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Federal Register / Vol. 86, No. 130 / Monday, July 12, 2021 / Rules and Regulations
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Calculating the Amount of SFA
Section 4262.4a provides 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 plans 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. The SFA
measurement date is the last day of the calendar quarter immediately preceding the date the plans application was filed.
The value of plan obligations under 4262.4b is the sum of the present value of specified benefit payments and administrative expenses. The value of benefit payments is calculated as the present value of benefit payments expected to be paid during the SFA
coverage period including any reinstatement of benefits attributable to the elimination of reductions in a participants or beneficiarys benefit due to a suspension of benefits under sections 305e9 or 4245a of ERISA as required under 4262.15 or restoration of benefits under 26 CFR 1.432e9
1e3. The reinstatement of benefits must be calculated assuming such reinstatements are paid beginning as of the SFA measurement date instead of the date SFA is paid. The value of administrative expenses is calculated as the present value of administrative expenses expected to be paid during the SFA coverage period excluding the amount owed to PBGC under section 4261.
The value of plan resources under 4262.4c is 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.
The amount of financial assistance owed to PBGC under section 4261 of ERISA, if any, is excluded in the calculation of SFA in the plans application. Instead, it is added to the amount of SFA to be paid to the plan under 4262.12 as of the date PBGC
sends payment of SFA, offset by the value of financial assistance payments under section 4261 received by the plan following the SFA measurement date, accumulated with interest.
The projections in 4262.4b1 and 2 and c2 must be performed on a deterministic basis using a single set of assumptions as provided in 4262.4d.

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The deterministic projections must be based on recent participant census data.
Participant census data must be as of the first day of the plan year in which the plans initial application is filed, or, if the date on which the plans 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 plans initial application is filed. If a plan experiences a significant event between the date of the plans most recent participant census date and the date the application is filed, PBGCs assumptions guidance issued on PBGCs website at www.pbgc.gov/
guidance provides guidelines on how to reflect that significant event. Plans may, but are not required to, use the guidelines if they are reasonable for the plan.
The SFA measurement date, which is the beginning date for the deterministic projections, is a date certain in the past instead of a payment date in the future because the SFA payment date described under 4262.12 is unknown at the time the plan sponsor files the application. This approach of using a date certain in the past instead of a date in the future simplifies the calculation but does not change the SFA amount that would otherwise be calculated as of the payment date because: i Both the SFA-eligible plan resources and SFAeligible plan obligations will be reduced equally by the benefit payments and expenses between those two dates, ii the contributions between those two dates would typically need to be estimated either way, and iii the SFA
amount is adjusted for interest between those two dates at the interest rate used to calculate the present values as of the SFA measurement date.
Section 4262.4e1 of the regulation specifies the interest rate assumption a plan must use to calculate the amount of SFA in the plans application. Section 4262e2A of ERISA requires a plan to use an interest rate that is based on the rate used in the plans most recently completed certification of plan status before January 1, 2021, subject to an interest rate limit, but does not consider that there are potentially two rates used in a certification of plan status: A shortterm rate used for projecting plan assets and a long-term rate used to determine plan liabilities and for interest adjustments in the funding standard account. As the determination of the SFA amount involves long-term projections, the regulation specifies that the SFA amount is calculated based on
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the long-term rate that was used for funding standard account purposes in the plan actuarys projections that are part of the certification of plan status.
The interest rate limit specified in section 4262e3 of ERISA is the rate that is 200 basis points higher than the rate specified in section 303h2Ciii disregarding modifications made under clause iv of such section for the month in which the plans application for SFA is filed or the 3 preceding months. This provision places a cap on the interest rate, and that the cap is any permissible rate for a month during the 4-month period ending with the month in which the plans application was filed.
Section 4262f of ERISA suggests that a plan may have multiple filing dates by providing two applications deadlines:
One for initial applications and one for revised applications. There is no limit to the number of times that a plan sponsor may file revised applications 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 a different interest rate. To prevent multiple filings for purposes of changing the interest rate, PBGC establishes a rule in 4262.11c that the assumed interest rate will always be the rate used in the plans initial application.
Accordingly, under 4262.4e1, the assumed interest rate is the interest rate that is the lesser of the rate used by the plan for funding standard account projections in the plans 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 303h2Ciii 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 plans application was filed or the month in which the initial application was filed if there was more than one filing date. If an application is revised as provided under 4262.11 of the regulation, the interest rate used for the revised application must be the same as the interest rate used for the initial application.
Some interested parties commented that the interest rate required under section 4262e of ERISA should only apply to the earnings on current plan assets and that PBGC should allow a separate rate to be used to determine the amount of SFA required to pay for benefits not provided by current plan
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