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Federal Register / Vol. 86, No. 130 / Monday, July 12, 2021 / Rules and Regulations pursuant to a reciprocity agreement. If the principal purpose of entering into, amending, or modifying a reciprocity agreement after March 11, 2021, is to circumvent 4262.16e, any allocation made pursuant to such reciprocity agreement will not be considered as made in good faith. The prohibition also does not apply to a good faith allocation of contributions where the contributions to a plan that receives SFA required for each base unit are not reduced except if the reduction is approved by PBGC. It also does not apply to a good faith allocation of the costs of securing shared space, goods, or services, where such allocation does not constitute a prohibited transaction under ERISA or is otherwise exempt from the prohibited transaction provisions pursuant to section 408b2, 408c2, or 408a of ERISA, or of the actual cost of services provided to the plan by an unrelated third party. As with the other conditions under 4262.16, the condition under 4262.16e is intended to ensure that plans receiving SFA do not engage in transactions that may accelerate plan insolvency.

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d Transfers or Mergers Section 4262.16f provides that during the SFA coverage period, a plan must not engage in a transfer of assets or liabilities including a spinoff or merger except with PBGCs approval.
Notwithstanding anything to the contrary in PBGCs regulation on mergers and transfers between multiemployer plans 29 CFR part 4231, the plans involved in the transaction must request approval from PBGC. A request for approval must contain information that would be required to be submitted under 4231.10 and the additional actuarial and financial information described in 4262.16f2. PBGC will approve a proposed transfer or merger if: 1 The transaction complies with section 4231ad of ERISA, 2 the transfer or merger, or the larger transaction of which the transfer or merger is a part, does not unreasonably increase PBGCs risk of loss respecting any plan involved in the transaction, and 3 the transfer or merger is not reasonably expected to be adverse to the overall interests of the participants and beneficiaries of any of the plans involved in the transaction.
An example of a larger transaction is where the trustees of a plan receiving SFA arrange a transfer of assets and liabilities from the plan and amend the plan to substantially or completely end benefit accruals in connection with the plans active participants beginning to
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accrue benefits under another existing or newly formed plan.
e Withdrawal Liability Under sections 4201 through 4225 of ERISA, when a contributing employer withdraws from an underfunded multiemployer plan, the plan sponsor assesses withdrawal liability against the employer. Withdrawal liability represents a withdrawing employers proportionate share of the plans unfunded benefit obligations and is an important source of income for the plan.
To assess withdrawal liability, the plan sponsor must determine the withdrawing employers 1 allocable share of the plans unfunded vested benefits the value of nonforfeitable benefits that exceeds the value of plan assets as of the end of the plan year before the employers withdrawal as provided under section 4211, and 2
annual withdrawal liability payment as provided under section 4219. Under section 4219c1, an employers withdrawal liability may be reduced if the period required to amortize the liability exceeds 20 years.
To preserve SFA for the payment of benefits and expenses and avoid an indirect transfer of SFA to a withdrawing employer by reducing the employers withdrawal liability, in 4262.16 PBGC uses its authority under section 4262m of ERISA to place reasonable conditions relating to withdrawal liability on a plan that receives SFA. PBGC determined that a reasonable condition on a plan that receives SFA is to require specified interest assumptions to be used for purposes of determining withdrawal liability.18
Under 4262.16g, for withdrawals that occur after the plan year in which the plan receives SFA, the interest assumptions used in determining unfunded vested benefits for purposes of determining withdrawal liability must be mass withdrawal interest assumptions under 4281.13a of PBGCs regulation on Duties of Plan Sponsor Following Mass Withdrawal 29 CFR part 4281. PBGCs interest assumptions used for mass withdrawal liability approximate the market price insurance companies charge to assume a pension-benefit-like liability. Using mass withdrawal interest assumptions for purposes of calculating withdrawal liability is reasonable because withdrawal liability is the final settlement of the withdrawing 18 PBGC intends to propose a separate rule of general applicability under section 4213a of ERISA to prescribe actuarial assumptions which may be used by a plan actuary in determining an employers withdrawal liability.

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employers obligation to pay for unfunded vested benefits. Doing so is particularly important for plans that have developed an adverse demographic structure, with a small contribution base relative to their unfunded vested benefits, which is the condition of many of the plans that are or will become eligible for SFA.
The prescribed interest assumptions must be used until the later of 10 years after the end of the plan year in which the plan receives payment of SFA or the last day of the plan year in which the plan no longer holds SFA or any earnings thereon in a segregated account. The minimum 10-year period for using these required assumptions is similar to the time period for the special withdrawal liability rules for benefit suspensions under MPRA.
PBGC determined that these are reasonable conditions because SFA does not result from employer contributions, and, without such conditions, the receipt of SFA could substantially reduce withdrawal liability owed by a withdrawing employer. That could cause more withdrawals in the near future than if the plan did not receive SFA, which would reduce plan income and be an additional burden for these plans. Congress specified in section 4262 of ERISA that SFA and earnings thereon may be used by a plan to make benefit payments and pay plan expenses. Payment of SFA was not intended to reduce withdrawal liability or to make it easier for employers to withdraw.
In addition, under 4262.16h any settlement of withdrawal liability during the SFA coverage period must be made only with PBGC approval if the present value of the liability settled is greater than $50 million calculated as described under 4262.16h1.
Approval ensures that any negotiated settlements of material size are in the best interests of the participants in the plan, and do not create an unreasonable risk of loss to PBGC. The information required to be submitted for a request for approval of a proposed withdrawal liability settlement is under 4262.16h3.
f Reporting and Audit In order to monitor compliance with the conditions imposed on plans that receive SFA, PBGC requires under 4262.16i that plan sponsors file with PBGC each plan year, beginning with the plan year after the payment of SFA
and through the last day of the last plan year ending in 2051, a statement of compliance with the terms and conditions of SFA. The statement must be filed with PBGC no later than 90 days
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