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Federal Register / Vol. 86, No. 130 / Monday, July 12, 2021 / Rules and Regulations
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reductions in employer contribution rates, the contribution income into the plan may decrease if the reduced rates do not effectively increase plan participation. Plans may view SFA as a windfall that will allow for contribution rate relief that benefits employers at the expense of the plans financial health.
Although the financial impact is likely to be significantly less than the $23
billion to $36 billion range estimated under the MEPIMS benchmark scenario for a 20 percent universal reduction in assumed contribution rates primarily due to the aforementioned rehabilitation plan constraints, PBGC
expects there to be a material albeit unknown impact.
A separate regulatory alternative was considered under which PBGC would strictly prohibit plans from accepting any collective bargaining agreement under which there was a reduction in the contribution rate. This alternative is similar to the provision in the interim final rule but does not allow for any exceptions to the prohibition. PBGC
recognizes that employers that are on the brink of insolvency may be able to avoid bankruptcy by reducing the contribution rate to the pension plan.
Although this exception reduces short term contribution income to the plan, it may increase long-term contribution levels by enabling the contributing employer to stay solvent and have the resources available to contribute to the plan.
Conditions Related to the Allocation of Contributions and Other Practices PBGC considered the implications of foregoing any regulatory action under section 4262m of ERISA to impose reasonable conditions related to the allocation of contributions and other practices. The primary benefit of this option is that the bargaining parties would retain full discretion over how to allocate contributions to benefit programs that align with their desired preferences. Regulatory action by PBGC
could be considered onerous.
However, PBGC recognizes that absent any regulations the bargaining parties could take actions that allocate contributions away from the pension plan and allow it to fail and become covered under PBGCs insurance program. PBGC used MEPIMS to estimate the financial impact of a 25
percent one-time reduction in CBUs for all plans that receive SFA. This would reflect the efforts that may be made by some plans to shift hours away from the plan to increase contribution allocations to other programs. The 25 percent reduction percentage was set as an average to reflect that some bargaining
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parties may not allocate any contributions away from the plan whereas other bargaining parties may allocate a substantive portion of contributions away from the plan.
Under this benchmark scenario, financial assistance under section 4261
of ERISA would increase by approximately $10 billion to $25 billion over the following decades. However, the extent to which bargaining parties would engage in these types of strategies is highly uncertain.
Conditions Related to Withdrawal Liability PBGC first considered the implications of foregoing any regulatory authority provided under section 4262m of ERISA to impose reasonable conditions related to withdrawal liability. Absent any conditions, plans may anticipate a potential surge of employer withdrawal upon receipt of the SFA. Plans would account for this anticipated outcome by requesting a greater amount of SFA in their applications to PBGC plans would do so by setting the actuarial assumptions accordingly. The extent to which the aggregate amount of SFA provided under section 4262 is impacted is unknown, but PBGC estimates that it could range from 10% to 30%. The greater the amount of SFA that is provided to plans, the greater the reduction in the employers unfunded vested benefit obligations and therefore the greater the incentive for employers to withdraw from the plans. This outcome could materially increase the amounts of SFA provided under section 4262.
A separate regulatory alternative was considered under which PBGC would mandate that, during the SFA coverage period, SFA assets are disregarded in the determination of unfunded vested benefits for the assessment of withdrawal liability. This alternative would prevent a decrease in the value of employer unfunded benefit obligations due to receipt of SFA and thereby block an incentive from arising that may cause employers to withdraw from these plans. This would mitigate against a change in plan assumptions for increased employer withdrawals within the application for SFA that would in turn increase the aggregate transfers of SFA across all plans under section 4262.
This alternative was determined to be more administratively complex and therefore less desirable.
Regulatory Flexibility Act Because PBGC is not publishing a general notice of proposed rulemaking under 5 U.S.C. 553b, the regulatory
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flexibility analysis requirements of the Regulatory Flexibility Act do not apply.
See 5 U.S.C. 6012.
Paperwork Reduction Act This interim final rule contains a collection of information that PBGC has submitted to the Office of Management and Budget OMB for review and approval under the Paperwork Reduction Act. OMBs decision regarding this information collection request will be available at http
www.Reginfo.gov. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid OMB control number.
PBGC estimates that over the next 3
years an annual average of 60 plan sponsors will file applications for SFA
39 in 2021, 69 in 2022, and 71 in 2023.
PBGC needs the information in the application to review a plans eligibility for SFA, priority group status, and amount of requested SFA, and to make payment of SFA. PBGC estimates that each application requires $30,000 in contractor cost and 10 hours of in-house fund time. Thus, the application imposes estimated annual burdens of $1,800,000 60 $30,000 and 600 60
10 hours.
PBGC estimates that over the next 3
years an annual average of 49 plan sponsors will file Annual Statements of Compliance 0 in 2021, 39 in 2022, and 108 in 2023. PBGC needs the information in this statement to ensure that a plan is compliant with the conditions imposed upon its receiving SFA. PBGC estimates that each Annual Statement of Compliance requires $2,400 in contractor cost and 2 hours of in-house fund time. The Annual Statement of Compliance imposes estimated annual burdens of $117,600
49 $2,400 and 98 49 2 hours.
Over the next 3 years an average of 11.33 plans per year 16 plans in 2021, 18 plans in 2022, and 0 in 2023 will be required to send notices to participants with suspended benefits. This notice is intended to ensure participants understand the calculation and dates of their reinstated benefits and, if applicable, make-up payments. PBGC
estimates that the burden for each plan to prepare required notices is $2,000 in contractor cost and 2 hours of in-house fund time. Thus, these notices impose estimated annual burdens of $22,667
11.33 $2,000 and 22.66 11.33 2
hours. PBGC is considering issuing a model notice and hereby solicits public comment on whether a model notice would be helpful.
Also, PBGC estimates that beginning in 2023, PBGC will receive an average
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