The Pension Benefit Guaranty Corporation (“PBGC”) released its highly-anticipated interim final rule (the “IFR”) on July 9, 2021, providing methodology for calculating the amount of special financial assistance (“SFA”) available to certain financially troubled multiemployer pension plans (“MEPPs”) under the American Rescue Plan Act of 2021 (“ARPA”). The IFR also sets out additional details on the SFA application process and how SFA awards are treated for purposes of withdrawal liability calculation. The following summarizes certain key aspects (but not all components) of the IFR:
- Calculating SFA Awards – As we previously discussed in our article, ARPA provides that eligible MEPPs may receive SFA in an amount sufficient to cover plan benefits through the 2051 plan year. The PBGC’s IFR sets out a more specific calculation providing that the amount of SFA an eligible MEPP may receive is equal to the difference between the MEPP’s current and anticipated benefit obligations and its resources (current assets, expected future contributions, and anticipated withdrawal liability payments) from the last day of the calendar quarter before the MEPP files its application for SFA through the end of the 2051 plan year.
- SFA Application Timing and Payment – The IFR further set out details on the content, timing, and review process for MEPP SFA applications. ARPA requires that the PBGC review SFA applications within 120 days of receipt, so the IFR breaks application availability into six priority categories based on factors including the MEPP’s funding status and projected insolvency date (with applications opening as early as July 9, 2021 for already insolvent MEPPs). Once the PBGC approves a MEPP’s SFA application, the PBGC will generally pay the award in a lump sum within 60 to 90 days of approval.
- Treatment of SFA Awards for Withdrawal Liability Calculation – An early draft of the ARPA legislation contained a provision that disregarded SFA awards for purposes of calculating withdrawal liability. This provision was struck for procedural reasons and instead ARPA deferred to the PBGC to address SFA treatment for withdrawal liability purposes. The IFR provides that SFA awards are included when calculating a MEPP’s assets for withdrawal liability purposes, but a MEPP that receives an SFA award must use the PBGC’s mass withdrawal interest assumptions for calculating withdrawal liability until the later of 10 years from the end of the plan year in which the SFA award is received or the last day of the plan year in which the MEPP no longer holds assets from the SFA award (or any earnings therefrom).
Separately, the IFR imposes a limitation on settling withdrawal liability disputes whereby trustees of a MEPP receiving an SFA award cannot enter into a withdrawal liability settlement for liability that exceeds $50 million (using mass withdrawal interest rate assumptions) without prior PBGC approval. The IFR does not set forth the PBGC’s criteria for approving any such settlement, but the IFR’s requirement to use mass withdrawal interest rate assumptions may limit a MEPP’s ability to agree to a higher discount rate in settlement negotiations.
The IFR contains additional important discussion of topics related to SFAs issued under ARPA, including confirming MEPP eligibility for an SFA, restrictions on a MEPP’s use of SFA assets, and other conditions placed on MEPPs receiving an SFA. These, along with additional guidance from the IRS in Notice 2021-38 on the impact of SFAs on the Internal Revenue Code’s minimum funding rules and reinstatement of suspended benefits, should be considered by trustees of MEPPs that are potentially eligible for an SFA under ARPA and by employers participating in such MEPPs.