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Federal Register / Vol. 86, No. 130 / Monday, July 12, 2021 / Rules and Regulations result in any additional restrictions on asset allocation until the plans SFA
account is depleted.
The interim final rule provides plans that receive SFA with the opportunity to invest in a portfolio that can benefit from risk and illiquidity premiums over the long-term investment horizon. This flexibility to invest in other assets is likely to extend the solvency of these plans, and the limit on that flexibility will only constrain plans that would otherwise accept an inappropriate level of risk after receiving taxpayer assistance.
Conditions Related to Reductions in Employer Contribution Rates The interim final rule provides that, during the SFA coverage period, the contributions required for each CBU
must not be less than, and the definition of the CBUs used must not be different from, those set forth in the CBA or plan documents including agreed to contribution increases to the end of the collective bargaining agreements in effect on March 11, 2021. However, an exception is provided where a plan sponsor determines that the risk of loss to plan participants and beneficiaries is lessened by the reduction. Where the reduction affects annual contributions over $10 million and over 10 percent of all employer contributions, the plan sponsor must request approval from PBGC, which must also determine that the change lessens the risk of loss to participants and beneficiaries. Plans in critical status are already subject to constraints on reducing future contribution rates and must abide by the terms of their rehabilitation plans. The interim final rule is intended to broadly prevent reductions in contribution rates that may accelerate the future insolvencies of plans, while still providing very limited flexibility for employers with extenuating financial circumstances.
Conditions Related to the Allocation of Contributions and Other Practices Under the interim final rule, during the SFA coverage period, a decrease in the proportion of income contributions, PV amount 3% rate
investment returns, etc. or an increase in the proportion of expenses allocated to a plan that receives SFA is prohibited. This prohibition applies to written or oral agreements or practices other than a written agreement in existence on March 11, 2021, to the extent not subsequently amended or modified under which income or expenses are divided or to be divided between a plan that receives SFA and one or more other employee benefit plans. However, the prohibition does not apply to a good faith allocation of contributions 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 this condition, 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.
This condition is to ensure that plans do not inappropriately reallocate contributions away from the plan to other benefit programs or inappropriately reallocate expenses from other benefit programs to the plan.
In addition, during the SFA coverage period, a plan receiving SFA must not engage in a transfer of assets or liabilities including a spinoff or merger except with PBGCs approval. PBGC
will approve a proposed transfer or merger if: 1 The transaction complies with section 4231ad, 2 the transfer or merger, or the larger transaction of which the transfer or merger is a part, does not unreasonably increase PBGCs
PV amount 7% rate
2021

2022

2023

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.
This condition is to ensure that plans that receive taxpayer-funded assistance do not subsequently engage in transactions that may allocate contributions away from the plan in a manner that is projected to accelerate insolvency.
Conditions Related to Withdrawal Liability Under the interim final rule, a plan must use the interest assumptions under 4281.13a to determine withdrawal liability beginning for withdrawals after the plan year in which the plan receives SFA. This condition continues to apply 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 segregated SFA asset account is fully depleted.
The interim final rule also provides that, during the SFA coverage period, plans that receive SFA cannot enter into a negotiated settlement agreement with a withdrawing employer that is in excess of $50 million without first obtaining approval from PBGC. It is important to ensure that any negotiated settlements of material size are not projected to be harmful to participants in the plan or harmful to PBGCs multiemployer insurance program.
The interim final rule would prevent the payment of SFA from resulting in decreases in withdrawal liability assessments and thereby reduce the incentive for employers to withdraw from these plans. The purpose of SFA
is to help plans pay for benefits and plan expenses and not to indirectly subsidize employers to exit these plans.
4 Estimated Impact of Regulatory Action The following table summarizes the estimated transfers and costs expected as a result of implementation of the SFA
program.
2024

2025

2026

20272051
Total 22

$8.89 billion
$3.33 billion
$0.47 billion.

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Annual Transfer Amounts SFA payments to plans total nominal value of $94.2 billion.

$86.35 billion.

$77.33 billion.

22 SFA payments to plans are expected to be $474
million in 2027 and $0 thereafter. PBGC
administrative expenses are expected to be $14
million per year from 2027 through 2029 and $10.5

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$1.46 billion
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$43.68 billion.

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$23.03 billion.

$13.32 billion.

million in 2030. Additional PBGC expenses are expected to be incurred from 2031 through 2051, but would not be funded through general appropriations. Annual compliance filings are
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expected to be $726,800 per year from 2027 through 2051. Condition exemption filings are expected to be $19,600 per year from 2027 through 2051.

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