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Federal Register / Vol. 86, No. 130 / Monday, July 12, 2021 / Rules and Regulations
regulations a new part 4262 Special Financial Assistance by PBGC. It is through this program that PBGC will provide special financial assistance SFA to eligible multiemployer pension plans from a fund established by ARP 20
for SFA purposes and credited with transfers from the general fund of the Treasury Department.
Before the enactment of ARP on March 11, 2021, the Congressional Budget Office CBO projected the SFA
program under section 4262 of ERISA to pay approximately $86 billion in total assistance to on average across model simulations 185 plans.21 PBGC has estimated the transfer amounts of the SFA program using MEPIMS, PBGCs stochastic modeling tool, and projects the aggregate SFA to be approximately $94 billion in assistance payments to more than 200 plans and $150 million to PBGC to administer the SFA program.
PBGC further estimates that plans that received financial assistance from PBGC
under section 4261 of ERISA in the form of loans will repay PBGC in aggregate approximately $200 million.
SFA is expected to assist plans covering more than 3 million participants, including by providing funds for make-up payments to restore previously suspended benefits that total approximately $150 million for currently insolvent plans and approximately $550 million for plans that have adopted approved benefit suspensions under MPRA. Based on the average of 500 stochastic model simulations, MEPIMS projects that over 100 plans that would have otherwise become insolvent during the next 15 years will instead forestall insolvency as a direct result of receiving SFA.
Section 4262m of ERISA provides PBGC with specific regulatory authority in consultation with the Secretary of the Treasury to impose reasonable conditions on eligible multiemployer plans that receive SFA see Conditions for special financial assistance earlier in the preamble. Absent the imposition of any conditions, there would be a potential for employers and plan sponsors to take actions that could impair the financial health of their plans and thereby jeopardize the retirement security of plan participants and PBGCs multiemployer insurance program.
Examples include actions that will increase plan obligations, such as amendments to increase benefit levels, 20 Specifically, section 9704 of ARP establishes an eighth fund under section 4005 of ERISA.
21 Congressional Budget Office Cost Estimate, February 17, 2021, https www.cbo.gov/system/
files/2021-02/hwaysandmeansreconciliation.pdf.

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or actions that could reduce future plan income, such as reductions to contribution rates or employer withdrawals. Each of these actions has the potential to accelerate plan insolvencies, which would bring about participant benefit cuts and increased future claims to PBGCs multiemployer insurance program that may impair PBGCs ability to pay financial assistance under section 4261.
3 Regulatory Action PBGC strives to implement the SFA
program established under this interim final rule in a manner that is consistent with the following key objectives: 1 To transfer to a plan the amount required under section 4262 of ERISA as soon as practicable; 2 to prioritize the applications of plans in imminent need of financial support and where participants suspended benefits are to be restored; 3 to establish an efficient system for processing applications; and 4 to ensure prudent stewardship of taxpayer-funded appropriations for SFA, including the prevention of waste, fraud, and abuse in the SFA program.
Section 4262m of ERISA gives PBGC
authority, in consultation with the Secretary of the Treasury, to impose reasonable conditions on an eligible multiemployer plan that receives SFA
relating to increases in future accrual rates and any retroactive benefit improvements, allocation of plan assets, reductions in employer contribution rates, the allocation of contributions and other practices, and withdrawal liability. In determining what conditions to impose, in consultation with the Treasury Department, PBGC
evaluated the regulatory alternatives under section 4262m to set conditions based on the following objectives: 1
Meeting the goals of ARP in providing for the SFA program; 2 stewardship of taxpayer-funded appropriations for SFA; 3 maintaining the security of the accrued pension benefits current and future accruals of participants in plans that receive SFA; and 4 preservation of the solvency of the PBGC
multiemployer insurance program.
The regulatory action and related economic considerations for each condition are described as follows.
Conditions Related to Future Benefit Accruals The interim final rule provides that, during the SFA coverage period beginning on the plans SFA
measurement date through the last day of the last plan year ending in 2051, plans that receive SFA can only accept a collective bargaining agreement CBA
that increases future benefit accruals
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unless the plan actuary certifies that employer contribution increases projected to be sufficient to pay for the benefit increase have been adopted or agreed to, and provided that such increased contributions were not included in the determination of SFA.
Plans in critical status are already subject to constraints on increasing future benefit accrual levels. Under section 305f1 of ERISA, they must be able to fund any benefit improvements using contributions that are not already contemplated within their rehabilitation plans.
The interim final rule similarly would prohibit plans from implementing significant benefit increases that likely could accelerate insolvencies after receiving taxpayer-funded assistance.
However, it is evident that attracting and retaining active members to these financially troubled plans is critical to ensuring that the plans retain contribution income levels sufficient to sustain plan assets. Accordingly, the interim final rule allows plans to provide benefit increases when these increases can be paid for by additional employer contributions. The condition also does not apply to the required reinstatement of benefits suspended under section 305e9 or 4245a of ERISA or to any restoration of benefits under 26 CFR 1.432e91e3.
Conditions Related to Retroactive Benefit Improvements The interim final rule provides that, during the SFA coverage period, plans that receive SFA are strictly prohibited from adopting an amendment to provide any retroactive benefit improvements.
Unlike increases to the level of future accruals, which incentivize active members to participate in the plan and can thereby improve the expected contribution income, increases to retroactive benefit levels harm the funded position of the plan without improving expected future plan income.
Conditions Related to Allocation of Plan Assets The interim final rule provides that, during the SFA coverage period, plans must hold a sufficient portion of total plan assets, which includes all segregated accounts including SFA, in permissible investments described in 4262.14 to meet expected plan benefit payments and administrative expenses for at least 1 year or until the date the plan is projected to become insolvent, if earlier. This requirement is in addition to the restrictions on investments under 4262.14. For plans with a large proportion of plan assets as SFA, this additional condition is not likely to
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