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Federal Register / Vol. 86, No. 130 / Monday, July 12, 2021 / Rules and Regulations
which it is entitled by merging with another plan or plans on or after July 9, 2021.
As explained earlier in this section of the preamble, this condition fills the gap in the rules for the calculation of SFA
for plans that merge after the most recent certification of plan status completed before January 1, 2021. In addition, this requirement is consistent with PBGCs authority under section 4262m1 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, a predecessor plan has diverted its contributions and allocated its expenses to the merged plan. Specifically, a merged plan, which combines assets and liabilities of two or more plans, each with its own set of participants and beneficiaries, and 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 to another.

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b Transfers The rule provides that where assets or liabilities are transferred, an applicant plans SFA is limited based on the amount of SFA the plan would be entitled to if the transfer did not occur.
Similar to mergers, this requirement is premised on PBGCs authority under section 4262m1 of ERISA to impose reasonable conditions relating to the diversion of contributions to, and allocation of expenses to, other benefit plans.
c Other Events Similar considerations apply to benefit increases and contribution reductions. These events are also described in section 4262m1 of ERISA, which permits PBGC to impose conditions on the receipt of SFA
relating to increases in future accrual rates and retroactive benefit improvements and on reductions in employer contribution rates. These events are ordinarily thought of as increasing burdens on plans, and changes of this type are not commonly adopted with respect to plans in financial distress. Because SFA is designed to relieve financial distress, creating or increasing burdens could be a net plus for a plan. In other words, absent an effective condition in this regulation, these events would create artificial financial stress on the plan with the expectation that the plan would be compensated through the payment of additional SFA. To prevent this manipulation of the standards for
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determining the amount of SFA, the rule provides that SFA is limited to the amount that would have applied had the event not occurred.
There is an exception to this rule. One possible benefit increase could arise from the restoration of benefit suspensions of retirees and beneficiaries in pay status that satisfies the requirements of 26 CFR 1.432e9
1e3. Under that Treasury Department regulation, the restoration of benefits is not subject to the benefit increase restrictions under sections 432e9E
or 432f1B of the Code, and an amendment restoring benefits that satisfies the requirements of 26 CFR
1.432e91e3 can be adopted at any time. Because a major goal of the SFA
program is the prompt resumption of payment of suspended benefits, the restoration of these benefits should be encouraged and the exception in these regulations under which benefit increases pursuant to such an amendment are taken into account in determining the amount of SFA
facilitates that goal. If an amendment that satisfies 26 CFR 1.432e91e3
is adopted before the SFA measurement date, it is taken into account in determining the amount of the SFA as the benefits attributable to the restoration would be if the amendment were adopted later, and the adoption is not an event that is subject to the limitation on SFA arising from potential abuses.
Finally, if two or more plans are merged and any of the plans involved in the merger also experienced a transfer of assets or liabilities, a benefit increase, or a reduction in contributions that would be subject to the limitation in 4262.4f during the period described in 4262.4f1i, the amount of SFA for the merged plan must be determined by applying the limitation in 4262.4f1i to the plan that experienced the other applicable event.
PBGC Review of Plan Assumptions PBGCs review of an application for SFA will focus on the reasonableness of the plans and the plan actuarys demonstration regarding the amount of SFA for the plan. Section 4262.5 sets forth how PBGC will review plan assumptions.
As described earlier, instead of prescribing actuarial assumptions to be used for determining SFA, or calling on PBGC to prescribe 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
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assumptions if it determines that the use of one or more of its original assumptions other than the interest rate is unreasonable.
Actuarial assumptions under section 4262 of ERISA are derived from a plans certification of plan status under section 305 of ERISA. In general, PBGC believes that a plans 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 based on those assumptions.
Accordingly, PBGC expects to give far less intensive scrutiny to original assumptions than to changed assumptions.
PBGC is to accept actuarial assumptions incorporated in a plans certification of plan status completed before 2021 for purposes of eligibility under 4262.3d1 unless PBGC
determines that such assumptions are clearly erroneous.
For all other purposes, PBGC will accept the assumptions used unless PBGC determines that they are unreasonable. Each of the actuarial assumptions and methods used for the actuarial projections excluding the interest rate, must be reasonable in accordance with generally accepted actuarial principles and practices,13
taking into account the experience of the plan and reasonable expectations.
To be reasonable, among other things, an actuarial assumption or method must be appropriate for the purpose of the measurement, reflect the actuarys professional judgment, take into account current and historical data that is relevant to selecting the assumption for the measurement date, reflect the actuarys estimate of future experience, and reflect the actuarys 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 optimistic or pessimistic.
If a plan determines that one or more original assumptions are unreasonable and must be changed, 4262.5c provides that the plans application must describe why the original assumption is no longer reasonable, disclose the changed assumption, and demonstrate that the changed 13 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 actuarys work related to special financial assistance, including the assessment of the reasonableness of the actuarys assumptions and methods.

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