payments and expenses after the SFA assets are exhausted through the end of the SFA coverage period. Thus, an amount of SFA that accounts for existing plan assets under section 4262(j), and the segregation and separate investment of those assets from SFA assets under section 4262(

), requires two asset projections: one for a plan's SFA assets, and one for a plan's non-SFA assets.

To make these two projections, plans must make assumptions about future events—including expected returns on investments—for each pool of assets to calculate that pool's projected value. Differences in expected investment returns for each pool of assets affect the amount of SFA needed to meet projected liabilities through 2051. Using an accurate projected rate of return for each pool is critical for determining whether SFA paid now is in the amount projected to “pay all benefits due” through the end of 2051, as required by section 4262(j)(1) of ERISA.

In the interim final rule, PBGC concluded that the same investment-return assumption should be used to project both pools of assets. In reaching this conclusion, PBGC gave substantial weight to section 4262(e)(2) of ERISA which, as noted in the preamble to the interim final rule, requires a plan to use an interest rate that is based on the rate used in the plan's most recent certification of plan status before January 1, 2021, subject to an interest rate limit. PBGC also gave substantial weight to section 4262(e)(4), which provides that if a “prior assumption is unreasonable,” a plan may propose to change that assumption if it explains why the assumption “is no longer reasonable,” except that the plan “may not propose a change to the interest rate otherwise required under this subsection.”

Many commenters raised concerns with PBGC's approach. If the interest rate in section 4262(e) of ERISA (which, for many plans would be close to 5.3 percent based on pension funding segment rates in December 2021), were used to project the value of both SFA and non-SFA assets, but SFA investments are limited to investment grade bonds under section 4262(

) (which would likely result in an actual rate of return close to 2 percent as of December 2021, assuming that PBGC permitted no investments other than investment grade bonds and that current yields on such bonds continued through 2051), the SFA amount would be insufficient to meet the requirement of section 4262(j)(1) that it be the “amount required for the plan to pay all benefits due” through the end of 2051. There is thus, asserted the commenters, an inconsistency between these two provisions of the statute. Providing a separate investment-return assumption for SFA assets that reflects the investment restrictions under section 4262(

) of ERISA would avoid this inconsistency. PBGC recognizes that the interim final rule, without giving more weight to the requirement of section 4262(j)(1), did not sufficiently address this inconsistency. PBGC agrees with commenters that this concern would be alleviated by giving more weight to the language of section 4262(j) than was given in the interim final rule.

PBGC is therefore adjusting the rules set forth in the interim final rule to account for the fact that section 4262(

) of ERISA requires plans receiving SFA to have two separate pools of assets and expressly contemplates that they will be invested separately—with different expected rates of return. PBGC also believes that this approach better harmonizes sections 4262(e), (j), and (

) with each other. The statute must be read as a whole, and each section construed in a manner that renders them compatible, not contradictory.

3. SFA for MPRA Plans

As described earlier in the preamble, the interim final rule provided a method for eligible multiemployer plans to calculate the amount of SFA based on the “amount required for the plan to pay all benefits due during the period beginning on the date of payment of the special financial assistance payment . . . and ending on the last day of the plan year ending in 2051 . . .” under section 4262(j)(1) of ERISA. The interim final rule provided only one way to calculate the “amount required” for both MPRA plans and plans that are not MPRA plans.

PBGC received several comments that raised issues with how this calculation would work for MPRA plans. The commenters stated that the final rule should treat MPRA plans differently when calculating the amount of SFA.

For purposes of determining the amount of SFA under § 4262.4, the final rule defines a MPRA plan under § 4262.4(a)(3)(ii) as a plan that is eligible for SFA under § 4262.3(a)(2).

Commenters raised several issues that were unique to MPRA plans. For example, as part of the MPRA process, all MPRA plans now eligible for SFA were required statutorily to demonstrate that a proposed benefit suspension would improve their funded status such that the plan would avoid insolvency “indefinitely.” To accept SFA, MPRA plans must permanently reinstate those suspended benefits. Under the interim final rule, however, MPRA plans would not receive more SFA than an amount necessary to avoid insolvency through 2051. Thus, commenters described MPRA plan trustees as facing an unenviable choice between retaining the existing benefit suspensions (enabling the plan to avoid insolvency indefinitely at the cost of forgoing SFA) or applying for and receiving SFA and reinstating the suspended benefits (potentially jeopardizing the long-term financial health of the plan which MPRA was originally intended to promote). Either choice would involve favoring one set of participants over

another.

A discussion of the comments on determining the amount of SFA, including for plans that implemented MPRA benefit suspensions, is presented later in this preamble under the subheading

Comments on Amount of Special Financial Assistance.

In July of 2021, the Department of Labor issued the “Statement on PBGC `Special Financial Assistance' Interim Final Rule for Eligible Multiemployer Plans.” In that Statement, the Department said that in its “view, ARP's inclusion of plans that suspended benefits under MPRA and the prohibition against a future MPRA suspension for a plan receiving SFA reflects a clear legislative objective to allow plan fiduciaries to restore benefits that were previously suspended and to encourage all eligible plans to apply for SFA without raising potential fiduciary liability concerns about undoing current or precluding future MPRA suspensions.” The Department has advised PBGC that in its view the approach of the final rule removes the risk that receipt of SFA will harm the projected status of a MPRA plan at the end of 2051 more than not applying for and receiving SFA. Accordingly, the Department takes the view that a plan sponsor's decision to apply for SFA would not violate section 404 of ERISA and the Department will bring no enforcement action with respect to such decision. The implementation of such decision, however, will be subject to the fiduciary and other requirements of title I of ERISA.

Section 4262(n) of ERISA requires PBGC to coordinate with the Secretary of Treasury in prescribing the application process for eligible multiemployer plans, and the amount of SFA needed by a plan that has suspended benefits under section 305(e)(9) of ERISA that takes into account the projected funded status of the plan at the end of 2051, the payment of previously suspended benefits, and other relevant factors. Following consideration of the issues raised by commenters, and as determined after consultation with the Treasury Department, the final rule provides a methodology for determining an amount of SFA for MPRA plans that considers these factors. PBGC's consultation with the Treasury Department and the methodology for MPRA plans are discussed later in the preamble under the subheading

Calculating the Amount of SFA.

4. Permissible Investments

One explicit avenue under the statute that could assist plans in being able to pay all benefits due through 2051 is through PBGC's authority under section 4262(

) of ERISA to allow SFA assets to be invested in types of investments other than investment grade bonds. Such other investments, for example, could have both a higher potential for reward and a higher risk than investment grade bonds, though the higher risk of these investments may raise different concerns about a plan's likelihood of paying all benefits due through 2051.

As noted in the interim final rule, PBGC shares the concerns expressed by some commenters that overly conservative limits on investment of SFA could adversely impact plans' financial health. Permitting a wider range of investments could help plans be able to pay all benefits due through 2051. But the language of section 4262(

) of ERISA also evinces an intent that SFA investments be relatively safe. Allowing SFA assets to be invested predominantly in return-seeking assets risks plans not being able to pay all benefits due through 2051 given the potential for severely adverse market events. It could also put taxpayer-funded assistance at significant risk of loss.

As discussed later in the preamble, in consideration of comments received in response to PBGC's specific request, PBGC has amended in the final rule the investment limitations set forth in the interim final rule. Given PBGC's intention that the investment choices provided under the interim final rule were always only a starting point for discussion to find a more appropriate balance between certainty and safety of investments on the one hand, and the opportunity for plans to have flexibility to decide appropriate overall investment policies on the other, PBGC examined how to adjust permissible investments in light of the feedback from commenters. In the final rule, PBGC is allowing plans that have received SFA to invest a percentage of SFA assets and earnings thereon in certain “return-seeking assets,” with the remainder invested in investment grade fixed income securities to help ensure that risk of investment losses is mitigated.

While expanding the range of permissible investments to include a percentage of return-seeking assets eases the path for the plans to be able to pay all benefits due through 2051, PBGC's modeling showed that it alone is unlikely to close the gap between the interest rate assumption to calculate the amount of SFA and the expected rate of return on investment of SFA. Thus, PBGC and its Board examined other approaches that, in combination with greater flexibility in investments, could fulfill the expectation of being able to pay all benefits due through 2051 for all eligible plans. Alternatives are described in the

Regulatory Impact Analysis

section later in this preamble.

PBGC and its Board have considered the commenters' views and the alternative approaches for assisting plans to be able to pay all benefits due through 2051. As noted earlier in the preamble, the final rule allows plans to use a separate, specified interest rate assumption for projecting SFA assets that is more closely aligned with the rate of return estimated to be achievable on the permitted investments of SFA assets. PBGC determined that this change, together with the change in permitted investments, was necessary to help enable eligible plans to pay all benefits due through 2051, while limiting the risk that plans would incur significant losses through the investment of SFA dollars. This is supported by PBGC modeling and analysis. The changes to the interest rate assumption and to permissible investments are discussed later in this preamble under the subheadings

Interest Rates for SFA and Non-SFA Assets

and

Permissible Investments,

respectively.

Comments on Amount of Special Financial Assistance

Under section 4262(a)(1) of ERISA, PBGC is to provide SFA to an eligible multiemployer plan upon application. As discussed earlier in the preamble, under section 4262(j)(1) the amount of SFA to be provided is the “amount required for the plan to pay all benefits due during the period beginning on the date of payment of the special financial assistance payment . . . and ending on the last day of the plan year ending in 2051. . . .” This is referred to in section 4262(i)(1) as “the amount necessary as demonstrated by the plan sponsor.” Section 4262.4(a) of the interim final rule implemented section 4262(j)(1) by providing that the amount of SFA for a plan is the amount (if any), by which the value of all plan obligations exceeds the value of all plan resources, determined as of the plan's SFA measurement date and limited to the SFA coverage period (the period ending on the last day of the last plan year ending in 2051).

PBGC received numerous comments on this section of the rule, as noted earlier in the preamble. Many of the commenters on the interim final rule argued that PBGC's implementation of section 4262(j)(1) was contrary to Congressional intent and the statutory direction for plans to receive SFA in an amount required for the plan to pay all benefits due through 2051.

Many commenters disagreed with PBGC that the statute should be interpreted to require all plan assets and future income (together, a plan's resources) to be considered when determining the amount of SFA.

Several commenters raised the concern that some critical status plans that meet statutory eligibility

requirements and that may apply under § 4262.3 will not receive SFA or will receive only minimal SFA under § 4262.4 of the interim final rule. Commenters said this is because many of these plans will have assets and other resources that equal or exceed the present value of benefit obligations through 2051, although insolvency may be projected after that date. Some commenters also noted that the outcome of some eligible plans receiving zero or minimal SFA is inequitable and will penalize plans whose trustees and associated bargaining parties have been proactive under collective bargaining agreements or rehabilitation plans to improve plan finances. Commenters suggested this outcome would be contrary to Congress' intent in including these plans as eligible for SFA. Without SFA, these critical status plans will remain “financially vulnerable” according to the commenters.

One commenter described SFA as an important tool to address the current crisis, but the commenter said that it does not address the structural issues that created the need for SFA. Another commenter expressed support for the interim final rule's implementation of the amount of SFA. The commenter said to exclude current assets and future contributions from the calculation of SFA would be irresponsible.

Some commenters suggested there is support in the statute for alternatives to § 4262.4(a) of the interim final rule. Suggested alternatives include disregarding certain plan resources, such as future contributions and future accruals, or carving out a portion of current assets or future contributions to fund benefits after 2051. Others suggested that the interim final rule's standard based on a projection of sufficiency to the last day of the plan year ending in 2051 should be replaced with one consistent with MPRA's standard to avoid insolvency indefinitely. One commenter suggested this can be accomplished by interpreting section 4262(j)(1) of ERISA as providing SFA in an amount required for a deterministic projection of plan assets to be increasing during the last plan year ending in 2051. Under one suggested approach, the present value of plan resources needed to increase plan funding post-2051 would not be included in SFA-eligible plan resources. Other commenters suggested disregarding all plan resources in determining the amount of SFA.

Some MPRA plans commented that the receipt of SFA in the amount provided for under the interim final rule will put their long-term solvency projections at risk. They noted that the interim final rule would result in these plans receiving less in SFA than the present value of the benefits the plans would be required to restore. Some of these commenters suggested excluding from the calculation of SFA that portion of existing assets or future contributions to fund post-2051 benefit obligations. Others suggested providing an amount of SFA sufficient to pay the reinstated benefits beyond the plan year ending in 2051. Commenters said the rule should allow MPRA plans to receive SFA and continue to meet the MPRA solvency standard.

As explained in the preamble to the interim final rule, the heart of the matter is found in the requirement that SFA be “the amount necessary” or “required for the plan to pay all benefits due.” The statutory text provides not merely that the amount of SFA be what is “required” in the abstract to pay benefits due through the end of 2051, but specifies that SFA be in the amount required “for the plan” to pay all benefits due during this period. PBGC believes that Congress' choice to modify the term “required” with “for the plan” indicates that the amount of SFA should take into account what resources the plan already has to pay benefits through the end of 2051.

Moreover, since the statute requires deterministic projections to be made through the end of the last plan year ending in 2051, the resources to be considered must include plan assets and income. If Congress had contemplated a different approach from accepted actuarial practice, Congress would have explicitly excluded the resources that it did not intend to be included in the determination of the amount of SFA “required for the plan.” Accordingly, the additional funding necessary for the plan to pay benefits depends on what funding—plan assets, contributions, investment returns, etc.—the plan already has available to pay those benefits. To the extent that a plan has other means available to pay benefits, it does not require or need SFA for that purpose.

According to PBGC's modeling, not accounting for plan's non-SFA assets would easily enable all eligible plans to pay all benefits due through 2051, as SFA would cover the entirety of plans' projected liabilities from “benefits due” over the next 3 decades. However, PBGC's modeling also shows that this approach could potentially triple the cost of the SFA program.

One exception added to the final rule in § 4262.4(c)(3) permits plans to exclude from plan resources certain contribution rate increases agreed to on or after July 9, 2021. This change is being made in response to comments PBGC received on assumptions guidance it issued on July 9, 2021—specifically, on the acceptable changes to a plan's contribution rate assumption. An example provided in the assumptions guidance showed contribution rate increases negotiated before March 11, 2021, being included in the plan's contribution rate assumption. Practitioners asked whether the example meant that contribution rate increases negotiated after March 11, 2021, could be excluded. PBGC is providing in the final rule that contribution rate increases agreed to on or after July 9, 2021, the date PBGC's interim final rule and initial assumptions guidance were issued, are excluded from employer contributions paid and expected to be paid to the plan during the SFA coverage period (and, if applicable, any benefit increases that result from the contribution increases are excluded from plan obligations under § 4262.4(b)(1) and (c)(1)). PBGC does not expect that excluding these negotiated contribution rate increases will result in an increase in the amount of SFA that a plan would receive without the new provision. This is because, without the provision, PBGC expects that bargaining parties would wait until after the plan applies for SFA to negotiate contribution rate increases (so as to exclude the contribution increases from plan resources in the calculation of SFA). However, this practice would be detrimental to the plan's financial health. PBGC expects that the new provision will eliminate this reason for delaying negotiation of contribution rate increases.

Except for excluding the contribution rate increases described directly above, the final rule does not adopt the suggestions from commenters to exclude some or all of a plan's resources. However, the final rule changes the methodology for calculating the amount of SFA in § 4262.4, by specifying the interest rate assumption used to project returns on SFA assets and by providing a methodology for determining SFA for MPRA plans that are eligible for SFA under § 4262.3(a)(2), and changes § 4262.14 to allow more flexibility in permissible investments of SFA. PBGC's modeling shows that these provisions are expected to enable plans to pay benefits due through the plan year ending in 2051 if future experience is in line with plan assumptions. The provisions are discussed in detail in the preamble under the subheadings

Calculating the Amount of SFA, Interest Rates for SFA and Non-SFA Assets, and Permissible Investments.

Calculating the Amount of SFA

Section 4262.4(a) of the interim final rule provided that the amount of SFA for a plan is the amount (if any), subject to adjustment for the date of payment as described in § 4262.12, by which the value of all plan obligations exceeds the value of all plan resources, determined as of the plan's SFA measurement date and limited to the SFA coverage period (the period ending on the last day of the last plan year ending in 2051). Under the interim final rule, the value of plan obligations was the sum of the present value of specified benefit payments and administrative expenses. The value of plan resources was the total of the fair market value of assets on the SFA measurement date and the present value of future contributions, withdrawal liability payments, and other payments expected to be made to the plan (excluding the amount of financial assistance under section 4261 of ERISA and the amount of SFA to be received by the plan) during the SFA coverage period.

Two commenters stated that the present value approach to determine the amount of SFA in the interim final rule does not properly take into account the timing of cash flows. The commenters were concerned that under the present value approach, plans with positive cash flow toward the end of the projection period could receive an amount of SFA that results in a projected plan asset value below zero before the end of the SFA coverage period. However, the commenters acknowledged that plans eligible for SFA are not expected to have a positive cash flow during the projection period. In addition, as described in detail in other sections of the preamble, PBGC received many comments related to the interest rate assumption a plan was required to use under the interim final rule to calculate the amount of SFA in the plan's application. To address these comments and to meet the statutory requirements of section 4262(j) of ERISA, in the final rule, PBGC is changing the methodology that a plan must use to determine the amount of SFA from a present value approach to a projection approach that ensures that plan assets cannot go below zero before the end of the SFA coverage period.

In addition, the final rule, in § 4262.4(a)(1) and (2), prescribes methodologies to determine SFA for plans that are not MPRA plans and for plans that are MPRA plans. Section 4262(n) of ERISA requires PBGC to coordinate with the Secretary of Treasury in prescribing the application process for eligible multiemployer plans and the amount of SFA needed by a plan that has suspended benefits under section 305(e)(9) of ERISA. To determine the amount of SFA under § 4262.4, the final rule defines a MPRA plan under § 4262.4(a)(3) as a plan that is eligible for SFA under § 4262.3(a)(2) (a plan with an approved MPRA benefit suspension as of March 11, 2021). Thus, a plan that is eligible for SFA under § 4262.3(a)(1), (3), or (4) and has implemented a suspension of benefits that has been approved under section 305(e)(9) of ERISA

after

March 11, 2021, is not eligible for the amount of SFA determined under § 4262.4(a)(2) for a MPRA plan.

1. Calculation of SFA for MPRA Plans

Following consideration of the issues raised by commenters described earlier in the preamble and of the harmonization of the statutory text and structure, and after consultation with the Treasury Department regarding the administration of the MPRA program, this final rule provides a different methodology for the calculation of SFA for MPRA plans than was provided in the interim final rule. Section 4262(n)(1)(B) of ERISA requires PBGC to consult with the Treasury Department regarding the amount of SFA needed for a MPRA plan based on the projected funded status of the plan at the end of 2051, the payment of previously suspended benefits, and other relevant factors. These factors are distinct from the generally applicable provision in section 4262(j)(1) of ERISA and reflect that Congress sought to ensure that PBGC accounts for MPRA plans' unique circumstances.

As described earlier in the preamble, under the interim final rule, MPRA plans faced the predicament where either accepting or not accepting SFA could raise fiduciary concerns. In deciding whether to apply for and accept SFA, MPRA plans must consider not only the positive impact of reinstated benefits on participants and beneficiaries currently receiving benefits, particularly current retirees receiving benefits, but also consider whether the plan may put the future benefits of active participants at risk if it cannot project to avoid insolvency indefinitely.

Under the final rule, a MPRA plan can apply for the greatest of: (1) the amount of SFA calculated for a plan that is not a MPRA plan; (2) the lowest amount of SFA that is sufficient to ensure that the plan will project rising assets at the end of the 2051 plan year; and (3) an amount of SFA equal to the present value of reinstated benefits (accounting for both make-up payments needed, as well as payments of the reinstated portion of benefits through 2051, and any restoration of benefits under 26 CFR 1.432(e)(9)-1(e)(3)). These additional SFA calculations in (2) and (3), set forth in the final rule, accord with requirements and considerations that are unique to MPRA plans.

Under the second calculation, the amount of SFA is the lowest amount necessary for actuarial projections to show the plan's assets are increasing as of the last day of the plan year ending in 2051. In calculating the amount of SFA for plans that are not MPRA plans, the statute requires that the amount of SFA “shall be such amount required for the plan to pay all benefits” due through the end of the coverage period.

The statutory text in section 4262(n)(1)(B) of ERISA, which applies specifically and only to MPRA plans, adds a further consideration—the plan's “projected funded status.” The final rule draws upon the demonstrations of “projected funded status” that current MPRA plans made as part of the MPRA process, which distinguishes them from other SFA-eligible plans. As discussed earlier, all SFA-eligible MPRA plans demonstrated to the Treasury Department that their proposed suspensions of benefits under MPRA would be sufficient for the plan to avoid insolvency indefinitely. Thus, the methodology under the final rule provides the amount of SFA projected to be necessary to ensure that a MPRA plan's projected funded status at the end of the plan year ending in 2051 continues to correspond to avoiding insolvency indefinitely, which the plan demonstrated as a requirement of suspending benefits under MPRA. In particular, MPRA plans will be able to accept SFA without harming their projected funded status at the end of the 2051 plan year.

29 U.S.C. 1432(j)(1).

PBGC has consulted with the Treasury Department as required by section 4262(n)(1)(B) of ERISA. The final rule aligns with the standard for avoiding insolvency indefinitely in the Treasury Department's final regulations on the suspension of benefits under MPRA. This requirement generally is satisfied under the Treasury Department's MPRA regulations if the value of plan assets is projected to increase at the end of the relevant measurement period.

This approach in the final rule, based on the Treasury Department's MPRA regulations, takes into account Congress' direction in section 4262(n)(1)(B) of ERISA that PBGC consult with the Treasury

Department regarding the amount of SFA needed “based on the projected funded status of the plan as of the last day of the plan year ending in 2051.”

26 CFR 1.432(e)(9)-1(d)(5)(ii).

Under the third calculation, the amount of SFA is the amount equal to the present value of reinstated benefits, including make-up payments and the reinstated portion of future benefits through 2051. Section 4262(n)(1)(B) of ERISA requires PBGC to consult with the Treasury Department to consider the “projected funded status” of MPRA plans and “any other relevant factors” and that “the amount of assistance . . . is sufficient to pay benefits as required in subsection (j)(1).” The determination of the amount of SFA under section 4262(j)(1) of ERISA must take into account “the reinstatement of benefits required under subsection (k).” The “benefits required under subsection (k)” include both make-up payments to account for previously suspended past benefits,

i.e.,

those benefits described in section 4262(k)(2), and the reinstated portion of future payments effective as of the month SFA is paid to the plan,

i.e.,

those benefits described in section 4262(k)(1). Thus, the statute requires MPRA plans that receive SFA to reinstate benefits and requires the amount of SFA to take into account the “reinstatement of benefits” by MPRA plans. This present value approach does that by providing MPRA plans an amount of SFA that is sufficient to pay reinstated benefits. The “amount of assistance” is sufficient only if a MPRA plan takes into account the reinstatement of suspended benefits under both section 4262(k)(1) and (k)(2) of ERISA. The present value approach is consistent with Congress' direction that PBGC should consult with the Treasury Department regarding the amount of SFA needed “to ensure the amount of assistance is sufficient . . . to pay benefits as required in subsection (j)(1).”

Section 4262(n)(1)(B) of ERISA.

Following PBGC's consultation with the Treasury Department, this final rule provides a MPRA plan the amount of SFA that is the greatest of these three calculations, which take into account the enumerated considerations the statute sets forth in section 4262(n)(1)(B).

2. Calculation of SFA for a Plan That Is Not a MPRA Plan

The amount of SFA for a plan that is a not a MPRA plan is calculated under § 4262.4(a)(1) of the final rule as the lowest whole dollar amount (not less than $0) for which, as of the last day of each plan year during the SFA coverage period, projected SFA assets and projected non-SFA assets are both greater than or equal to zero.

The projected SFA assets for a plan are determined by projecting SFA forward annually until fully exhausted, using the annual cash flows specified in § 4262.4(b) of the final rule, including benefits and administrative expenses paid and expected to be paid by the plan during the SFA coverage period (excluding benefit increases resulting from certain contribution increases and excluding the amount owed to PBGC under section 4261 of ERISA), and investment returns expected to be earned on the SFA assets (calculated using the SFA interest rate described in new § 4262.4(e)(2)).

The projected non-SFA assets for a plan are determined by projecting the fair market value of plan assets on the SFA measurement date forward annually, using the annual cash flows specified in § 4262.4(c) of the final rule, including: the benefits and administrative expenses paid and expected to be paid by the plan during the SFA coverage period (excluding benefit increases resulting from certain contribution increases and excluding the amount owed to PBGC under section 4261 of ERISA) after the projected SFA assets are fully exhausted; employer contributions (excluding certain contribution rate increases), withdrawal liability payments reflecting a reasonable allowance for amounts considered uncollectible, and other payments expected to be made to the plan (excluding the amount of financial assistance under section 4261 of ERISA and SFA) during the SFA coverage period; and investment returns expected to be earned on the non-SFA assets (calculated using the non-SFA interest rate described in new § 4262.4(e)(1)).

Under § 4262.4, the deterministic projections must be based on recent participant census data. Section 4262.4(d) of the interim final rule provided that participant census data must be as of the first day of the plan year in which the plan's initial application is filed, or, if the date on which the plan's initial application is filed is less than 270 days after the beginning of the current plan year and the actuarial valuation for the current plan year is not complete, the projections may instead be based on the participant census data as of the first day of the plan year preceding the year in which the plan's initial application is filed. PBGC received one comment stating that some plans may be unable to complete the actuarial valuation report within 270 days due to reporting delays and plan complexity. The commenter recommended extending the 270 days to 1 year to enable these plans to apply without having to wait until the current valuation is completed. PBGC considered this comment and has concluded that a simpler rule will provide for data that are adequately up to date. Under § 4262.4(d), as revised by the final rule, projections must be based on participant census data used to prepare the plan's actuarial valuation report for the plan year that includes the plan's SFA measurement date, or, if there is no such report for that plan year, for the preceding plan year.

If a plan experiences a significant change in plan experience between the date of the plan's participant census data used to prepare the SFA projections and the plan's SFA filing date, PBGC's assumptions guidance (issued on PBGC's website at

www.pbgc.gov/guidance

) provides guidelines on how to reflect that significant change. Plans may, but are not required to, use the guidelines if they are reasonable for the plan.

Interest Rates for SFA and Non-SFA Assets

As discussed earlier in the preamble, PBGC interprets the requirement in section 4262(j)(1) of ERISA that SFA be provided in the “amount required for the plan to pay all benefits due” through the end of 2051 to mean the amount required in addition to the plan's non-SFA assets. This means that plans will pay benefits from two separate pools of assets which, under the statute, must be segregated and invested separately. Therefore, to calculate the amount of SFA “necessary for the plan to pay all benefits due” through the end of 2051, plans must perform separate calculations to project the value of each pool of assets, each of which requires the use of an interest rate assumption to reflect expected returns on that pool of assets.

Section 4262(e)(2)(A) of ERISA provides an interest rate that plans must use as part of the determination of the amount of SFA under section 4262(j)(1). This rate is based on the rate used in the plan's most recently completed certification of plan status before January 1, 2021, subject to an interest rate limit. The interest rate limit specified in section 4262(e)(3) is the rate that is 200 basis points higher than the rate specified in section 303(h)(2)(C)(iii) of ERISA (disregarding modifications made under clause (iv) of such section) “for the month in which the plan's application for SFA is filed or the 3 preceding months.” This provision places a “cap” on the interest rate, which is any permissible rate for a

month during the 4-month period ending with the month in which the plan's initial application was filed.

The interim final rule provided that a plan must use this interest rate as an assumption for the expected rate of return for both the SFA and the non-SFA assets. Under § 4262.4(e)(1) of the interim final rule, the “assumed interest rate” was the interest rate that is the lesser of the rate used by the plan for funding standard account projections in the plan's most recently completed certification of plan status before January 1, 2021, or the rate that is 200 basis points higher than the rate specified in section 303(h)(2)(C)(iii) of ERISA (disregarding modifications made under clause (iv) of such section) for any month selected by the plan in the 4-month period ending with the month in which the plan's application was filed (or the month in which the initial application was filed if there was more than one filing date).

Many commenters discussed the difference between the interest rate assumption used to calculate SFA under § 4262.4(e)(1) of the interim final rule, and the expected lower return on SFA assets invested in permissible investments under § 4262.14. These commenters argued that the approach of applying a single interest rate to each pool of plan assets would be at odds with the statutory language in section 4262(j) of ERISA that the amount of SFA “

shall

be such amount

required

for the plan to pay all benefits due during the period beginning on the date of payment of [SFA] and ending on the last day of the plan year ending in 2051” (emphasis added). As noted earlier, commenters argued that, under the interim final rule approach, many, if not most, SFA-eligible plans would not receive the SFA amount “required” to enable the plans to pay benefits through the 2051 plan year. These commenters suggested that an interest rate assumption required to be used to calculate the amount of SFA under section 4262(e) and the expected rate of return on permissible investments under section 4262(

), which were limited in the interim final rule primarily to investment grade bonds, would make it impossible for plans to receive the amount of SFA required to pay benefits through 2051. Some commenters illustrated this point by noting that their modeling showed that their plans would run out of money before 2051, a conclusion that PBGC has confirmed through its own additional, more detailed modeling performed since issuance of the interim final rule. Commenters argued that plans therefore should not be required to use the rate in section 4262(e) to project both SFA and non-SFA assets, given their different expected rates of return, and that allowing plans to apply a different reasonable rate to SFA assets would be a permissible exercise of PBGC's discretion that would better achieve the statute's requirements.

In contrast, a few commenters stated that the interest rate set forth in section 4262(e) of ERISA and the investment restrictions in section 4262(

) are plain directives of the statute. These commenters instead asked PBGC to reinterpret section 4262(j)(1) to change the determination of the amount of SFA by, for example, disregarding certain categories of plan resources (or all plan resources) in determining the amount of SFA required by a plan.

Other commenters provided a number of suggestions regarding what interest rate assumptions plans should be permitted to use for SFA and non-SFA assets. The most common suggestion was that the interest rate required under section 4262(e) of ERISA should apply only to non-SFA assets and that PBGC should allow a separate rate to apply to SFA assets. Many commenters contended that the statute did not specify an interest rate for SFA assets, providing several arguments in support of these contentions. Some pointed out that although section 4262(e) requires plans to use the rate identified in that section in calculating the amount of SFA, the statute does not specify how it is to be used, nor require that such rate be used for all purposes. Commenters also argued that using the rate under section 4262(e) to project returns on SFA assets would not make sense given that section 4262(

) provides that SFA assets will be invested separately and likely at lower rates of return than non-SFA assets, and because section 4262(j)(1) cannot be satisfied without SFA assets being projected—for most plans—using an investment-return assumption lower than the interest rate in section 4262(e). Thus, many commenters argued that PBGC should allow plans to use a different interest rate for SFA assets so that plans will receive sufficient SFA to pay full benefits through 2051, as required by section 4262(j)(1). These commenters argued that PBGC has the authority and the mandate to harmonize the various provisions of section 4262 in this manner.

Some commenters further argued that, because the 2020 certifications of plan status did not include an interest rate assumption for projecting investment returns on SFA assets, the interest rate should be a newly established assumption and reflect expected returns on SFA assets. A few other commenters suggested that PBGC should provide a rate equal to the IRS' third segment rate, without adding the 200 basis points. One commenter requested allowing plans to submit two calculations, with one calculation based on the interest rate assumption in the interim final rule and a second calculation using interest rate assumptions that would more reasonably project actual returns for SFA and non-SFA assets. PBGC would then provide the plan an amount of SFA to make up any discrepancy between the two calculations.

In the interim final rule, PBGC explained that to determine eligibility for SFA, for certifications of plan status completed after December 31, 2020, section 4262(e)(1) of ERISA requires a plan to use assumptions from its most recently completed certification of plan status before January 1, 2021, unless such assumptions (excluding the plan's interest rate) are unreasonable. To determine the amount of SFA, the interim final rule noted that section 4262(e)(2) provides that a plan must “use the interest rate used by the plan in its most recently completed certification of plan status before January 1, 2021, provided that such interest rate may not exceed the interest rate limit.” Under section 4262(e)(4), if a plan determines that use of one or more prior assumptions is unreasonable, the plan may propose to change such assumption. Section 4262(e)(4) also provides that, notwithstanding this language, plans cannot propose a change to the interest assumption. In the interim final rule, PBGC interpreted these subsections of 4262(e), read together, to mean that plans should use the section 4262(e) interest rate to determine the amount of SFA, without a separate interest rate assumption for projecting SFA assets. In interpreting section 4262(e), PBGC, in the interim final rule, stated that it does not have authority to provide a different rate or bifurcate the statutorily mandated interest rate.

After further review of the statute, PBGC observes that section 4262(e) of ERISA is general in its language regarding the determination of the amount of SFA and does not speak directly to the precise question of the use of an interest rate to project returns on SFA assets. Thus, PBGC has, after this further review of the statute, additional consultation with its Board agencies, consideration of comments, and extensive actuarial modeling, determined that an alternative interpretation of section 4262(e) that addresses the limitations imposed by the statute and PBGC on permissible investments, is reasonable and more

likely to result in the SFA an eligible plan receives being sufficient for the plan to pay full benefits through 2051, as provided under section 4262(j)(1) of ERISA, than the interpretation adopted in the interim final rule. This result would not be possible solely by the increased flexibility in the investment of SFA assets under revised § 4262.14. Therefore, after considering section 4262(e) together with sections 4262(j)(1) and 4262(

) of ERISA, and in order to harmonize these provisions of the statute more effectively than in the interim final rule, PBGC is providing for two interest rate assumptions in the final rule.

PBGC has considered, but does not agree with, comments that argued that PBGC has discretion to permit plans to not use in any manner the interest rate identified in section 4262(e) of ERISA when calculating the amount of SFA. The text of section 4262(e)(2) states that “[i]n determining the amount of special financial assistance in its application, an eligible multiemployer plan

shall use

the interest rate used by the plan in its most recently completed certification of plan status before January 1, 2021, provided that such interest rate may not exceed the interest rate limit” (emphasis added). Because the statute speaks directly to whether plans must use this rate, PBGC does not have discretion to allow plans not to use the interest rate in section 4262(e)(2) at all. Although plans may be able to forgo using other assumptions from their most recently completed certification of plan status before January 1, 2021, if they demonstrate to PBGC that those assumptions “are no longer reasonable,” section 4262(e)(4) makes clear that plans cannot propose to change the requirement to use the interest rate in section 4262(e)(2). This final rule therefore maintains the requirement that plans use the section 4262(e) rate when calculating the amount of SFA. Under the final rule, plans must use this rate as the assumed rate of return on non-SFA plan assets.

PBGC has considered arguments from commenters that the statute does not expressly speak to whether the section 4262(e) rate must also be used as the assumed rate of return on SFA assets, which did not exist at the time of a plan's most recent certification of plan status before January 1, 2021, and which will be invested separately, and under different statutory restrictions, from non-SFA assets. As explained earlier in the preamble, the final rule maintains that at least one of the components of this overall calculation must be projected using the rate specified in section 4262(e)(2) of ERISA because of the statute's instruction that plans “shall” use that rate in determining the amount of SFA.

See section 4262(e)(2) of ERISA.

However, after further statutory analysis and consideration of comments, PBGC recognizes that the statute does not specify the pool of assets for which that rate must be used as the assumed rate of return. In light of this statutory silence, PBGC is exercising discretion to make a reasonable choice, consistent with section 4262(j)(1), about the pool of assets for which the interest rate assumption in section 4262(e)(2) shall be used. As discussed earlier in the preamble, PBGC has interpreted the requirement in section 4262(j) that SFA shall be the amount “required for the plan” to pay all benefits due through the end of the plan year 2051 to mean that plans must consider existing assets in calculation of the SFA amount. Plans receiving SFA will therefore pay these benefits from two pools of assets: SFA assets and non-SFA assets. Section 4262(

) expressly contemplates that the SFA assets may have a different expected rate of return than non-SFA assets. In addition, as many commenters noted, a mismatch between the investment restrictions in section 4262(

) and the interest rate identified in section 4262(e)(2) also supports the reasonableness of allowing plans to apply a different and more realistic rate to SFA assets, including to meet the requirements of section 4262(j)(1). Given the investment restrictions under section 4262(

), if the section 4262(e)(2) interest rate assumption were required to be used in projecting SFA assets, PBGC would not be providing the amount of SFA reasonably projected to be “required for the plan to pay all benefits due” through the plan year ending in 2051.

Requiring plans to use the section 4262(e) rate for projecting the value of non-SFA assets, while providing for a different rate for projecting the value of SFA assets, is a reasonable interpretation of the statute that harmonizes sections 4262(e), (j), and (

Accordingly, to calculate the amount of SFA for a plan under § 4262.4, the plan must use two interest rate assumptions: (1) the plan's non-SFA interest rate used for calculating investment returns expected to be earned on the plan's non-SFA assets, and (2) the plan's SFA interest rate used for calculating the investment return expected to be earned on the plan's SFA assets.

The first interest rate, defined in § 4262.4(e)(1) of the final rule, is the plan's “non-SFA interest rate.” This rate replaces the “assumed interest rate” under the interim final rule. The “assumed interest rate” was defined as the interest rate that is the lesser of the rate used by the plan for funding standard account projections in the plan's most recently completed certification of plan status before January 1, 2021, or the interest rate “cap” selected by the plan in the 4-month period ending with the month in which the plan's application was filed (or the month in which the initial application was filed if there was more than one filing date). PBGC recognizes that it is always to a plan's advantage to use the rate for the month in which the rate is lowest. For simplicity, therefore, in the final rule PBGC is revising § 4262.4(e)(1)(ii) by specifying that the non-SFA interest rate “cap” is the interest rate that is 200 basis points higher than the rate specified in section 303(h)(2)(C)(iii) of ERISA (disregarding modifications made under clause (iv) of such section) for the month in which that rate is the lowest among the 4 calendar months ending with the month in which the plan's initial application for special financial assistance is filed, taking into account only rates that have been issued by the Internal Revenue Service as of the day that is the day before the date the plan's initial application is filed.

The second interest rate, defined in § 4262.4(e)(2) of the final rule, is the plan's “SFA interest rate.” The SFA interest rate is the lesser of the rate used by the plan for funding standard account projections in the plan's most recently completed certification of plan status before January 1, 2021, and an interest rate cap that is lower than the non-SFA interest rate cap. This lower cap reflects the restrictions on investment of SFA funds and the investment returns plans can reasonably expect to earn on SFA funds.

The SFA

interest rate cap is the interest rate that is 67 basis points higher than the average of the rates specified in section 303(h)(2)(C)(i), (ii), and (iii) of ERISA (disregarding modifications made under clause (iv) of such section) for the month in which such average is the lowest among the 4 calendar months ending with the month in which the plan's initial application for special financial assistance is filed, taking into account only rates that have been issued by the Internal Revenue Service as of the day that is the day before the date the plan's initial application is filed.

PBGC determined that the average of the first and second segment rates specified in sections 303(h)(2)(C)(i) and (ii) of ERISA (disregarding modifications made under clause (iv) of such section) is likely to reasonably represent the yield and therefore the expected return at any point in time on the portion of the SFA required to be invested in investment grade fixed income. As discussed later in the preamble under the subheading

Permissible Investments,

up to 33 percent of SFA may be invested in return-seeking assets and the expected return on SFA assets is the weighted average of the expected returns for the component parts. Using the interest rate cap applicable to plan assets that are not subject to an investment limitation (200 basis points above the third segment rate) as a cap for return-seeking assets and an allocation of 33 percent of SFA to those assets, the cap on the SFA interest rate—the weighted average of the caps for the component

parts—is the average of the three segment rates plus 67 basis points.

Section 4262(f) of ERISA suggests that a plan may have multiple filing dates by providing two application deadlines: One for initial applications and one for revised applications. Until an application is approved, there is no limit to the number of times that a plan sponsor may file a revised application as long as the last revised application is filed by the statutory deadline of December 31, 2026. Once PBGC has accepted an application for processing, PBGC believes that it is in the best interest of all parties to avoid the duplicative work and delays that would result if a revised application were to use different interest rate assumptions. To prevent multiple filings for purposes of changing the interest rate assumptions, if a plan's application is revised as provided under § 4262.11, the non-SFA interest rate and SFA interest rate used for any revised application must be the same as the non-SFA interest rate and SFA interest rate required to be used for the plan's initial application for SFA.

Calculating the Amount of SFA With Respect to Certain Events

Section 4262.4(f) of the regulation addresses the possibility that a plan may implement certain changes to obtain more SFA than was intended by section 4262 of ERISA. In these situations, the amount of SFA that would apply to a plan is limited to the amount of SFA determined as if the events described in § 4262.4(f) had not occurred. These events include mergers, transfers of assets or liabilities (including spinoffs), certain increases in accrued or projected benefits, and certain reductions in contribution rates. The limitation applies to events that occur between July 9, 2021, and the SFA measurement date. To accommodate the possibility of multiple events, the limitation does not apply on an event-by-event basis but is based on comparing the amount of SFA a plan applies for with the amount of SFA a plan (or all plans in the case of a merger) would have received had the events not occurred. PBGC included these provisions in the interim final rule in consultation with the Treasury Department.

With respect to mergers, § 4262.4(f)(1)(ii) of the regulation provides that if two or more plans are merged, then the SFA is limited so that it does not exceed the sum of the SFA that would have been calculated for all of the plans involved in the merger had the plans applied separately for SFA. Thus, a plan that would not have been entitled to any SFA if not for a merger that occurs on or after July 9, 2021, cannot become entitled to SFA by merging with a plan that also would not otherwise be entitled to any SFA. A plan eligible for SFA may remain eligible after the merger; however, a plan may not increase the amount of SFA to which it is entitled by merging with another plan or plans on or after July 9, 2021.

PBGC considered two comments it received related to these provisions and decided not to make any changes to § 4262.4(f) in the final rule. One commenter stated generally that PBGC should not limit SFA or access to SFA because the protections already in place under the Pension Protection Act of 2006, MPRA, and ARP are sufficient to avoid abuse. A second commenter suggested that the amount of SFA available to merged plans should not be limited to the amount each plan would have been separately eligible to receive. The commenter argued that PBGC does not have authority to make rules limiting SFA for two or more plans that are merged, that a prohibition is not a reasonable condition regarding diversion of contributions, and that the rule denies needed assistance to plans that are facing insolvency.

PBGC disagrees with the commenter's assertion that PBGC does not have authority to address possible abuse of the SFA program or to limit SFA, in the case of a merger, to the amount each plan would have been separately eligible to receive. As explained in the interim final rule, section 4262(b)(1) of ERISA establishes criteria for eligibility of a multiemployer plan for SFA, and section 4262(j) provides for determining the amount of the SFA. It is appropriate for PBGC, with its responsibility for carrying out the purposes of the title IV insurance program,

to impose conditions on plans receiving SFA designed to ensure that plans do not receive more than the amount of SFA to which they are entitled. As provided in the interim final rule, PBGC concludes that, to achieve that end, it is reasonable not to give effect to changes made to a plan's structure or terms on or after July 9, 2021, if such changes would either artificially inflate the amount of SFA to which a plan is entitled or convert an ineligible plan into an eligible plan.

PBGC's inherent authority under section 4002(b)(3) of ERISA allows PBGC to adopt regulations to carry out the purposes of the title IV insurance program.

Informing this conclusion, section 4262(e)(2)(B) of ERISA provides, as a general rule, that the actuarial assumptions to be used by a plan are the assumptions used in the plan's actuarial certification for the most recently completed certification of plan status before January 1, 2021 (unless those assumptions are unreasonable), indicating that the plan applying for SFA must have been in existence and had an actuarial certification as to its status before January 1, 2021. The provisions regarding interest rate assumptions under section 4262(e)(2)(A) are specific to the plan in its most recent certification of plan status completed before January 1, 2021, and, under section 4262(e)(4), those assumptions may not be changed. A manipulation of those rates via a merger would not be consistent with that prohibition. Although the statute does not directly address plan mergers, in the case of merged plans, each plan's assumptions from the most recently completed pre-2021 certification of plan status must be maintained in order for section 4262(e) to be given effect with respect to the plans that merged. PBGC's rule fills the gap left in the statute for the calculation of SFA for plans that have been involved in a merger occurring on or after July 9, 2021.

In addition, section 4262(m)(1) of ERISA expressly authorizes PBGC, in consultation with the Secretary of the Treasury, to impose reasonable conditions “on an eligible multiemployer plan that receives special financial assistance” relating to certain aspects of plan terms or operations. Such conditions include those relating to the diversion of contributions to and allocation of expenses to other benefit plans, increases in future accrual rates, retroactive benefit improvements, and reductions in employer contribution rates. PBGC's authority to impose reasonable conditions under section 4262(m)(1) is not limited to restrictions on a plan following its receipt of SFA. PBGC is authorized to impose conditions on a plan that “receives” SFA. PBGC's authority is not limited to imposing conditions on a plan that

has received

SFA. That understanding of

section 4262(m)(1) finds further support in section 4262(m)(2), which restricts the conditions that PBGC can impose not only “following receipt of” SFA, but also “as a condition of” SFA. That broad prohibition would be unnecessary if PBGC's authority under section 4262(m)(1) were limited to imposing only post-receipt conditions.

The condition respecting mergers is consistent with PBGC's authority under section 4262(m)(1) of ERISA to impose reasonable conditions relating to the “diversion of contributions to, and allocation of expenses to, other benefit plans.” When two or more plans merge, each predecessor plan has diverted its contributions and allocated its expenses to the merged plan and thereby to each other merging plan. A merged plan, which combines assets and liabilities of two or more plans, each with its own set of participants and beneficiaries, to all of whom all the assets (and, thus, all the contributions) must be available following the merger, is, in effect, diverting contributions intended to benefit one set of participants (the participants in the plan that received SFA) to another (the participants in each other merging benefit plan).

Accordingly, under section 4262(m) of ERISA, in conjunction with section 4002(b)(3), PBGC is authorized to impose reasonable conditions that ensure that SFA is provided to plans in an amount that is not artificially inflated by plan mergers. Conditions regarding events other than mergers are discussed in the preamble of the interim final rule and examples illustrating the provisions are included in § 4262.4(f)(6).

Calculating the Amount of SFA for Plans That Applied for SFA Under the Interim Final Rule

Pursuant to its authority under section 4262(c) of ERISA, PBGC in the final rule adds new § 4262.4(g) to provide guidance on the requirements for SFA applications for plans that applied for SFA under the interim final rule.

If a plan's application for SFA was approved under the regulation as in effect before August 8, 2022 (meaning under the interim final rule), the plan should look to the rules set forth under § 4262.4(g)(1) for “approved applications.” Those rules provide that the plan may supplement its application after SFA is paid under the terms of the interim final rule. When a plan files a supplemented application, the amendments in this final rule to permissible investments in § 4262.14 and to the withdrawal liability condition in § 4262.16(g)(2) become applicable upon the date the supplemented application is filed even if the supplemented application is not approved. A supplemented application may be filed even if a plan would not receive additional SFA as the result of the filing. If the plan chooses to supplement, the plan will file a supplemented application with the changes and information specified in the SFA supplemented application instructions on PBGC's website at

www.pbgc.gov

to implement the provisions of the final rule for determining the amount of the plan's SFA, including the interest rate assumptions under § 4262.4(e). A supplemented application, like a revised application, must be filed by December 31, 2026, and in accordance with the processing system (including priority groups) described in § 4262.10. PBGC must review a supplemented application within 120 days of the filing date. The plan cannot change the plan's SFA measurement date, fair market value of assets, or participant census data used in the plan's application approved under the interim final rule. The plan also cannot propose a change in assumptions, except to propose a change to the plan's employer contribution assumption to exclude contribution rate increases agreed to on or after July 9, 2021, as permitted under § 4262.4(c)(3) (in which case, the plan must exclude any benefit increases resulting from those contribution increases). A plan may withdraw the plan's supplemented application and file a new supplemented application at any time before the supplemented application is denied or approved. If PBGC denies a plan's supplemented application, the plan may file a new supplemented application. Any new supplemented application filed by the plan must address the reasons cited by PBGC for the denial. Any SFA paid to the plan under the provisions of the final rule will be adjusted as described in § 4262.12, including to reflect the prior receipt of SFA.

If a plan applied for SFA under the interim final rule and the plan's application was not approved, withdrawn, or denied, and was pending, as of August 8, 2022, the plan should look to the rules set forth under § 4262.4(g)(2) for “pending applications.” They provide that the plan's pending application may be withdrawn (as described in § 4262.11(d)) and a revised application filed, or not withdrawn and determined under terms of the interim final rule. Any revised application must use the plan's base data defined in § 4262.4(g)(5). Base data include the plan's SFA measurement date, determined under the interim final rule as the last day of the calendar quarter immediately preceding the date the plan's initial application for SFA was filed; the plan's participant census data required to be used in the plan's initial application for SFA under the interim final rule; and the plan's non-SFA interest rate and SFA interest rate determined under § 4262.4(e)(1) and (2) of the final rule. Any SFA paid to the plan under the provisions of the final rule will be adjusted as described in § 4262.12. A plan with a “pending application” that chooses not to withdraw and revise its application will be paid the amount of SFA as determined under the interim final rule. The plan is not precluded from later filing a supplemented application.

If a plan applied for SFA under the interim final rule and it was not pending as of August 8, 2022, because the plan's application was denied or the filer withdrew the plan's application in accordance with § 4262.11(d), the plan may file a revised application (see the provisions for a “withdrawn application” and a “denied application” under § 4262.4(g)(3) and (4) respectively). Any revised application must use the plan's base data defined in § 4262.4(g)(5). Base data include the plan's SFA measurement date, determined under the interim final rule as the last day of the calendar quarter immediately preceding the date the plan's initial application for SFA was filed; the plan's participant census data required to be used in the plan's initial application for SFA under the interim final rule; and the plan's non-SFA interest rate and SFA interest rate determined under § 4262.4(e)(1) and (2) of the final rule. Any SFA paid to the plan under the provisions of the final rule will be adjusted as described in § 4262.12.

PBGC Review of Plan Assumptions

PBGC's review of an application for SFA focuses on the reasonableness of the plan's demonstration regarding the amount of SFA for the plan. Section 4262.5 sets forth how PBGC reviews plan assumptions.

Section 4262 of ERISA generally looks to plan assumptions previously selected by the plan actuary for determining eligibility for and calculating the amount of SFA. A mechanism is provided for a plan to propose changes to actuarial assumptions if it determines that the use of one or more of its original assumptions (other than the interest rate) is unreasonable.

Under section 4262 of ERISA, actuarial assumptions generally are

derived from a plan's certification of plan status under section 305 of ERISA. In general, PBGC believes that a plan's actuarial assumptions adopted for the certification of plan status (and not for entitlement to SFA) represent a neutral view of circumstances, unbiased by the prospect of receiving a substantial sum of money. Accordingly, as provided in the interim final rule, PBGC expects to give less intensive scrutiny to “original” assumptions than to changed assumptions.

Section 4262(e)(1) of ERISA requires PBGC to accept actuarial assumptions incorporated in a plan's certification of plan status completed before 2021 for purposes of eligibility unless PBGC determines that such assumptions are “clearly erroneous.” For all other purposes (including determining the amount of SFA), the statute requires PBGC to accept the assumptions used unless PBGC determines that they are unreasonable.

Several commenters recommended that PBGC take a deferential approach when reviewing assumptions used by a plan's actuary in the most recent certification of plan status completed before 2021. These commenters argued that if a plan sponsor does not propose a change, PBGC should refrain from challenging the plan's assumptions because the intent of the statute is to allow those assumptions to serve as default assumptions. They argue that this would allow SFA applications, in comparison to MPRA applications, to be expeditiously reviewed by avoiding the level of scrutiny that was imposed when reviewing actuarial assumptions for MPRA applications. These commenters requested guidance from PBGC stating that the pre-2021 assumptions are deemed acceptable. One commenter requested that PBGC accept the plan's assumptions unless they are clearly erroneous or unreasonable. Another suggested that PBGC not challenge pre-2021 assumptions unless clearly unreasonable. Yet another commenter requested that PBGC clarify that pre-2021 assumptions that were reasonable for purposes of the pre-2021 certification of plan status will not be deemed unreasonable for purposes of the SFA application because of the passage of time, subsequent events, or the different purpose of measurement.

PBGC agrees that, in comparison to a plan's changed assumptions, for the reasons discussed earlier in the preamble, PBGC should take a more deferential approach in reviewing a plan's use of pre-2021 assumptions. However, given the language in section 4262(e)(2)(B) of ERISA that a plan shall use the pre-2021 assumptions “unless such assumptions are unreasonable,” PBGC disagrees that a lesser standard, such as clearly erroneous or clearly unreasonable, should be used by PBGC when reviewing a plan's assumptions used to determine the amount of SFA for the plan. In addition, PBGC disagrees with the one commenter's assertion that the passage of time, subsequent events, or the different purpose of the measurement should not be considered by the plan's actuary. As described later in this section of the preamble, the statute provides a mechanism for changing prior assumptions that are no longer reasonable (excluding the interest rate assumption). This indicates that the passage of time, subsequent events, and the purpose of the measurement should be considered by the plan's actuary. If the plan's actuary does not determine that one or more of the pre-2021 assumptions are unreasonable for the purpose of determining the amount of SFA, PBGC will defer to the plan's use of those assumptions unless PBGC finds the assumptions unreasonable. PBGC, however, may request additional information from the plan to determine whether a pre-2021 assumption is unreasonable.

Each of the actuarial assumptions and methods used for the actuarial projections (excluding the interest rate assumptions) must be reasonable in accordance with generally accepted actuarial principles and practices,

taking into account the experience of the plan and reasonable expectations. To be reasonable, an actuarial assumption or method generally must, among other things, be appropriate for the purpose of the measurement, reflect the actuary's professional judgment, take into account current and historical data that is relevant to selecting the assumption for the measurement date, reflect the actuary's estimate of future experience, and reflect the actuary's observation of the estimates inherent in market data (if any). In addition, an actuarial assumption or method must be expected to have no significant bias (

i.e.,

it is not significantly overly optimistic or pessimistic).

Actuarial Standards of Practice (ASOPs) are issued by the Actuarial Standards Board and are available at

http://www.actuarialstandardsboard.org/standards-of-practice.

Certain ASOPs, including ASOPs Nos. 4, 23, 27, 35, 41, and 56 may be relevant to the actuary's work related to special financial assistance, including the assessment of the reasonableness of the actuary's assumptions and methods.

The statute provides a mechanism for changing prior assumptions (other than the interest rate assumption) that are no longer reasonable. If a plan actuary determines that one or more original assumptions are unreasonable and must be changed, § 4262.5(c) provides that the plan's application must describe why the original assumption is no longer reasonable, propose to use a different assumption (the changed assumption), and demonstrate that the changed assumption is reasonable. If there is a change in assumptions, each of the actuarial assumptions and methods (other than the interest rate assumptions) must be reasonable, and the combination of actuarial assumptions and methods (excluding the interest rate assumptions) also must be reasonable. Plans are required to provide detailed information about any changed assumptions, and PBGC will perform a less deferential analysis of those assumptions than of the original pre-2021 assumptions.

Concurrent with the interim final rule, PBGC issued assumptions guidance containing guidelines for changes to certain assumptions that plans may use for purposes of determining eligibility for SFA and the amount of SFA. Plans may, but are not required to, use the guidelines. Plans that do not use the guidelines may demonstrate that the change is reasonable by providing additional information beyond what would be required under the guidelines. Guidelines are available for contribution base units (CBUs), administrative expenses, mortality, contribution rates, and new entrant profiles, and can be found in the guidance issued on PBGC's website at

www.pbgc.gov/guidance.

In addition, for various reasons, a plan may have a gap in the assumption for projected CBUs and administrative expenses used in the prior certification of plan status such that the assumption cannot be used “as is” for determining SFA. To assist applicants and aid in the review of a plan's CBU assumption and administrative expense assumption, PBGC developed standard extensions that plans can use to complete the assumption set for a plan that otherwise can use its original assumptions. With respect to the § 4262.5(c)(1)(iii) requirement to demonstrate that the changed assumption is reasonable, it is sufficient to include a statement to that effect in the application instead of a detailed demonstration if the plan uses standard extensions described in the assumptions guidance.

Two commenters suggested that PBGC could permit MPRA plans to use projected CBUs consistent with their approved MPRA applications as a safe-harbor assumption. One of these commenters also suggested a safe harbor for MPRA plans to use other actuarial

assumptions from their approved MPRA application. If an assumption used in a plan's approved MPRA application is the same as an assumption used in the plan's last pre-2021 certification of plan status, and the plan's actuary determines that the assumption is not unreasonable for the purpose of determining the amount of SFA, PBGC will provide deference to the actuary's determination unless PBGC finds the assumption unreasonable. If an assumption used in a plan's approved MPRA application is not the same as an assumption used in the plan's last pre-2021 certification of plan status, the plan actuary may propose to change the assumption to the assumption used in the plan's approved MPRA application in accordance with § 4262.5(c). PBGC is amending its assumptions guidance to provide that PBGC will generally accept a change in assumption to an assumption used in a plan's approved MPRA application, including projected CBUs, if the plan includes the information required by § 4262.5(c) in the application and the demonstration provided by the plan shows the assumption is reasonable for the purpose of determining the amount of SFA.

Several commenters requested that PBGC's guidance provide more flexibility in contribution assumptions or recommended specific changes, such as eliminating the requirement that a change in CBU assumption be adequately supported by historical data. The commenters stated that historical data is not necessarily predictive of future changes. One commenter explained that the historical data requirement defies economic trends in many industries, is inconsistent with the reasonableness standard in the statute, and may contravene actuarial standards which require actuaries to consider factors that may affect future experience, such as economic conditions for the industry and the availability of alternative employment due to automation. Another commenter asked for guidance, or clarifications of PBGC's guidance, on various assumptions, including mortality, new entrant assumptions, and employer withdrawals.

PBGC has updated its assumptions guidance to address some of the comments received, provisions of this final rule, and to provide more clarity and additional guidance based on experience in reviewing applications. In addition to the change described earlier in the preamble for plans with approved MPRA applications, PBGC added guidelines on acceptable changes to a plan's disabled life mortality assumption and on the acceptable adoption of or update to a plan's mortality improvement projection scale. PBGC specified the information needed to show that a plan's assumed new entrant profile and administrative expenses assumption are based on the acceptable methodology as indicated by the guidance. For a plan that reflects significant plan experience between the participant census date and the application filing date, PBGC added that the plan should provide a rationale for how it determined that the plan experience was significant, and made other updates to the related example. PBGC added examples and other clarifications to acceptable assumption changes.

PBGC also added guidelines on projecting future receipt of employer withdrawal liability payments, noting that the projection should reflect the actuary's best estimate of future plan experience and that the plan's actuary should consider reflecting a reasonable allowance for amounts considered uncollectible. PBGC added guidelines for plans where all the assumptions required to be used for projections in the pre-2021 certification of plan status were not identified. The assumptions guidance also provides guidelines on acceptable changes for the exclusion of terminated vested participants over a certain age. Finally, PBGC added information about how applicants can schedule an informal pre-application conference with PBGC.

PBGC considered the comments on CBU assumptions and, except for some clarifying changes, did not adopt the suggestion of commenters to eliminate the guideline that a change in CBU assumption be adequately supported by historical data. Instead, PBGC included examples in the guidelines to illustrate how historical data and industry trends can be used to project future changes in CBUs under the guidelines.

PBGC's guidance on CBUs and other assumptions may not be reasonable for all plans and is not binding on plans. A plan should follow the assumptions guidance only if it is reasonable for the plan to do so. As explained earlier in the preamble, applicants may propose changes to the plan's assumptions by following § 4262.5(c), including describing why the original assumption is no longer reasonable, disclosing the changed assumption, and demonstrating that the changed assumption is reasonable.

Information To Be Filed

Sections 4262.6 through 4262.8 of the interim final rule described the information that must be included in a plan's SFA application. Section 4262.6 summarized the requirements for an application to be considered complete, including: plan information; actuarial and financial information (including the amount of SFA requested); a completed checklist (per the SFA instructions on PBGC's website at

www.pbgc.gov

); the signature of an authorized trustee who is a current member of the board of trustees; a signed statement under penalty of perjury; a copy of the executed plan amendment providing that, beginning with the SFA measurement date, the plan must be administered in accordance with the restrictions and conditions specified in section 4262 of ERISA and this regulation; if the plan suspended benefits under sections 305(e)(9) or 4245(a) of ERISA, a copy of the proposed plan amendment to reinstate suspended benefits and pay make-up payments and a certification by the plan sponsor that the plan amendment will be adopted timely; and any information required by PBGC to clarify or verify the information in a filed application. If any of the information required under the regulation and in the SFA instructions is missing from the filed application, the application will not be considered complete.

The SFA instructions (on PBGC's website at

www.pbgc.gov

), including templates, supplement the regulation and provide guidance to plan sponsors and practitioners on how to prepare and file the required application information. Sections 4262.6 through 4262.8 and the instructions specify the minimum necessary plan, actuarial, and financial information that PBGC requires to approve or deny an application for SFA and to verify the amount of SFA within the short 120-day review period provided under section 4262(g) of ERISA.

PBGC in the final rule is amending the information required to be filed as described in §§ 4262.6 through 4262.8 to reflect the new methodology in § 4262.4 for determining the amount of a plan's SFA and making other clarifying changes.

Based on its experience reviewing applications, in the final rule, PBGC is amending § 4262.6(a) to provide that, if information is not accurately completed or not filed with the application, PBGC may, in its discretion, either require the plan sponsor to file additional information to correct the error or omission or consider the application incomplete. If correction of any error or omission requires a change to the amount of SFA requested, the application will be considered incomplete. This provision is intended

to provide some flexibility in the application review process to enable some errors to be corrected without plans having to file revised applications.

In addition, PBGC is modifying the language of the required statement under penalty of perjury in § 4262.6(b) to make the language more precise and is modifying the language of the required amendments to the plan in § 4262.6(e). In the final rule, clarifying language, “notwithstanding anything to the contrary in this or in any other governing document” is added to § 4262.6(e)(1) so that the required language for the amendment reads, “Beginning with the SFA measurement date selected by the plan in the plan's application for special financial assistance, notwithstanding anything to the contrary in this or any other governing document, the plan shall be administered in accordance with the restrictions and conditions specified in section 4262 of ERISA and 29 CFR part 4262. This amendment is contingent upon approval by PBGC of the plan's application for special financial assistance.” PBGC is also providing model language for the benefit reinstatement amendments under § 4262.6(e)(2) to assist filers in complying with the amendment requirements. In addition, PBGC is amending § 4262.7(e)(2) to require that the certification by the plan sponsor that the benefit reinstatement amendments will be timely adopted must be signed either by all members of the plan's board of trustees or by one or more trustees duly authorized to sign the certification on behalf of the entire board of trustees.

As described in the

Paperwork Reduction Act

section of the interim final rule, the application instructions and checklist were submitted to the Office of Management and Budget (OMB) for review and approval under the Paperwork Reduction Act. PBGC received approval for this information collection on an emergency basis for a period of 180 days, expiring on January 31, 2022, under control number 1212-0074. Subsequently, OMB extended its approval for the information collection for an additional 3 years, expiring on January 31, 2025.

With the final rule, PBGC is submitting this information collection, with the described modifications, to OMB and its decision will be available at

www.Reginfo.gov.

Unless confidential under the Privacy Act, all information that is filed with PBGC for an application for SFA may be made publicly available, at PBGC's sole discretion, on PBGC's website at

www.pbgc.gov

or otherwise publicly disclosed. Except to the extent required by the Privacy Act, PBGC provides no assurance of confidentiality in any information or documentation included in an application for SFA.

Application for Plans With a Partition

Under section 4233 of ERISA, a plan may apply to PBGC for a partition to fund a portion of the plan's benefits to avoid insolvency. Upon PBGC's approval of an application for partition, PBGC issues a partition order to provide: (1) for a transfer from the original plan to the plan created by the partition order (the successor plan), the minimum amount of benefit liabilities necessary for the original plan to remain solvent, and (2) financial assistance from PBGC under section 4261 to pay those benefits. The successor plan is but a creature of PBGC's partition order, terminated and insolvent from its inception. The original and successor plans are required by section 4233(d)(2) to have the same plan sponsor and administrator.

Section 4262(c)(3) of ERISA requires PBGC to provide an alternative application for SFA that may be used for a plan approved for a partition before March 11, 2021. Section 4262.9 of PBGC's regulation describes this application.

Section 4262.9 does not provide eligibility for SFA. As explained earlier in the preamble under the subheading

Eligible Multiemployer Plans,

section 4262(b)(1) of ERISA lists four categories of plans that are eligible for SFA, and PBGC cannot extend eligibility for SFA through its regulation to a plan that is not included in any of those categories. In the case of a partitioned plan, the original and successor plans must each be separately eligible. Each must have been approved for a suspension of benefits under section 305(e)(9) of ERISA as of March 11, 2021, to be eligible for SFA under section 4262(b)(1)(B) of ERISA and § 4262.3(a)(2). To avoid any confusion about the eligibility of a partitioned plan, PBGC is clarifying this requirement in § 4262.9(a) of the final rule.

The plan sponsor of a partitioned plan where the original and successor plans are each eligible to apply for SFA must apply for SFA using the alternative application, which contemplates PBGC's rescission of the partition order as prescribed under § 4262.9(c) and other conditions particular to a partitioned plan as described under § 4262.9(b). One of these conditions is that the plan sponsor must file a single application for SFA, consisting of information about the original plan and the successor plan. The combined information must reflect that, on the date SFA is transferred to the plan, PBGC will rescind the order that created the successor plan, and the plan sponsor will remove plan provisions and amendments that were required to be adopted under the order.

Another condition is that the application must include a statement that the plan was partitioned and a copy of the provisions or amendments that the plan was required to adopt under the partition order. A partitioned plan's application must include all the required information described in §§ 4262.6 through 4262.8 for applications generally. However, if the plan sponsor of a partitioned plan has already filed any of the required information with PBGC, the sponsor is not required to include that information again with its SFA application. Instead, the sponsor need only note on the checklist described under § 4262.6(a) that the information was already filed.

Partitioned plans also have benefit suspensions that must be reinstated if the plan is approved for SFA. Under § 4262.15, a plan receiving SFA must reinstate benefits suspended under section 305(e)(9) of ERISA and provide make-up payments to participants and beneficiaries to restore previously suspended benefits in accordance with guidance issued by the Treasury Department and the IRS in Notice 2021-38, 2021-30 IRB 155. This requirement applies to both the original plan and the successor plan created by a partition. Having the original and successor plans apply as one will ensure coordinated benefit reinstatements for all participants in the partitioned plan.

The filing of an application for a partitioned plan falls under priority group 2 for purposes of § 4262.10(d) (explained in this preamble under the subheading

Processing Applications

), consistent with other plans that are eligible for SFA because they have implemented a suspension of benefits under section 305(e)(9) of ERISA as of March 11, 2021.

Successor plans created in a partition have also been receiving financial assistance from PBGC with repayment obligations under section 4261 of ERISA. How financial assistance under section 4261 is repaid is prescribed under § 4262.12.

Processing Applications

Under section 4262(c) of ERISA, PBGC must issue regulations or guidance setting forth requirements for SFA applications. Applications are considered timely filed under section 4262(g) only if they are filed in

accordance with PBGC's regulations. PBGC's inherent authority under section 4002(b)(3) of ERISA allows PBGC to adopt regulations relating to the conduct of its business and to carry out the purposes of the title IV insurance program. Under section 4262(d) of ERISA, PBGC also may limit the filing of SFA applications to filings for plans that are in one or more of four “priority” categories during a period limited to within the first 2 years after March 11, 2021.

Section 4262.10 of the regulation sets forth the system for processing applications within 120 days, as required by section 4262(g) of ERISA and § 4262.11 of the regulation. The processing system will provide every prospective submitter a fair opportunity to file its application by December 31, 2025 (or December 31, 2026, for a revised or supplemented application). This electronic filing system is based on three mechanisms. The first mechanism permits PBGC to accept applications in a manner that, in PBGC's estimation, allows for sufficient review and processing within 120 days of filing. The second mechanism is a priority system permitted by section 4262(d) of ERISA. The third mechanism is a notification system on PBGC's website to keep prospective applicants apprised of when a filing window opens or closes and (if applicable) to what priority groups filing is limited. This mechanism will enable applicants to know when the system is accepting applications from plans in their priority group. The statutory authority and rationale behind these mechanisms are fully explained in the preamble to the interim final rule.

PBGC received several comment letters on this section of the interim final rule. Most of these commenters focused on allowing more plans to apply earlier during the 2-year priority-group period to speed up the provision of SFA to eligible plans. These commenters wanted plans eligible to file in a later priority group to be given the opportunity to file in an earlier priority group—

e.g.,

allow plans projected to become insolvent within 1 year of filing an application and designated to file in priority group 2 to file in priority group 1, or allow plans that implemented benefit suspensions under MPRA and also able to file in priority group 2 to file in priority group 1. Some of these commenters explained that the plans in priority group 2 that are projected to become insolvent in 2022 should be able to apply earlier to avoid the complexity of preparing for insolvency or even becoming insolvent before receiving SFA, and to avoid the disruption this would cause plan participants. Commenters who are participants in MPRA plans (

i.e.,

plans that implemented benefit suspensions) described the reduction in their benefits as a life-altering loss. They asked that their plans be able to apply in priority group 1 along with insolvent plans because the impact of benefit cuts on plan participants is the same.

Other commenters wanted PBGC to move up the beginning date identified in the interim final rule for a plan in a priority group to file—

e.g.,

priority group 6 plans should be permitted to file before priority group 5.

The filing dates provided in the interim final rule are the latest dates PBGC expects to begin accepting applications from plans in each group. A plan in a priority group may file an application beginning on that date, or an earlier date as processing capacity permits, as updated on PBGC's website at

www.pbgc.gov

. As priority groups open, PBGC will continue to accept applications from plans in earlier priority groups. While the priority mechanism may entail a relatively short deferral of an application for a given plan until its respective priority group opens, the amount of SFA ultimately awarded will reflect the amount required to pay all benefits due pursuant to the statute.

The final rule does not make changes to the filing dates for plans in a priority group under § 4262.10(d)(2), but using its discretion under the regulation, PBGC has updated its website at

www.pbgc.gov

to allow a plan in priority group 2 that is expected to become insolvent within 1 year of the date the plan's application for SFA is filed, to file an application earlier. PBGC agrees with comments that this would lessen the disruption for plans and participants. In November 2021, the earliest date of filing for these plans was changed from January 1, 2022, to December 27, 2021, enabling these plans to prepare and file their applications earlier. PBGC will continue to monitor the flow of applications to consider earlier filing dates as processing capacity permits. PBGC will inform prospective applicants of any earlier dates through updates on its website at

www.pbgc.gov

Taking into account the previously described change, the following table describes each priority group and the date that it is currently scheduled to open:

Priority group

Description of priority group—date plans may apply for SFA

Plans already insolvent or projected to become insolvent before March 11, 2022

Beginning on July 9, 2021

Plans expected to be insolvent within 1 year of the date an application for SFA is filed

Beginning on December 27, 2021.

Plans that implemented a benefit suspension under ERISA section 305(e)(9) as of March 11, 2021

Beginning on January 1, 2022.

Plans in critical and declining status that had 350,000 or more participants

Beginning on April 1, 2022.

Plans projected to become insolvent before March 11, 2023

Beginning on July 1, 2022.

Plans projected to become insolvent before March 11, 2026

Date to be specified on PBGC's website at least 21 days in advance of such date, but no later than February 11, 2023.

Plans for which PBGC computes the present value of financial assistance under section 4261 of ERISA to be in excess of $1 billion (in the absence of SFA)

Date to be specified on PBGC's website at least 21 days in advance of such date, but no later than February 11, 2023.

Other commenters suggested expanding the priority categories to include other similar plans or to expand the number of priority groups by identifying plans for a priority group 7.

The final rule does not change the composition of priority groups as commenters suggested, such as by including in priority group 2 plans that had or still have a benefit suspension application under section 305(e)(9) of ERISA pending before the Treasury Department (and so had not implemented a benefit suspension as of March 11, 2021) or plans that had applied for a benefit suspension but had their application withdrawn or denied.

A plan in any of the four priority categories identified in section 4262(d) of ERISA will have a fair opportunity to file an application under § 4262.10(d)(2) of the regulation during the 2-year priority period ending on March 11, 2023. As noted in the interim final rule, PBGC's objective is to accept and process as many applications in the highest priority group as possible before opening the submission process to the next priority group. Ultimately—and no later than March 11, 2023—the submission process will be opened to all eligible plans (whether or not in a statutory priority category) to ensure that every prospective applicant has a fair opportunity to file its application during the statutory period.

Other commenters wanted more certainty about which plans fall into the final priority group 6 under the interim final rule, or groups 6 and 7, and when the plans could begin applying. Commenters recommended that PBGC identify and post as quickly as possible the names of the plans it determines to be in priority group 6 to provide certainty to plans expecting to apply in priority group 6. Under § 4262.10(d)(2)(vi), a plan is in priority group 6 if the plan is projected by PBGC to have a present value of financial assistance payments under section 4261 of ERISA that exceeds $1 billion if SFA is not ordered. PBGC will list the plans in priority group 6 on its website at

www.pbgc.gov

well in advance of the first date filings may be accepted, but not later than the earlier of November 15, 2022, or 30 days before opening the filing period for priority group 6. The date a plan in priority group 6 may file an application will be posted at least 21 days in advance of such filing date, which will be no later than February 11, 2023.

A commenter also recommended including plans with unfunded vested benefits (UVBs) over $1 billion in a priority group 7, with UVBs determined using current liability assumptions reported in the plan's last Form 5500 Schedule MB filed before 2021. The commenter suggested defining this group so that a plan with the expectation of being in priority group 6, but not named to priority group 6, could know that it could apply shortly thereafter and not have to significantly revise its application.

Commenters also reasoned that providing SFA to these large plans earlier (by allowing them to apply earlier) means the plans will have expended less of their assets to meet obligations, and therefore need less SFA, which in turn may result in less cost to the SFA program overall. Another commenter argued that plans that do not meet the $1 billion threshold are likely plans that cover workers in lower wage industries, and that these workers also are entitled to know when their plans may apply for SFA.

PBGC considered commenter requests to define a new priority group 7. Section 4262.10(d)(2)(vii) of the interim final rule provides that PBGC may add additional priority groups based on other circumstances similar to those described for priority groups 1 through 6. While PBGC has not made changes to § 4262.10(d)(2) to add additional priority groups, PBGC will continue monitoring its application processing to determine whether additional priority groups should be added. Any additional priority groups added and the date PBGC will begin accepting applications for such groups will be posted in guidance on PBGC's website at

www.pbgc.gov

The final rule makes some clarifying changes in § 4262.10(d), including to clarify that an application filed by a plan to which benefit liabilities were transferred (by merger or otherwise) from a plan that filed an initial application for SFA will be treated as a revised application and not an initial application.

Lock-in Application

Section 4262.10(d)(1) of the interim final rule provides that SFA applications are processed based on capacity to allow for sufficient review and processing by PBGC within the short period of time required by the statute. Once the number of applications reaches that level, the filing window will temporarily close until PBGC has capacity to process more applications. An application will be considered filed on the date it is submitted electronically to PBGC if the application meets applicable filing requirements, including authorized signatures, and can be accommodated in accordance with the processing system. Otherwise, PBGC will not consider the application filed and will notify the applicant that the application must be filed in accordance with the processing system and instructions on PBGC's website. PBGC maintains a dedicated web page for applications on its website at

www.pbgc.gov

to inform prospective applicants about the current status of the filing window, as well as to provide advance notice of when PBGC expects to open or temporarily close the filing window.

One commenter remarked that an effect of the “metering system” is that a plan preparing its initial application for submission on a particular date, with the plan's SFA measurement date and other base data aligned with that date, may nonetheless be prevented from filing on that date because the filing window has closed temporarily. If a temporary closure extends into the next calendar quarter, a plan's application may have to be significantly revised to include a new SFA measurement date and possibly new census data. The commenter suggested that PBGC could allow plans that were ready to file an application, but that were unable to do so because the filing window closed temporarily, to submit a “notice of intent to file” that would lock in the plan's SFA measurement date and other base data. The suggested notice would allow the plan to apply on a different date when the filing window re-opened but with the same application.

PBGC considered the comment and, to address the problem described by the commenter, has created in § 4262.10(g) of the final rule a simple process for “locking in” a plan's SFA measurement date and other base data, which is available for all plans that file after March 11, 2023, and on or before December 31, 2025. The process also is available for plans in priority groups 5, 6, and any additional priority group PBGC may add before March 11, 2023, if PBGC temporarily closes the filing window when it is otherwise accepting applications for plans in those priority groups. A lock-in application is a pro forma initial application submitted via email and containing the plan's identifying information, priority group information (if applicable), a statement of intent to lock in the plan's base data, a certification signed by an authorized trustee, and other information as described in the lock-in application instructions on PBGC's website at

www.pbgc.gov

. If the lock-in application satisfies the requirements for a lock-in application, it will be considered filed and immediately denied for incompleteness.

PBGC may learn, during its review of a plan's revised application, that the plan is not eligible for SFA. In that situation, the lock-in application will not establish the plan's base data. If the plan subsequently becomes eligible for SFA, the plan may file a revised application to demonstrate that the plan is eligible for SFA and establish the plan's base data.

Emergency Filings

Section 4262.10(f) of the interim final rule provides for an emergency filing process for priority applications from a plan that is insolvent or expected to be insolvent under section 4245(a) of ERISA within 1 year of filing an

application, or a plan that has implemented a suspension of benefits under section 305(e)(9) of ERISA as of March 11, 2021. Beginning with PBGC's acceptance of priority group 2 filings, PBGC is accepting emergency filings from these plans during periods when PBGC would not otherwise accept such applications because the filing window is closed. A filer submitting an application under the emergency filing process must substantiate the claim of emergency status and notify PBGC, in accordance with the SFA instructions on PBGC's website at

www.pbgc.gov,

before submission of the impending application.

One commenter suggested that another option for advancing the date that a plan in priority group 2 may apply would be to allow emergency filings beginning with PBGC's acceptance of applications from plans in priority group 1. PBGC has not made a change to the emergency filing process, but as discussed earlier, has advanced to December 27, 2021, the earliest filing date for a plan projected to be insolvent within 1 year of the date the plan's application is filed. Accordingly, insolvent plans and any plan projected to be insolvent within 1 year of the date the plan's application is filed are also eligible to submit emergency applications beginning December 27, 2021. PBGC will continue to monitor application processing and will continue to update its website to advance filing dates as capacity permits.

PBGC Action on Applications

Section 4262(g) of ERISA provides that PBGC can either approve or deny an application for SFA and establishes a 120-day review period during which PBGC must act or an application is deemed approved. PBGC is given authority to manage the application review process by issuing regulations or guidance under section 4262(c) of ERISA setting forth requirements for SFA applications. Pursuant to that authority, § 4262.11 provides requirements for plan applications that are denied by PBGC or withdrawn by a plan.

As described under § 4262.11, PBGC must act on an application within 120 days after the date an initial, revised, or supplemented application is properly and timely filed. If PBGC approves an application, it will notify the plan sponsor of the payment of SFA in accordance with § 4262.12.

If PBGC denies an application, it will notify the plan sponsor in writing of the reasons for the denial. An application may be denied because it is incomplete (it does not accurately include the information required to be filed); because an assumption is unreasonable, a proposed change in assumption is individually unreasonable, or the proposed changed assumptions are unreasonable in the aggregate; or because the plan is not an eligible multiemployer plan. For example, pending approval of an application, if PBGC determines that documentation supporting a certification of critical and declining status is missing, or if the plan sponsor has not responded to a PBGC request for information to clarify an item in that documentation, PBGC's notice will identify the missing information or documentation required to complete the application. If PBGC denies an application, the plan sponsor may submit a revised application. If the plan sponsor submits a revised application following a denial, the revised application must address the reasons for denial stated in PBGC's notification. PBGC is not requiring a plan sponsor to refile the entire application. PBGC only needs the information that cures the reasons specified in the denial notice. However, the plan sponsor may address other matters provided that the revised application addresses the reasons for the denial.

The plan sponsor may withdraw an application (in writing and in accordance with the SFA instructions on PBGC's website at

www.pbgc.gov

) at any time before PBGC denies or approves the application. If an application is withdrawn or denied, the plan sponsor may refile the application as a revised application. As explained earlier in the preamble, under section 4262(f) of ERISA, and until the plan's application is approved, there is no limit to the number of times that a plan sponsor may file a revised application (after the application is withdrawn or denied) as long as the last revised application is filed by the statutory deadline of December 31, 2026.

For any revised application, PBGC requires that the base data remain the same as required to be used in the plan's initial application to guard against multiple filings for purposes of changing this data. In the final rule, PBGC clarifies that the base data defined in § 4262.11(c) for an eligible plan includes the plan's SFA measurement date, participant census data, non-SFA interest rate assumption, and SFA interest rate assumption. Once PBGC has accepted an initial application for processing, it is in the best interest of all parties to avoid the duplicative work and delays associated with changes to the base data. Accordingly, if the application is denied or the plan sponsor withdraws an application, and the plan sponsor submits a revised application, it must use the base data required to be used in its initial application, but it may make other changes. However, in the final rule, PBGC clarifies that if the plan was not eligible for SFA on the date the plan filed its initial application, the plan's base data will not be fixed. Instead, if the plan is able to demonstrate eligibility for SFA at a later date in a revised application, the revised application will establish the plan's base data.

PBGC's decision on an application for SFA is a final agency action for purposes of judicial review under the Administrative Procedure Act (5 U.S.C. 701-706).

Payment of Special Financial Assistance

Section 4262(j) of ERISA provides that SFA is the amount required for an eligible plan to pay all benefits due from the date PBGC pays the SFA to the plan until the last day of the plan year ending in 2051. However, because a plan sponsor does not know when SFA will be paid at the time the sponsor prepares an application, the SFA amount supported by an application and approved by PBGC will be the amount appropriate as of a date in the past. The amount of SFA could be recomputed as of the date of payment, yet the result would still be an estimate and the burden of recomputing the amount of SFA would be significant. Instead, § 4262.12 provides that PBGC will pay a plan the amount demonstrated under the plan's application, determined as of the SFA measurement date, plus interest on that amount for the time between the SFA measurement date and the date PBGC sends payment (not the bank settlement date).

The final rule clarifies the interest rate applied on the amount of SFA demonstrated under the plan's application from the time between the SFA measurement date and the date PBGC sends payment. For initial or revised applications filed on or after the effective date of the final rule, the interest rate applied is the SFA rate under § 4262.4(e)(2). For applications filed under the interim final rule where the plan has not filed an initial or revised application on or after the effective date of the final rule and there has not been any previous payment of SFA, and where the plan's application is not supplemented, the interest rate applied is the non-SFA rate under § 4262.4(e)(1).

For a supplemented application, where the plan received a previous

payment of SFA, the interest rate applied is the SFA rate required under § 4262.4(e)(2) from the SFA measurement date to the payment date of the additional SFA. Interest is applied on the excess of the amount of SFA determined under § 4262.4 of the final rule as of the SFA measurement date (demonstrated on the plan's supplemented application) over the SFA amount determined under § 4262.4 of the interim final rule as of the SFA measurement date.

Section 4262.12(g) otherwise remains unchanged in substance from the interim final rule by providing that PBGC will pay SFA to a plan in a lump sum or substantially so

as soon as practicable upon approval of the plan's SFA application. As stated in the interim final rule, PBGC expects payment to be made usually within 60 days, and no later than 90 days after the plan's SFA application is approved or deemed approved (and in any event not later than September 30, 2030). Payment will be made in accordance with payment instructions provided by the plan in its application. Payment will be considered made when, in accordance with the plan's payment instructions, PBGC no longer has ownership of the amount being paid. Any adjustment for delay will be borne by PBGC only to the extent that it arises while PBGC has ownership of the funds.

For example, if a plan's SFA payment exceeds the statutory limitation for a Federal wire of $10 billion, the plan will receive multiple federal wire payments that will equal the approved lump sum amount.

For a plan with an obligation to repay financial assistance under section 4261 of ERISA, the process for that repayment is described in § 4262.12(e).

Unlike assistance under section 4261, section 4262(a)(2) of ERISA provides that payment of SFA is not a loan subject to repayment. However, under § 4262.12(g)(1), SFA is subject to recalculation or adjustment to correct any clerical or arithmetic error. PBGC will, and plans must, make payments as needed to reflect any such changes in a timely manner. SFA is also subject to debt collection if PBGC determines that a payment for SFA to a plan exceeded the amount to which the plan was entitled. Section 4262.12(g)(2) provides the rules for payment of a debt owed to the Federal Government.

Restrictions on Special Financial Assistance

Section 4262(

) of ERISA places restrictions on the use of SFA. These restrictions are described in § 4262.13 of the regulation. SFA received, and any earnings thereon, must be segregated from other plan assets and may only be used to make benefit payments and pay plan expenses (but SFA may be used before other plan assets are used for these purposes). In addition, SFA (and earnings) must be invested by plans in investment grade bonds or other investments as permitted by PBGC in § 4262.14. These limitations on the use of SFA reflect the purpose of SFA. As provided for under section 4262(j)(1) of ERISA and in § 4262.4, SFA is the amount required for the plan to pay all benefits due during the SFA coverage period taking into account all plan resources and obligations. SFA should not be used in a manner that would divert SFA funds to other purposes—for instance, reducing sources of plan income, such as employer contributions or withdrawal liability, or increasing plan obligations, such as to pay for additional future increases in benefits (that are not exempted under § 4262.16).

Permissible Investments

Section 4262(

) of ERISA requires that SFA received, and any earnings thereon, may be used to make benefit payments and pay plan expenses, and such SFA and earnings (“SFA funds” or “amounts attributable to special financial assistance”) must be held separately from other plan assets. Section 4262(

) also requires that SFA funds be invested in investment grade bonds or other investments permitted by PBGC. Given the statutory constraints and the likelihood that SFA funds will be paid out before non-SFA funds, PBGC believes that SFA funds should be invested conservatively, in broad, liquid markets.

While the allowance under section 4262(

) for “other investments permitted by the corporation” could provide some flexibility (and limited exposure to other assets), in the interim final rule PBGC did not allow for investments with fundamentally different characteristics than investment grade bonds. Section 4262.14 of the interim final rule permitted SFA funds to be invested only in fixed income securities that are publicly traded, denominated in U.S. dollars, and that must be considered investment grade except for a 5 percent allowance for a plan to hold investments that were considered investment grade at the time of purchase but are no longer of that credit quality. Recognizing that the interim final rule took a conservative approach for permissible investments, PBGC specifically requested comment from the public on how to arrive at an appropriate balance between predictability of returns and safety of investments on the one hand, and the flexibility to pursue greater asset returns and the opportunity to extend plan solvency on the other.

PBGC received many comments on § 4262.14 of the interim final rule and in response to its specific request for comment on the issue of appropriate risk level. Commenters generally favored allowing plans to have more flexibility in their options for investing SFA funds. They stated that increased flexibility in investment decisions would not necessarily create an excessive level of risk to plans and would enable plans to remain solvent longer.

Other commenters expressed the view that the investment restrictions in the interim final rule do not allow plans to invest SFA funds in a diversified portfolio. They stated that not allowing for diversification will increase overall risk to the plans. Commenters also stated that other investments, some low-risk, likely would yield higher returns and allow plans to remain solvent longer. These commenters suggested various types of fixed income that have higher yields.

As to which investments PBGC should permit, many commenters suggested that PBGC allow plans to invest SFA funds in a manner that targets a specific rate of return. Some commenters recommended permitting plans to target a rate of return close to an interest rate used to calculate the amount of SFA—

e.g.,

the interest rate limit under section 4262(e)(3) of ERISA or approximately 5.3 percent based on pension funding segment rates in December 2021.

Other commenters recommended that PBGC allow specific investment vehicles and approaches. Suggestions included the allowance for various types of fixed income investments, real estate and infrastructure, and risk transfer buy-in contracts offered by life insurers.

Some commenters suggested that PBGC set restrictions for plans individually. They said that PBGC should consider the unique circumstances of each plan and vary the permissible investment options based on the assumptions applicable to the plan.

Some commenters recommended that PBGC allow a percentage of SFA funds in investments other than fixed income. Suggestions ranged from 10 percent to 50 percent. Other commenters recommended having no delineations between SFA and non-SFA assets, meaning that SFA funds could be invested without restriction and would not need to be segregated from non-SFA funds. One commenter suggested that

removing all restrictions would eliminate the incentive to assume added risk in investing non-SFA funds. Another commenter said the restrictions are cumbersome and that, to develop an appropriate investment strategy for a plan, a fiduciary must consider all of the plan's assets.

Finally, two commenters agreed with the investment restrictions on SFA funds in the interim final rule. They stated that allowing additional investment options would lead to an excessive level of risk-taking for taxpayer funds.

PBGC stated in the interim final rule that it was reluctant to allow for investment vehicles with fundamentally different characteristics than investment grade bonds without public input. Although public comments reflected both sides of this issue, the comments largely suggested that the final rule should permit greater flexibility in investments with the objective of extending potential solvency. After considering the comments, and to support projected plan solvency through the plan year ending in 2051 as provided in section 4262(j)(1) of ERISA, PBGC is making changes to § 4262.14 to allow for a wider range of investments for SFA assets.

As provided in § 4262.14(i), the changes to permissible investments in this final rule are applicable to a plan that applies or has applied for SFA. However, for a plan that received SFA under the terms of the interim final rule, the changes to permissible investments under this final rule will not apply unless and until the plan files a supplemented application. Until that date, the provisions of § 4262.14 under the interim final rule apply to the plan.

The changes in the final rule permit plans to invest a specified percentage—up to 33 percent—of their SFA funds in return-seeking assets (RSA) as described in § 42

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