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Federal Register / Vol. 86, No. 130 / Monday, July 12, 2021 / Rules and Regulations
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assets. Of those commenters, some contend that because the 2020
certifications of plan status did not include an interest rate assumption for SFA, the interest rate should reflect expected returns for investment grade bonds. To determine eligibility, for certifications of plan status completed after December 31, 2020, section 4262e1 requires a plan to use its most recently completed certification of plan status before January 1, 2021, unless such assumptions, excluding the plans interest rate, are unreasonable emphasis added. To determine the amount of SFA, section 4262e2
mandates 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. These provisions do not require the interest rate used under the certification of plan status to be reasonable for purposes of eligibility or determining the amount of SFA.
Under section 4262e4, if a plan determines that use of one or more prior assumptions is unreasonable, the plan may propose to change such assumption. This provision specifically states that the plan may not propose a change to the interest rate required for eligibility or SFA amount. In addition, PBGC does not have authority to provide a different rate or bifurcate the statutorily mandated interest rate.
For assumptions other than the interest rate, 4262.4e2 provides that a plan must use the assumptions that the plan used in its most recently completed certification of plan status before January 1, 2021, unless such assumptions are unreasonable. If a plan determines that use of one or more of the assumptions in its most recently completed certification of plan status before January 1, 2021, is unreasonable, the plan may propose in its application to change the assumptions as provided in 4262.5 of the regulation.
The information required to be included as part of an application, including to support changes to assumptions, is described in 4262.6
through 4262.8 of the regulation.
PBGCs review of the assumptions used by a plan is described in 4262.5 of the regulation.
Calculating the Amount of SFA With Respect to Certain Events Section 4262.4f addresses the possibility that a plan may implement certain changes that could entitle the plan to more SFA than was intended under section 4262 of ERISA. In these situations, the amount of SFA that would apply to a plan is limited to the
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amount of SFA determined as if the events described in 4262.4f 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 eventby-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.
Section 4262b1 of ERISA
establishes criteria for eligibility of a multiemployer plan for SFA, and section 4262j provides for determining the amount of the SFA, but these provisions do not address the situation in which a multiemployer plan has engaged in a transaction that affects the amount of SFA to which a plan is entitled, including through the manipulation of the eligibility criteria.
Moreover, section 4262e2B
provides, as a general rule, that the actuarial assumptions to be used by a plan are the assumptions used in the plans 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 4262e2A
are specific to the plan in its most recent certification of plan status completed before January 1, 2021, and, under the terms of section 4262e, those assumptions cannot be changed. A
manipulation of those rates via a merger would not be consistent with that requirement. Although the statute does not directly address plan mergers, each plans assumptions from the most recently completed pre-2021
certification of plan status must be maintained in order for section 4262e to have meaning with respect to the plans that merged. This rule fills the gap left in the statute for the calculation of SFA for plans that have been involved in a merger.
It is likewise appropriate for PBGC, as a prudent steward of taxpayer funds, and with responsibility for carrying out the purposes of the title IV insurance program,12 to impose conditions on
plans receiving SFA designed to ensure that plans receive no more than the amount of SFA to which they are entitled. PBGC concludes that, to achieve that end, it is reasonable not to give effect to changes made to a plans structure or terms on or after July 9, 2021, if such changes either artificially inflate the amount of SFA to which a plan is entitled or convert an ineligible plan into an eligible plan.
Section 4262m1 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 and any retroactive benefit improvements; and reductions in employer contribution rates. PBGCs authority to impose reasonable conditions under section 4262m1 is not limited to restrictions on a plan following its receipt of SFA
given that these conditions apply to a plan that receives SFA, rather than a plan that has received SFA. That understanding of section 4262m1
finds further support in section 4262m2, 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 PBGCs authority under section 4262m1 was limited to only postreceipt conditions.
Accordingly, pursuant to section 4262m of ERISA, in conjunction with sections 4002b3 and 4262e, PBGC is authorized to impose reasonable conditions that ensure that SFA is provided to plans in an amount that is not inflated by way of contrived events.

12 PBGCs inherent authority under section 4002b3 of ERISA allows PBGC to adopt
regulations to carry out the purposes of the title IV
insurance program.

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a Mergers The rule 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. Further, a plan may not increase the amount of SFA to
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