The federal Pension Benefit Guaranty Corp. (PBGC) issued a final rule implementing changes to the Special Financial Assistance (SFA) program that will pay up to $91 billion to financially troubled multiemployer pension plans.
The final rule was published in the Federal Register on July 8 and takes effect on Aug. 8, 2022.
Multiemployer defined benefit plans, which serve more than 10 million workers and retirees, are created through agreements between employers in a single industry or related industries, which provide ongoing funding contributions, and unions, which manage the plans. These pensions are insured by the PBGC through an account that is separate from the one that safeguards single-employer pensions.
The SFA program was enacted as part of the American Rescue Plan Act of 2021. Prior to passage of the legislation, the PBGC’s multiemployer pension insurance program was projected to become insolvent in 2026.
Cost Estimates
The PBGC launched the SFA program under an interim final rule published in July 2021. The agency updated its estimates of the cost of the SFA program to reflect the provisions of the final rule.
Based on these updates, PBGC estimates that the likely range of total government funds to be distributed to multiemployer plans is $74 billion to $91 billion. As of July 6, 2022, nearly $7 billion has already been awarded to 27 plans.
The overall amount of SFA that will be distributed to plans will depend on the financial status of eligible plans.
“Without this Special Financial Assistance, the pension benefits of many hardworking union members and their families, through no fault of their own, were in danger,” said U.S. Secretary of Labor Marty Walsh. The final rule “will improve the financial well-being of multiemployer plans receiving Special Financial Assistance and improve their ability to pay pension benefits through 2051.”
Employers that contribute to multiemployer pension plans under collective bargaining agreements receive no reduction in their contribution rate under the relief program, as the rule “generally prohibits contribution rate decreases to ensure that SFA is not effectively transferred to contributing employers through decreased contribution obligations,” attorneys at law firm Jackson Lewis commented when the interim rule was released last year.
Plans that receive special assistance funding have no obligation to repay the government funds they receive but are subject to certain terms, conditions and reporting requirements, including an annual statement documenting compliance with the terms and conditions of the SFA program.
Partisan Divide
According to a White House statement, “Thanks to the American Rescue Plan, every multiemployer pension plan that faced near-term insolvency and benefit cuts that receives Special Financial Assistance is projected to remain solvent through 2051, and for much longer.”
Republican leaders have been critical of the final rule and its underlying legislation, which was passed on a party line vote. Responding to the final rule, House Education and Labor Committee Republican Leader Virginia Foxx, R-N.C., and Health, Employment, Labor, and Pensions Subcommittee Republican Leader Rick Allen, R-GA, released a statement that called the SFA program “a taxpayer-funded bailout” of plans whose union trustees “failed to make the changes necessary to make good on their promises” of keeping plans solvent.
Changes from Interim Rule
According to a PBGC fact sheet, the final rule makes various changes that address the public comments received on the interim rule. For instance, the final rule:
- Allows plans to invest up to 33 percent of their SFA funds in return-seeking investments such as publicly traded stocks, with the remaining 67 percent restricted to high-quality fixed income investments such as bonds.
- Modifies the SFA calculation method to use separate interest rates for plans’ SFA and non-SFA assets and aligns the interest rates used to calculate the value of SFA with reasonable expectations of investment returns.
- Provides a different methodology for the calculation of the value of SFA for plans that suspended payouts to pensioners under the Multiemployer Pension Reform Act of 2014.
Generally, the provisions of the final rule apply to new applications and are available to plans that previously submitted SFA applications under the interim rule if the plan submits a revised or supplemented application under the final rule.
Comment Period
The PBGC has included a 30-day public comment period in this rulemaking, solely on the change to the withdrawal liability condition requiring a phased-in recognition of SFA assets for purposes of computing employer withdrawal liability.
Interested parties may submit their comments, suggestions, and views on this provision to reg.comments@pbgc.gov.
Additional information is available on PBGC’s American Rescue Plan Special Financial Assistance Program webpage.
