Special Financial Assistance by PBGC (rule, 86 FR 36598, July 12, 2021)
Summary
An interim final rule of the Pension Benefit Guaranty Corporation (PBGC), RIN 1212–AB53, printed in the Federal Register of Monday, July 12, 2021 (Vol. 86, No. 130). It amends 29 CFR Parts 4000 and 4262, adding a new part 4262 on special financial assistance for financially troubled multiemployer plans under section 9704 of the American Rescue Plan Act of 2021. The rule sets the requirements for special financial assistance (SFA) applications, identifies which plans will be given priority to file applications before March 11, 2023, and establishes permissible investments for SFA funds. It was effective July 12, 2021, with comments due on or before August 11, 2021. The rule states that the multiemployer insurance program protects approximately 10.9 million workers and retirees in approximately 1,400 plans.
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Cite this document
“Special Financial Assistance by PBGC (rule, 86 FR 36598, July 12, 2021).”
Original at www.govinfo.gov. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/special-financial-assistance-by-pbgc-rule-86-fr-36598-july-12-2021-761ca66ec8/
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36598 Federal Register / Vol. 86, No. 130 / Monday, July 12, 2021 / Rules and Regulations
PENSION BENEFIT GUARANTY FOR FURTHER INFORMATION CONTACT: demonstrate eligibility for SFA and the
CORPORATION Daniel S. Liebman (liebman.daniel@ amount of SFA to be paid by PBGC to
pbgc.gov; 202–229–6510) Deputy the plan. It identifies which plans will
29 CFR Parts 4000 and 4262 General Counsel, Program Law and be given priority to file applications
RIN 1212–AB53 Policy Department, Hilary Duke before March 11, 2023, and provides for
(duke.hilary@pbgc.gov; 202–229–3839), a processing system, which will
Special Financial Assistance by PBGC Assistant General Counsel for accommodate the filing and review of
Regulatory Affairs, or Stephanie Cibinic many applications in a limited amount
AGENCY: Pension Benefit Guaranty (cibinic.stephanie@pbgc.gov; 202–229– of time. It also establishes permissible
Corporation. 6352), Deputy Assistant General investments for SFA funds and
ACTION: Interim final rule; request for Counsel for Regulatory Affairs, Office of restrictions and conditions on plans that
comments. the General Counsel, Pension Benefit receive SFA.
Guaranty Corporation, 1200 K Street Background
SUMMARY: This document contains an
NW, Washington, DC 20005–4026. TTY
interim final rule that sets forth the PBGC and the Multiemployer Insurance
users may call the Federal Relay service
requirements for special financial Program
toll-free at 800–877–8339 and ask to be
assistance applications and related
connected to 202–229–6510, 202–229– PBGC administers two insurance
restrictions and conditions pursuant to
3839, or 202–229–6352. programs for private-sector defined
the American Rescue Plan Act of 2021.
SUPPLEMENTARY INFORMATION: benefit pension plans under title IV of
DATES:
Effective date: This interim final rule ERISA: One for single-employer defined
Executive Summary
is effective on July 12, 2021. benefit pension plans and one for
Comment date: Comments must be Purpose and Authority multiemployer defined benefit pensions
received on or before August 11, 2021 This interim final rule adds to the plans (multiemployer plans). In general,
to be assured of consideration. regulations of the Pension Benefit a multiemployer plan is a collectively
Guaranty Corporation (PBGC) a new bargained plan involving two or more
ADDRESSES: Comments may be
part 4262 to implement the unrelated employers. The
submitted by any of the following
requirements under section 9704 of the multiemployer insurance program
methods:
protects the benefits of approximately
• Federal eRulemaking Portal: http:// American Rescue Plan Act of 2021,
‘‘Special Financial Assistance Program 10.9 million workers and retirees in
www.regulations.gov. Follow the online
for Financially Troubled Multiemployer approximately 1,400 plans. This interim
instructions for submitting comments.
• Email: reg.comments@pbgc.gov. Plans.’’ This program enhances final rule deals with multiemployer
• Mail or Hand Delivery: Regulatory retirement security for millions of plans.
The multiemployer insurance
Affairs Division, Office of the General Americans by providing eligible
program provides PBGC with tools to
Counsel, Pension Benefit Guaranty multiemployer defined benefit pension
help plans that are insolvent or
Corporation, 1200 K Street NW, plans with special financial assistance
approaching insolvency to be able to
Washington, DC 20005–4026. (SFA) in the amounts required for the
Commenters are strongly encouraged pay guaranteed benefits.1 This help is
plans to pay all benefits due during the primarily in the form of financial
to submit public comments period beginning on the date of payment
electronically. PBGC expects to have assistance loans under section 4261(a)
of SFA through the plan year ending in of ERISA. Under that provision, when a
limited personnel available to process 2051. multiemployer plan becomes insolvent,
public comments that are submitted on PBGC’s legal authority for this
PBGC provides periodic financial
paper through mail. Until further notice, rulemaking comes from new section
assistance payments to the insolvent
any comments submitted on paper will 4262 of the Employee Retirement
plan in amounts that, together with
be considered to the extent practicable. Income Security Act of 1974 (ERISA)
All submissions must include the existing plan assets and any other plan
(Special Financial Assistance by the
agency’s name (Pension Benefit income, are sufficient to pay guaranteed
Corporation), which requires PBGC to
Guaranty Corporation, or PBGC) and benefit amounts to participants and
issue regulations or guidance setting
title for this rulemaking (Special beneficiaries. In general terms, a plan is
forth requirements for SFA applications
Financial Assistance by PBGC) and the insolvent if it cannot pay benefits when
by July 9, 2021, permits PBGC to
Regulation Identifier Number for this due.
provide for how SFA and earnings The Multiemployer Pension Reform
rulemaking (RIN 1212–AB53). thereon are to be invested, and, in Act of 2014 (MPRA) created pathways
Comments received will be posted consultation with the Secretary of the under ERISA to help improve solvency
without change to PBGC’s website, Treasury, permits PBGC to impose for plans that are likely to become
www.pbgc.gov, including any personal reasonable conditions by regulation or insolvent. Plans that are in critical and
information provided. Do not submit other guidance on an eligible declining status 2 may apply to the U.S.
comments that include any personally multiemployer plan that receives SFA.
identifiable information or confidential PBGC’s legal authority also comes from 1 Multiemployer plan guaranteed benefits are
business information. section 4002(b)(3) of ERISA, which primarily nonforfeitable benefits and the maximum
Copies of comments may also be authorizes PBGC to issue regulations to guarantee is set by law under section 4022A of
obtained by writing to Disclosure carry out the purposes of title IV of ERISA.
2 A plan is in critical and declining status if the
Division, Office of the General Counsel,
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ERISA, and from section 4003(a) of plan satisfies the criteria for critical status under
Pension Benefit Guaranty Corporation, ERISA, which authorizes PBGC to section 305(b)(2) of ERISA and is projected to
1200 K Street NW, Washington, DC conduct investigations and audits. become insolvent within the meaning of section
20005–4026 or calling 202–229–4040 4245 during the current plan year or any of the 14
during normal business hours. TTY Major Provisions of the Regulatory succeeding plan years (or 19 succeeding plan years
users may call the Federal relay service Action if the plan has a ratio of inactive participants to
active participants that exceeds 2 to 1 or if the
toll-free at 800–877–8339 and ask to be This rulemaking sets forth what funded percentage of the plan is less than 80
connected to 202–229–4040. information a plan is required to file to percent).
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Federal Register / Vol. 86, No. 130 / Monday, July 12, 2021 / Rules and Regulations 36599
Department of the Treasury (Treasury financially troubled multiemployer U.S. Department of Labor (Department
Department) for a suspension of benefits plans. The SFA program is expected to of Labor or Department)), section 4262
under section 305(e)(9) of ERISA to assist plans covering more than 3 of ERISA specifically provides for
avoid insolvency. Generally, under this million participants and beneficiaries, consultation with the Treasury
process, these plans may propose a including the provision of funds to Department particularly on SFA
reduction of benefits to no less than 110 reinstate suspended monthly benefits applications involving a plan’s
percent of PBGC’s guaranteed benefit going forward, and for make-up reinstatement of suspended benefits.4
amount if a plan is projected to become payments to restore previously The statute also provides for
insolvent before paying all promised suspended benefits of participants and consultation with the Treasury
benefits when due. A plan may also beneficiaries. In turn, the SFA program Department with respect to a plan that
request partition assistance from PBGC improves the financial condition of proposes in its application to change
(under section 4233 of ERISA), which PBGC’s multiemployer insurance assumptions, with respect to a plan that
allows the plan to transfer responsibility program. It is expected that over 100 files an application under PBGC
for paying monthly guaranteed benefits plans that would have otherwise regulations or guidance prioritizing
for a portion of the plan’s participants become insolvent during the next 15 certain applications, and on the
and beneficiaries to a newly created years will instead forestall insolvency as conditions imposed on plans that
successor plan that receives financial a direct result of receiving SFA. receive SFA.5 This interim final rule is
assistance from PBGC. When a partition Section 9704 of ARP amends section a result of that coordination and
is approved, the original plan has an 4005 of ERISA to establish an eighth consultation, which will continue as the
ongoing obligation to pay and preserve fund for SFA from which PBGC will SFA program gets underway at PBGC
benefits for all participants at levels provide SFA to multiemployer plans and plans begin to apply.
above PBGC’s guaranteed amounts. under the program created by the
MPRA also allows critical and addition of section 4262 of ERISA. The Listening Sessions and Request for
declining plans that are likely to become eighth fund will be credited with Comment
insolvent to request financial assistance amounts from time to time as the After ARP was enacted, interested
from PBGC upon merging with another Secretary of the Treasury, in parties requested to share their views
multiemployer plan (‘‘facilitated conjunction with the Director of PBGC, with PBGC, and PBGC held listening
mergers’’ under section 4231(e) of determines appropriate, from the sessions at their request.
ERISA). Financial assistance to the general fund of the Treasury Representatives of PBGC’s Board of
merged plan may promote mergers with Department. Transfers from the general Directors (the Secretaries of the
more viable plans and eliminate the fund to the eighth fund cannot occur Department of Labor, the Treasury
need for benefit reductions. after September 30, 2030. Department, and the Department of
In recent years, Congress considered a New section 4262 of ERISA sets forth Commerce) also participated in these
range of proposals to address the the requirements for SFA, including listening sessions. Most of the
funding crisis in the multiemployer specifying which plans are eligible to requesters provided letters or agendas
pension system, including proposals to apply, the cutoff date for applications, outlining their concerns. In addition,
expand PBGC’s partition authority, loan actuarial assumptions, determinations other interested parties sent PBGC
programs, and broader reforms to on applications, restrictions on the use letters communicating their views.
stabilize multiemployer plans and of SFA, and that certain plans with PBGC considered the views and
extend the solvency of PBGC’s suspended benefits 3 must reinstate concerns expressed, which helped to
multiemployer insurance program. In those benefits and provide make-up inform this interim final rule.
2018, Congress created the Joint Select payments to restore previously PBGC has included a request for
Committee on Solvency of suspended benefits. Unlike the financial public comment in this rulemaking and
Multiemployer Pension Plans to assistance provided under section 4261 encourages all interested parties to
develop recommendations to address of ERISA, which is in the form of a loan submit their comments, suggestions,
the problems in the multiemployer and provided in periodic payments, a and views concerning the rule’s
pension system. While the Committee plan receiving SFA under section 4262 provisions. PBGC is particularly
did not issue recommendations before has no obligation to repay SFA, and interested in feedback on where any
its term expired, it succeeded in PBGC must pay SFA in the form of a additional guidance may be needed.
creating a broader understanding of the single, lump sum payment.
issues and identifying potential reforms. Section 4262 of ERISA requires PBGC Overview and Section-by-Section
While not a permanent solution, to prescribe in regulations or other Discussion of Regulation
Congress enacted, and the President guidance the requirements for SFA Overview and Purpose
signed into law on March 11, 2021, the applications, including an alternate
American Rescue Plan (ARP) Act of application for plans with an approved To implement section 4262 of ERISA,
2021 (Pub. L. 117–2), to address the partition under section 4233 of ERISA. PBGC is adding a new part 4262 to its
immediate crisis facing severely PBGC also may prioritize applications regulations, ‘‘Special Financial
underfunded multiemployer plans and during the first 2 years after March 11, Assistance by PBGC.’’ The purpose of
the solvency of PBGC, and to assist 2021, prescribe how SFA funds are to be this new part is to prescribe rules
plans by providing funds to reinstate invested, and impose conditions on governing applications for SFA and
suspended benefits. plans that receive SFA. related requirements. Part 4262 provides
guidance to multiemployer pension
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American Rescue Plan Act of 2021— Although PBGC’s rulemakings
generally involve coordination and plan sponsors on eligibility,
Special Financial Assistance Program determining the amount of SFA, content
for Financially Troubled Multiemployer consultation with the other two agencies
that have jurisdiction over pension of an application for SFA, the process of
Plans applying, PBGC’s review of
plans (the Treasury Department and the
ARP creates a program to enhance
retirement security for millions of 3 Plans with suspended benefits pursuant to 4 See sections 4262(k) and 4262(n) of ERISA.
Americans by providing SFA to sections 305(e)(9) and 4245(a) of ERISA. 5 See sections 4262(m) and 4262(n) of ERISA.
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36600 Federal Register / Vol. 86, No. 130 / Monday, July 12, 2021 / Rules and Regulations
applications, and restrictions and terminated by mass withdrawal before 3(26) of ERISA) and the denominator of
conditions. the plan year selected to determine which is current liabilities (as defined
eligibility under § 4262.3(a)(1) is not in in section 431(c)(6)(D) of the Code).
Eligible Multiemployer Plans The numerator for the plan’s funded
critical and declining status for that year
There are four types of multiemployer and therefore is not eligible for SFA. For percentage under § 4262.3(c)(2) is
plans identified in section 4262(b)(1) of example, if a plan in critical and calculated using the current value of
ERISA that are eligible to apply for SFA declining status terminated by mass assets on line 2a of Schedule MB,7
under § 4262.3 of PBGC’s regulation. withdrawal in 2019, the plan would not which is also required to be reported on
This exclusive list consists of: be eligible for SFA under § 4262.3(a)(1) line 1l, column (a) of the Schedule H,8
(1) A plan in critical and declining because it was not in critical and and adding to it the current value of
status (within the meaning of section declining status in 2020, 2021, or 2022. withdrawal liability payments due to be
305(b)(6) of ERISA) in any plan year However, if a plan in critical and received by the plan on an accrual basis
beginning in 2020, 2021, or 2022. declining status terminated by mass reflecting a reasonable allowance for
(2) A plan with a suspension of withdrawal in 2020, the plan would be amounts considered uncollectible 9 (if
benefits approved under section eligible for SFA. not already included in the current
305(e)(9) of ERISA as of the date ARP With respect to critical status plans, value of net assets reported on line 2a).
became law (March 11, 2021). PBGC provides some clarifications on The value calculated for the numerator
(3) A plan certified to be in critical eligibility. Section 4262.3(c)(1) clarifies is consistent with the meaning of
status (within the meaning of section that a plan that has elected to be in current value of assets under section
305(b)(2) of ERISA) that has a modified critical status under section 305(b)(4) of 3(26) of ERISA.10 The current value of
funded percentage of less than 40 ERISA but is not certified to be in assets includes total cash contributions
percent and a ratio of active to inactive critical status under section 305(b)(2) is due to be received on an accrual basis.
participants which is less than 2 to 3, in not an eligible multiemployer plan. To The denominator for the plan’s
any plan year beginning in 2020, 2021, ensure uniformity for applications and funded percentage under § 4262.3(c)(2)
or 2022. clarify what data to use to satisfy is calculated using the current liability
(4) A plan that became insolvent for eligibility requirements for critical measurement from line 2b(4) column
purposes of section 418E of the Internal status plans under section 4262(b)(1)(C), (2). This entry requires current liability
Revenue Code (the Code) after § 4262.3(a)(3) and (c)(2) specify the data to be calculated using the assumptions,
December 16, 2014 (the date MPRA that is used for this purpose, including including interest rate, in the
became law), has remained insolvent, specifying line items entered on the instructions for line 1d(2)(a) of the
and has not terminated under section Form 5500 Schedule MB to determine Schedule MB. Those instructions
4041A of ERISA as of March 11, 2021. the ‘‘modified funded percentage,’’ and provide how to calculate current
PBGC notes that a plan that line items entered on the Form 5500 to liability under section 431(c)(6)(D) of
terminated by mass withdrawal in a determine the ratio of active to inactive the Code and provide specifically that
plan year that ended before January 1, participants. the interest rate used to compute current
2020, is not eligible for SFA under Under the regulation, the conditions liability must be in accordance with
section 4262(b)(1)(A) of ERISA and for eligibility do not need to be satisfied guidelines issued by the Treasury
§ 4262.3(a)(1) (plans that are in critical for the same plan year. PBGC adds this Department and the Internal Revenue
and declining status (within the flexibility in recognition that the filing Service (IRS) and within the interest
meaning of section 305(b)(6) of ERISA) dates for the certification of plan status rate rules referred to under section
in any plan year beginning in 2020, and the Form 5500 are not the same. 431(c)(6)(D), which are outlined under
2021, or 2022). This is because the Generally, the due date for filing the section 431(c)(6)(E). PBGC notes that the
additional funding rules for plans in certification of plan status is well over current liability is a measure derived
endangered, critical, and critical and a year before the due date for filing the using an interest rate chosen by the
declining status under section 432 of the Form 5500 for the same plan year. In actuary within a ‘‘permissible range’’
Code do not apply to such a plan in a addition, data used for the certification under section 431(c)(6)(E). Since the
plan year that begins in 2020, 2021, or of plan status for a plan year may be selection of the interest rate by the
2022.6 Accordingly, a plan that from a different year than the data used actuary is part of the determination of
for the Form 5500 for the same plan current liability, for purposes of
6 Section 412(a)(1) of the Internal Revenue Code year, and section 4262 of ERISA is measuring the modified funded
(the Code) requires a pension plan to satisfy the unclear as to the date within a plan year
minimum funding standard applicable to the plan as of which data used to satisfy the 7 All line references in this section are to the 2020
for each plan year. In the case of a multiemployer Form 5500 and schedules.
defined benefit plan, section 412(a)(2)(C) provides
conditions is determined. 8 The 2020 Form 5500 instructions provide that,
that participating employers must make Section 4262(b)(2) of ERISA defines with certain exceptions, assets reported on line 2a
contributions under the plan for a plan year that, ‘‘modified funded percentage’’ to mean of Schedule MB should be the same as reported on
in the aggregate, are sufficient to ensure that the the percentage equal to a fraction the line 1l, (column a) of the Schedule H.
plan does not have an accumulated funding 9 PBGC notes that Financial Accounting
deficiency under section 431 as of the end of the
numerator of which is the current value
Standards Board (FASB) Accounting Standards
plan year. Section 412(e)(4) provides that the of plan assets (as defined in section Codification (ASC) 960, Plan Accounting—Defined
minimum funding rules under section 412 apply Benefit Pension Plans 960–310–25–3A states: ‘‘A
until the last day of the plan year in which a plan not apply to a multiemployer plan for periods after multiemployer plan may also have a receivable for
terminates within the meaning of section the plan year of termination within the meaning of a withdrawing employer’s share of the plan’s
4041A(a)(2) of ERISA (that is, termination by mass section 4041A(a)(2) of ERISA. This is consistent unfunded liability. The plan should record the
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withdrawal or a cessation of the obligation of all with section 301(c) of ERISA (over which the IRS receivable, net of any allowance for an amount
employers to contribute under the plan). has interpretive jurisdiction pursuant to section 101 deemed uncollectible, when entitlement has been
Accordingly, the rules of section 431 of the Code of Reorganization Plan No. 4 of 1978 (43 FR determined.’’
do not apply to such a plan for periods after the 47713)), which provides that part 3 of title I of 10 The withdrawal liability payments due to be
plan year of termination. ERISA, including the minimum funding rules received by the plan are not included in the
The Internal Revenue Service (IRS) has informed parallel to sections 412, 431, and 432 of the Code, actuarial value of assets or the market value of
PBGC that section 432 of the Code, which provides applies until the last day of the plan year in which assets for purposes of sections 431 and 432 of the
additional funding rules for multiemployer plans in the plan terminates within the meaning of section Code and the corresponding sections 304 and 305
endangered status or critical status, likewise does 4041A(a)(2) of ERISA. of ERISA.
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Federal Register / Vol. 86, No. 130 / Monday, July 12, 2021 / Rules and Regulations 36601
percentage PBGC has chosen to accept The information required to be by clear implication the consideration of
the interest rate selected by the actuary included as part of an application, all plan obligations and resources in
and not to require the use of an alternate including to support changes to determining the amount of SFA that is
interest rate. assumptions, is described in §§ 4262.6 needed or is ‘‘necessary.’’
As explained earlier in this section of through 4262.8 of the regulation. Some interested parties commented to
the preamble, section 4262(b)(1)(C) of PBGC’s review of the assumptions used PBGC on section 4262(j)(1) of ERISA
ERISA requires as one of the conditions by a plan are described in § 4262.5 of that, in determining the amount of SFA,
of eligibility, for critical status plans to the regulation. PBGC should exclude from
have a ratio of active to inactive consideration all or a portion of one or
Amount of Special Financial Assistance more plan obligations or resources, such
participants that is less than 2 to 3. The
statute does not specify what participant Under section 4262(a)(1) of ERISA, as existing assets, expected benefit
count to use. To fill in this gap, the PBGC is to provide SFA to an eligible payments, earnings on assets,
regulation refers to end-of-year multiemployer plan upon application. contributions, withdrawal liability, and
participant counts on the Form 5500. Under section 4262(j)(1), the amount of administrative expenses. The items to
On the 2020 Form 5500, these are the SFA to be provided is the ‘‘amount be disregarded, and the theories on
number of participants identified on required for the plan to pay all benefits which they are to be ignored, differ from
line 6a(2) (for total number of active due during the period beginning on the one commenter to another.
participants) and the sum of lines 6b, date of payment of the special financial The common thread among these
assistance payment . . . and ending on comments is that they advance a
6c, and 6e (for inactive participants:
the last day of the plan year ending in particular policy goal or desired
Retired or separated participants
2051 . . . .’’ This is referred to in outcome and an approach designed to
receiving benefits, other retired or
section 4262(i)(1) as ‘‘the amount fit that desired policy goal or outcome.
separated participants entitled to future
necessary as demonstrated by the plan Such desired goals include providing
benefits, and deceased participants
sponsor.’’ PBGC believes that the plain generous assistance, long-term
whose beneficiaries are receiving or are
meaning of the statutory language is that sustainability, avoiding a recurrence of
entitled to receive benefits). Requiring
SFA is the amount by which a plan’s the current crisis, protection of retirees,
the use of these counts provides for
resources fall short of its obligations, and simplicity. The approaches
uniformity among applications in the
taking all plan resources and obligations advanced to achieve such goals vary
use of participant counts to determine
into account. among commenters, but include
the ratio. The heart of the matter is found in the disregarding resources such as current
Assumptions for Determining Eligibility requirement that SFA be ‘‘the amount assets, or the portion thereof needed to
necessary’’ or ‘‘required for the plan to fund post-2051 payments; future
A plan’s eligibility for SFA is pay all benefits due.’’ To the extent that contributions; and other sources of
determined by PBGC in accordance with a plan has other means available to pay revenue. In considering these
§ 4262.3(d) of the regulation, which benefits, it does not require or need SFA comments, PBGC has concluded that the
incorporates the actuarial assumptions for that purpose.11 Thus, all of a plan’s approaches recommended in these
for determining eligibility found in resources must be considered in comments could be supported only by
sections 4262(e)(1) and (e)(4) of ERISA. determining the amount of SFA for the a strained reading of the clear language
When a plan sponsor applies for SFA plan. Moreover, since the determination of section 4262(j)(1), which defines the
claiming the plan’s eligibility based on must be made by looking through the SFA amount as the ‘‘amount required
a certification of either critical status or end of the last plan year ending in 2051, for the plan to pay all benefits due
critical and declining status completed the resources to be considered must during the period beginning on the date
before January 1, 2021, PBGC is required include plan assets and income of payment of the special financial
to accept the assumptions incorporated (contributions, investment returns, etc.). assistance payment under this section
into that certification unless the If Congress had contemplated the and ending on the last day of the plan
assumptions are clearly erroneous. exclusion of these resources in the year ending in 2051 . . . .’’
When a plan sponsor applies for SFA calculation of the amount of SFA The inability to project resources and
and claims the plan is eligible based on ‘‘required for the plan,’’ it would have obligations with absolute precision for
a certification of plan status for a plan done so explicitly. 30 years prompted another objection to
year that was not completed before Additionally, all of a plan’s benefits the plain meaning of the language in
January 1, 2021, the sponsor must must be considered, as the statute says question from some interested parties.
determine whether the plan is in critical clearly ‘‘all benefits.’’ And, because plan The benefits projected to be paid into
status or critical and declining status expenses must be paid to keep the plan the future will rarely turn out to be the
using the assumptions that were used in in operation and capable of paying same as the benefits that actually will be
the plan’s most recently completed benefits, all expenses must likewise be paid (which can only be determined in
certification before January 1, 2021, taken into account. In short, the hindsight). These interested parties
unless those assumptions (excluding the statutory language, by requiring the argued that the amount of SFA is
plan’s interest rate) are unreasonable. A payment of all benefits due, mandates insufficient unless it enables a plan to
plan sponsor that determines that one or pay ‘‘all benefits’’ actually due through
more of the assumptions used in the 11 Furthermore, it would not be a reasonable the last plan year in 2051, for example
plan’s most recently completed result if the amount of SFA were to be calculated by assuming zero mortality for that
certification before January 1, 2021, is under a formula that disregards the plan’s available period. However, this approach would
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resources, which could lead to a windfall for a plan
unreasonable may propose changes to that needs only a small amount of SFA to pay
be a radical departure from accepted
the assumptions in the plan’s benefits. PBGC estimates that under such an actuarial practice and would be at odds
application (except to the interest rate) approach, the total amount of SFA distributed with the pattern of actuarial
by disclosing the changes, describing under the program would increase by 2 to 4 times determinations that underlies section
the estimated $94 billion amount projected under
why such assumptions are no longer PBGC’s ME–PIMS model. See section (4), Estimated
4262 of ERISA. PBGC thus considers
reasonable, and demonstrating that the Impact of Regulatory Action, of the Regulatory this suggestion to be contradictory to the
changed assumptions are reasonable. Impact Analysis section. statute.
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36602 Federal Register / Vol. 86, No. 130 / Monday, July 12, 2021 / Rules and Regulations
Calculating the Amount of SFA The deterministic projections must be the long-term rate that was used for
Section 4262.4(a) provides that the based on recent participant census data. funding standard account purposes in
amount of SFA for a plan is the amount Participant census data must be as of the the plan actuary’s projections that are
(if any), subject to adjustment for the first day of the plan year in which the part of the certification of plan status.
plan’s initial application is filed, or, if The interest rate limit specified in
date of payment as described in
the date on which the plan’s initial section 4262(e)(3) of ERISA is the rate
§ 4262.12, by which the value of all plan
application is filed is less than 270 days that is 200 basis points higher than the
obligations exceeds the value of all plan
after the beginning of the current plan rate specified in section 303(h)(2)(C)(iii)
resources, determined as of the plan’s
year and the actuarial valuation for the (disregarding modifications made under
SFA measurement date and limited to
current plan year is not complete, the clause (iv) of such section) ‘‘for the
the SFA coverage period (the period
projections may instead be based on the month in which the plan’s application
ending on the last day of the last plan
participant census data as of the first for SFA is filed or the 3 preceding
year ending in 2051). The SFA months.’’ This provision places a ‘‘cap’’
day of the plan year preceding the year
measurement date is the last day of the on the interest rate, and that the cap is
in which the plan’s initial application is
calendar quarter immediately preceding any permissible rate for a month during
filed. If a plan experiences a significant
the date the plan’s application was filed. the 4-month period ending with the
event between the date of the plan’s
The value of plan obligations under month in which the plan’s application
most recent participant census date and
§ 4262.4(b) is the sum of the present was filed.
the date the application is filed, PBGC’s
value of specified benefit payments and Section 4262(f) of ERISA suggests that
assumptions guidance (issued on
administrative expenses. The value of a plan may have multiple filing dates by
PBGC’s website at www.pbgc.gov/
benefit payments is calculated as the providing two applications deadlines:
guidance) provides guidelines on how
present value of benefit payments One for initial applications and one for
to reflect that significant event. Plans
expected to be paid during the SFA revised applications. There is no limit to
may, but are not required to, use the
coverage period including any guidelines if they are reasonable for the the number of times that a plan sponsor
reinstatement of benefits attributable to plan. may file revised applications as long as
the elimination of reductions in a The SFA measurement date, which is the last revised application is filed by
participant’s or beneficiary’s benefit due the beginning date for the deterministic the statutory deadline of December 31,
to a suspension of benefits under projections, is a date certain in the past 2026. Once PBGC has accepted an
sections 305(e)(9) or 4245(a) of ERISA as instead of a payment date in the future application for processing, PBGC
required under § 4262.15 or restoration because the SFA payment date believes that it is in the best interest of
of benefits under 26 CFR 1.432(e)(9)– (described under § 4262.12) is unknown all parties to avoid the duplicative work
1(e)(3). The reinstatement of benefits at the time the plan sponsor files the and delays that would result if a revised
must be calculated assuming such application. This approach of using a application were to use a different
reinstatements are paid beginning as of date certain in the past instead of a date interest rate. To prevent multiple filings
the SFA measurement date instead of in the future simplifies the calculation for purposes of changing the interest
the date SFA is paid. The value of but does not change the SFA amount rate, PBGC establishes a rule in
administrative expenses is calculated as that would otherwise be calculated as of § 4262.11(c) that the assumed interest
the present value of administrative the payment date because: (i) Both the rate will always be the rate used in the
expenses expected to be paid during the SFA-eligible plan resources and SFA- plan’s initial application.
SFA coverage period (excluding the eligible plan obligations will be reduced Accordingly, under § 4262.4(e)(1), the
amount owed to PBGC under section equally by the benefit payments and assumed interest rate is the interest rate
4261). expenses between those two dates, (ii) that is the lesser of the rate used by the
The value of plan resources under the contributions between those two plan for funding standard account
§ 4262.4(c) is the total of the fair market dates would typically need to be projections in the plan’s most recently
value of assets on the SFA measurement estimated either way, and (iii) the SFA completed certification of plan status
date and the present value of future amount is adjusted for interest between before January 1, 2021, or the rate that
contributions, withdrawal liability those two dates at the interest rate used is 200 basis points higher than the rate
payments, and other payments expected to calculate the present values as of the specified in section 303(h)(2)(C)(iii) of
to be made to the plan (excluding the SFA measurement date. ERISA (disregarding modifications
amount of financial assistance under Section 4262.4(e)(1) of the regulation made under clause (iv) of such section)
section 4261 of ERISA and the amount specifies the interest rate assumption a for any month selected by the plan in
of SFA to be received by the plan) plan must use to calculate the amount the 4-month period ending with the
during the SFA coverage period. of SFA in the plan’s application. Section month in which the plan’s application
The amount of financial assistance 4262(e)(2)(A) of ERISA requires a plan was filed (or the month in which the
owed to PBGC under section 4261 of to use an interest rate that is based on initial application was filed if there was
ERISA, if any, is excluded in the the rate used in the plan’s most recently more than one filing date). If an
calculation of SFA in the plan’s completed certification of plan status application is revised as provided under
application. Instead, it is added to the before January 1, 2021, subject to an § 4262.11 of the regulation, the interest
amount of SFA to be paid to the plan interest rate limit, but does not consider rate used for the revised application
under § 4262.12 as of the date PBGC that there are potentially two rates used must be the same as the interest rate
sends payment of SFA, offset by the in a certification of plan status: A short- used for the initial application.
value of financial assistance payments term rate (used for projecting plan Some interested parties commented
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under section 4261 received by the plan assets) and a long-term rate (used to that the interest rate required under
following the SFA measurement date, determine plan liabilities and for section 4262(e) of ERISA should only
accumulated with interest. interest adjustments in the funding apply to the earnings on current plan
The projections in § 4262.4(b)(1) and standard account). As the determination assets and that PBGC should allow a
(2) and (c)(2) must be performed on a of the SFA amount involves long-term separate rate to be used to determine the
deterministic basis using a single set of projections, the regulation specifies that amount of SFA required to pay for
assumptions as provided in § 4262.4(d). the SFA amount is calculated based on benefits not provided by current plan
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Federal Register / Vol. 86, No. 130 / Monday, July 12, 2021 / Rules and Regulations 36603
assets. Of those commenters, some amount of SFA determined as if the plans receiving SFA designed to ensure
contend that because the 2020 events described in § 4262.4(f) had not that plans receive no more than the
certifications of plan status did not occurred. These events include mergers, amount of SFA to which they are
include an interest rate assumption for transfers of assets or liabilities entitled. PBGC concludes that, to
SFA, the interest rate should reflect (including spinoffs), certain increases in achieve that end, it is reasonable not to
expected returns for investment grade accrued or projected benefits, and give effect to changes made to a plan’s
bonds. To determine eligibility, for certain reductions in contribution rates. structure or terms on or after July 9,
certifications of plan status completed The limitation applies to events that 2021, if such changes either artificially
after December 31, 2020, section occur between July 9, 2021, and the SFA inflate the amount of SFA to which a
4262(e)(1) requires a plan to use its most measurement date. To accommodate the plan is entitled or convert an ineligible
recently completed certification of plan possibility of multiple events, the plan into an eligible plan.
status before January 1, 2021, unless limitation does not apply on an event- Section 4262(m)(1) of ERISA
such assumptions, excluding the plan’s by-event basis but is based on expressly authorizes PBGC, in
interest rate, are unreasonable comparing the amount of SFA a plan consultation with the Secretary of the
(emphasis added). To determine the applies for with the amount of SFA a Treasury, to impose reasonable
amount of SFA, section 4262(e)(2) plan (or all plans in the case of a conditions ‘‘on an eligible
mandates that a plan must ‘‘use the merger) would have received had the multiemployer plan that receives
interest rate used by the plan in its most events not occurred. special financial assistance’’ relating to
recently completed certification of plan Section 4262(b)(1) of ERISA certain aspects of plan terms or
status before January 1, 2021, provided establishes criteria for eligibility of a operations. Such conditions include
that such interest rate may not exceed multiemployer plan for SFA, and those relating to the diversion of
the interest rate limit.’’ These provisions section 4262(j) provides for determining contributions to, and allocation of
do not require the interest rate used the amount of the SFA, but these expenses to, other benefit plans;
under the certification of plan status to provisions do not address the situation increases in future accrual rates and any
be reasonable for purposes of eligibility in which a multiemployer plan has retroactive benefit improvements; and
or determining the amount of SFA. engaged in a transaction that affects the reductions in employer contribution
Under section 4262(e)(4), if a plan amount of SFA to which a plan is rates. PBGC’s authority to impose
determines that use of one or more prior entitled, including through the reasonable conditions under section
assumptions is unreasonable, the plan manipulation of the eligibility criteria. 4262(m)(1) is not limited to restrictions
may propose to change such Moreover, section 4262(e)(2)(B) on a plan following its receipt of SFA
assumption. This provision specifically provides, as a general rule, that the given that these conditions apply to a
states that the plan may not propose a actuarial assumptions to be used by a plan that ‘‘receives’’ SFA, rather than a
change to the interest rate required for plan are the assumptions used in the plan that has received SFA. That
eligibility or SFA amount. In addition, plan’s actuarial certification for the most understanding of section 4262(m)(1)
PBGC does not have authority to recently completed certification of plan finds further support in section
provide a different rate or bifurcate the status before January 1, 2021 (unless 4262(m)(2), which restricts the
statutorily mandated interest rate. those assumptions are unreasonable), conditions that PBGC can impose not
For assumptions other than the indicating that the plan applying for only ‘‘following receipt of’’ SFA, but
interest rate, § 4262.4(e)(2) provides that SFA must have been in existence and also ‘‘as a condition of’’ SFA. That broad
a plan must use the assumptions that had an actuarial certification as to its prohibition would be unnecessary if
the plan used in its most recently status before January 1, 2021. The PBGC’s authority under section
completed certification of plan status provisions regarding interest rate 4262(m)(1) was limited to only post-
before January 1, 2021, unless such assumptions under section 4262(e)(2)(A) receipt conditions.
assumptions are unreasonable. If a plan are specific to the plan in its most recent Accordingly, pursuant to section
determines that use of one or more of certification of plan status completed 4262(m) of ERISA, in conjunction with
the assumptions in its most recently before January 1, 2021, and, under the sections 4002(b)(3) and 4262(e), PBGC is
completed certification of plan status terms of section 4262(e), those authorized to impose reasonable
before January 1, 2021, is unreasonable, assumptions cannot be changed. A conditions that ensure that SFA is
the plan may propose in its application manipulation of those rates via a merger provided to plans in an amount that is
to change the assumptions as provided would not be consistent with that not inflated by way of contrived events.
in § 4262.5 of the regulation. requirement. Although the statute does
The information required to be not directly address plan mergers, each (a) Mergers
included as part of an application, plan’s assumptions from the most The rule provides that if two or more
including to support changes to recently completed pre-2021 plans are merged, then the SFA is
assumptions, is described in §§ 4262.6 certification of plan status must be limited so that it does not exceed the
through 4262.8 of the regulation. maintained in order for section 4262(e) sum of the SFA that would have been
PBGC’s review of the assumptions used to have meaning with respect to the calculated for all of the plans involved
by a plan is described in § 4262.5 of the plans that merged. This rule fills the gap in the merger had the plans applied
regulation. left in the statute for the calculation of separately for SFA. Thus, a plan that
Calculating the Amount of SFA With SFA for plans that have been involved would not have been entitled to any
Respect to Certain Events in a merger. SFA if not for a merger that occurs on
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It is likewise appropriate for PBGC, as or after July 9, 2021, cannot become
Section 4262.4(f) addresses the a prudent steward of taxpayer funds, entitled to SFA by merging with a plan
possibility that a plan may implement and with responsibility for carrying out that also would not otherwise be
certain changes that could entitle the the purposes of the title IV insurance entitled to any SFA. Further, a plan may
plan to more SFA than was intended program,12 to impose conditions on not increase the amount of SFA to
under section 4262 of ERISA. In these
situations, the amount of SFA that 12 PBGC’s inherent authority under section regulations to carry out the purposes of the title IV
would apply to a plan is limited to the 4002(b)(3) of ERISA allows PBGC to adopt insurance program.
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36604 Federal Register / Vol. 86, No. 130 / Monday, July 12, 2021 / Rules and Regulations
which it is entitled by merging with determining the amount of SFA, the rule assumptions if it determines that the use
another plan or plans on or after July 9, provides that SFA is limited to the of one or more of its original
2021. amount that would have applied had assumptions (other than the interest
As explained earlier in this section of the event not occurred. rate) is unreasonable.
the preamble, this condition fills the gap There is an exception to this rule. One Actuarial assumptions under section
in the rules for the calculation of SFA possible benefit increase could arise 4262 of ERISA are derived from a plan’s
for plans that merge after the most from the restoration of benefit certification of plan status under section
recent certification of plan status suspensions of retirees and beneficiaries 305 of ERISA. In general, PBGC believes
completed before January 1, 2021. In in pay status that satisfies the that a plan’s actuarial assumptions
addition, this requirement is consistent requirements of 26 CFR 1.432(e)(9)– adopted for the certification of plan
with PBGC’s authority under section 1(e)(3). Under that Treasury Department status (and not for entitlement to SFA)
4262(m)(1) of ERISA to impose regulation, the restoration of benefits is represent a neutral view of
reasonable conditions relating to the not subject to the benefit increase circumstances, unbiased by the prospect
‘‘diversion of contributions to, and restrictions under sections 432(e)(9)(E) of receiving a substantial sum of money
allocation of expenses to, other benefit or 432(f)(1)(B) of the Code, and an based on those assumptions.
plans.’’ When two or more plans merge, amendment restoring benefits that Accordingly, PBGC expects to give far
a predecessor plan has diverted its satisfies the requirements of 26 CFR less intensive scrutiny to ‘‘original’’
contributions and allocated its expenses 1.432(e)(9)–1(e)(3) can be adopted at any assumptions than to changed
to the merged plan. Specifically, a time. Because a major goal of the SFA assumptions.
merged plan, which combines assets program is the prompt resumption of PBGC is to accept actuarial
and liabilities of two or more plans, payment of suspended benefits, the assumptions incorporated in a plan’s
each with its own set of participants and restoration of these benefits should be certification of plan status completed
beneficiaries, and to all of whom all the encouraged and the exception in these before 2021 for purposes of eligibility
assets (and, thus, all the contributions) regulations (under which benefit under § 4262.3(d)(1) unless PBGC
must be available following the merger, increases pursuant to such an determines that such assumptions are
is, in effect, diverting contributions amendment are taken into account in ‘‘clearly erroneous.’’
intended to benefit one set of determining the amount of SFA) For all other purposes, PBGC will
participants to another. facilitates that goal. If an amendment accept the assumptions used unless
that satisfies 26 CFR 1.432(e)(9)–1(e)(3) PBGC determines that they are
(b) Transfers
is adopted before the SFA measurement unreasonable. Each of the actuarial
The rule provides that where assets or date, it is taken into account in assumptions and methods used for the
liabilities are transferred, an applicant determining the amount of the SFA (as actuarial projections (excluding the
plan’s SFA is limited based on the the benefits attributable to the interest rate), must be reasonable in
amount of SFA the plan would be restoration would be if the amendment accordance with generally accepted
entitled to if the transfer did not occur. were adopted later), and the adoption is actuarial principles and practices,13
Similar to mergers, this requirement is not an event that is subject to the taking into account the experience of
premised on PBGC’s authority under limitation on SFA arising from potential the plan and reasonable expectations.
section 4262(m)(1) of ERISA to impose abuses. To be reasonable, among other things,
reasonable conditions relating to the Finally, if two or more plans are an actuarial assumption or method must
‘‘diversion of contributions to, and merged and any of the plans involved in be appropriate for the purpose of the
allocation of expenses to, other benefit the merger also experienced a transfer of measurement, reflect the actuary’s
plans.’’ assets or liabilities, a benefit increase, or professional judgment, take into account
(c) Other Events a reduction in contributions that would current and historical data that is
be subject to the limitation in § 4262.4(f) relevant to selecting the assumption for
Similar considerations apply to during the period described in
benefit increases and contribution the measurement date, reflect the
§ 4262.4(f)(1)(i), the amount of SFA for actuary’s estimate of future experience,
reductions. These events are also the merged plan must be determined by
described in section 4262(m)(1) of and reflect the actuary’s observation of
applying the limitation in the estimates inherent in market data (if
ERISA, which permits PBGC to impose § 4262.4(f)(1)(i) to the plan that
conditions on the receipt of SFA any). In addition, an actuarial
experienced the other applicable event. assumption or method must be expected
relating to ‘‘increases in future accrual
rates and retroactive benefit PBGC Review of Plan Assumptions to have no significant bias (i.e., it is not
improvements’’ and on ‘‘reductions in PBGC’s review of an application for significantly optimistic or pessimistic).
employer contribution rates.’’ These SFA will focus on the reasonableness of If a plan determines that one or more
events are ordinarily thought of as the plan’s and the plan actuary’s original assumptions are unreasonable
increasing burdens on plans, and demonstration regarding the amount of and must be changed, § 4262.5(c)
changes of this type are not commonly SFA for the plan. Section 4262.5 sets provides that the plan’s application
adopted with respect to plans in forth how PBGC will review plan must describe why the original
financial distress. Because SFA is assumptions. assumption is no longer reasonable,
designed to relieve financial distress, As described earlier, instead of disclose the changed assumption, and
creating or increasing burdens could be prescribing actuarial assumptions to be demonstrate that the changed
a net plus for a plan. In other words, used for determining SFA, or calling on
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13 Actuarial Standards of Practice (ASOPs) are
absent an effective condition in this PBGC to prescribe assumptions, section issued by the Actuarial Standards Board and are
regulation, these events would create 4262 of ERISA generally looks to plan available at http://www.actuarialstandardsboard.
artificial financial stress on the plan assumptions previously selected by the org/standards-of-practice. Certain ASOPs,
with the expectation that the plan plan actuary for determining eligibility including ASOPs Nos. 4, 23, 27, 35, 41, and 56 may
be relevant to the actuary’s work related to special
would be compensated through the for and calculating the amount of SFA. financial assistance, including the assessment of the
payment of additional SFA. To prevent A mechanism is provided for a plan to reasonableness of the actuary’s assumptions and
this manipulation of the standards for propose changes to actuarial methods.
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Federal Register / Vol. 86, No. 130 / Monday, July 12, 2021 / Rules and Regulations 36605
assumption is reasonable. If there is a Information To Be Filed Application for Plans With a Partition
change in assumptions, each of the Sections 4262.6 through 4262.8 of the Under section 4233 of ERISA, a plan
actuarial assumptions and methods regulation describe the information that may apply to PBGC for a partition to
(other than the interest rate) must be must be included in a plan’s SFA fund a portion of the plan’s benefits to
reasonable and the combination of those application. Section 4262.6 summarizes avoid insolvency. Upon PBGC’s
actuarial assumptions and methods the requirements for an application to approval of an application for partition,
(excluding the interest rate) must also be be considered complete, including plan PBGC issues a partition order to
reasonable. With large amounts of SFA information; actuarial and financial provide: (1) For a transfer from the
at stake, PBGC will be called on to information (including the amount of original plan to the plan created by the
perform a more searching analysis of SFA requested); a completed checklist partition order (the successor plan), the
any changed assumptions. While PBGC (per the SFA instructions on PBGC’s minimum amount of benefit liabilities
expects actuaries to be conscientious in website at www.pbgc.gov); the signature necessary for the original plan to remain
setting assumptions, it is a process that of an authorized trustee who is a current solvent, and (2) financial assistance
presents many opportunities for member of the board of trustees; a from PBGC under section 4261 to pay
judgment calls that may be influenced signed penalties of perjury statement; a those benefits. The successor plan is but
by the goal of maximizing SFA. copy of the executed plan amendment a creature of PBGC’s partition order,
Concurrent with this interim final providing that, beginning with the SFA terminated and insolvent from its
rule, PBGC has issued guidelines for measurement date, the plan must be inception. The original and successor
changes to certain assumptions that administered in accordance with the plans are required by section 4233(d)(2)
plans may use for purposes of restrictions and conditions specified in to have the same plan sponsor and
determining eligibility for SFA and the section 4262 of ERISA and this administrator.
amount of SFA. Plans may, but are not regulation; a copy of the proposed plan Section 4262(c)(3) of ERISA requires
required to, use the guidelines if they amendment to reinstate benefits and pay PBGC to provide an alternative
are reasonable for the plan. Guidelines make-up payments and certification by application for SFA that may be used for
are available for contribution base units the plan sponsor that the plan a plan approved for a partition before
(CBUs), administrative expenses, amendment will be adopted timely; and March 11, 2021. Section 4262.9 of
mortality, contribution rates, and new information required by PBGC to clarify PBGC’s regulation describes this
entrant profiles, and can be found in the or verify the information in a filed application.
guidance issued on PBGC’s website at application. If any of the information The plan sponsor of a partitioned plan
www.pbgc.gov/guidance. required under this part and in the SFA must apply for SFA using the alternative
instructions is missing from the filed application, which contemplates
Additionally, PBGC acknowledges application, the application will not be PBGC’s rescission of the partition order
that plans may have a gap in the considered complete. as prescribed under § 4262.9(c) and
assumption for projected CBUs and The SFA instructions, including other conditions particular to a
administrative expenses used in the templates, supplement the regulation partitioned plan as described under
prior certification of plan status such and provide guidance to plan sponsors § 4262.9(b). One of these conditions is
that the assumption cannot be used ‘‘as and practitioners on how to prepare and that the plan sponsor must file a single
is’’ for determining SFA. This is because file the required application application for SFA consisting of
plans generally do not project these information. information about the original plan and
assumptions more than 20 years in the Sections 4262.6 through 4262.8 and the successor plan. The combined
future. In addition, before the enactment the instructions specify the minimum information must reflect that, on the
of ARP, if a plan was projected to necessary plan, actuarial, and financial date SFA is transferred to the plan,
become insolvent within 20 years, then information that PBGC requires to PBGC will rescind the order that created
the plan is unlikely to have assumptions approve or deny an application for SFA the successor plan, and the plan sponsor
for CBUs or plan-related administrative and to verify the amount of SFA within will remove plan provisions and
expenses for years after the projected the short 120-day review window amendments that were required to be
insolvency date. These are natural permitted under section 4262(g) of adopted under the order.
practices for purposes of a certification ERISA. As described in the Paperwork Another condition is that the
of plan status, but a significant Reduction Act section of this preamble, application must include a statement
deficiency where those assumptions are the application instructions and that the plan was partitioned and a copy
needed to determine the amount of SFA. checklist have been submitted to the of the provisions or amendments that
A plan can fill this gap with any Office of Management and Budget the plan was required to adopt under
reasonable extension of its CBU (OMB) for review and approval under the partition order. A partitioned plan’s
assumption and administrative expense the Paperwork Reduction Act. OMB’s application must include all the
assumption, but that will generally decision regarding this information required information described in
mean a ‘‘change’’ in assumptions, collection request will be available at §§ 4262.6 through 4262.8 for
triggering a more intensive (and time- http://www.Reginfo.gov. applications generally. However, if the
consuming) review by PBGC. To assist Unless confidential under the Privacy plan sponsor of a partitioned plan has
applicants and aid in the review of a Act, all information that is filed with filed any of the required information
plan’s CBU assumption and PBGC for an application for SFA may be with PBGC already, the sponsor is not
administrative expense assumption, made publicly available, at PBGC’s sole required to include that information
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PBGC has developed ‘‘standard’’ discretion, on PBGC’s website at again with its SFA application. Instead,
extensions that plans can use to www.pbgc.gov or otherwise publicly the sponsor must only note on the
complete the assumption set for a plan disclosed. Except to the extent required checklist described under § 4262.6(a)
that otherwise can use its original by the Privacy Act, PBGC provides no that the information was already filed.
assumptions. These assumptions are assurance of confidentiality in any Partitioned plans also have benefit
described in the guidance mentioned information or documentation included suspensions that must be reinstated if
earlier in this section of the preamble. in an application for SFA. the plan is approved for SFA. Under
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36606 Federal Register / Vol. 86, No. 130 / Monday, July 12, 2021 / Rules and Regulations
§ 4262.15, a plan receiving SFA must mandated 120 days, it might not be able (by its use of the disjunctive ‘‘or’’)
reinstate benefits suspended under to process all applications timely if indicates that priority status may be
section 305(e)(9) of ERISA and provide many applications must be processed extended to any one or more subgroups
make-up payments to participants and within a brief period. Thus, PBGC is of priority-status plans and which does
beneficiaries, to restore previously concerned about the rate at which not limit the number of priority
suspended benefits, in accordance with applications are submitted for submission windows. Accordingly,
guidance issued by the Treasury processing. Relying on the PBGC has designed this mechanism to
Department and the IRS. This aforementioned authorities that allow prioritize the most impacted plans and
requirement applies to both the original PBGC to administer the SFA application participants first. For example, the
plan and the successor plan created by process, PBGC has developed a highest priority is given to applications
a partition where benefits under the ‘‘metering’’ system to manage the filing of plans that are projected to become
original plan were suspended. Having and processing of applications. The goal insolvent under section 4245 of ERISA
the original and successor plans apply of this system is to process the large by March 11, 2022, so that they will not
as one will ensure coordinated benefit number of expected applications within have to reduce participant benefits, and
reinstatements for all participants in the the 120 days mandated by the statute, plans that are already insolvent, to
partitioned plan. while avoiding both ‘‘floods’’ of enable them to reinstate benefits and
The filing of an application for a applications that could cause provide make-up payments to
partitioned plan falls under priority applications to be deemed approved (as participants and beneficiaries, to restore
group 2 for purposes of § 4262.10(d) described in § 4262.11) without previously suspended benefits. The
(explained in Processing applications), sufficient PBGC review, and ‘‘droughts’’ objective is to accept and process as
consistent with other plans that are when processing capacity is sitting idle. many applications in the highest
eligible for SFA because they have The risks of an insufficiently reviewed priority group as possible before
implemented a suspension of benefits application are varied, including, but opening the submission process to the
under section 305(e)(9) of ERISA as of not limited to, SFA payments that are next priority group. Ultimately—no later
March 11, 2021. The plan sponsor of a insufficient to meet program than March 11, 2023—the submission
partitioned plan, therefore, may file an requirements, and SFA payments that process will be opened to all eligible
application for SFA beginning on are higher than necessary to meet plans, to ensure that every prospective
January 1, 2022, or earlier date specified program requirements. These risks are submitter has a fair opportunity to file
on PBGC’s website. exacerbated by the lump sum form of its application during the statutory
Partitioned plans have also been payment required by ARP. To manage
receiving financial assistance from period. As described earlier in this
these risks and ensure the success, section of the preamble, PBGC will
PBGC with repayment obligations under integrity, and proper stewardship of the
section 4261 of ERISA. How financial continue to meter the flow of
program, it is important that PBGC applications to avoid exceeding its
assistance under section 4261 is repaid thoroughly review each application.
is prescribed under § 4262.12(b) of the capacity to process them within 120
The electronic filing system described days.
regulation.
in § 4262.10 of the regulation is based
on three mechanisms. The first PBGC will accept applications for
Processing Applications
mechanism permits PBGC to accept filing for priority group 1 beginning on
PBGC expects the SFA program to July 9, 2021. The second highest priority
attract many applicants, and the statute applications in a manner that in PBGC’s
estimation allows for sufficient review is given to applications of plans that
makes clear that PBGC is expected to have implemented a suspension of
process applications quickly. PBGC is and processing within 120 days of
filing. The inherent authority provided benefits under section 305(e)(9) of
required to hold application processing ERISA as of March 11, 2021, to enable
times to within 120 days and is given by section 4002(b)(3) of ERISA to issue
regulations related to the conduct of its them to reinstate benefits and provide
authority to manage that process. make-up payments to participants and
Under section 4262(c) of ERISA, business, and the directive under
section 4262(c) to set forth requirements beneficiaries to restore previously
PBGC must issue regulations or suspended benefits, and plans expected
guidance setting forth requirements for for applications, clearly authorize PBGC
to limit the number of applications it to be insolvent within 1 year of the date
SFA applications. Applications are an application for SFA is filed. PBGC
considered timely filed under section will accept at any one time, and to close
the filing window to avoid choking the will accept applications for filing for
4262(g) only if they are filed in priority group 2 beginning no later than
accordance with PBGC’s regulations. processing system, provided that every
prospective submitter has a fair January 1, 2022. The filing dates for
PBGC’s inherent authority under section
opportunity to file its application by applications from the remaining four
4002(b)(3) of ERISA allows PBGC to
December 31, 2025 (or December 31, priority groups (groups 3–6) are
adopt regulations relating to the conduct
2026, for a revised application). provided for in § 4262.10(d)(2)(iii)
of its business and to carry out the
The second mechanism is a priority through (vi), with filings for priority
purposes of the title IV insurance
system permitted by section 4262(d) of groups 5 and 6 beginning no later than
program. Under section 4262(d) of
ERISA. PBGC is establishing ‘‘priority’’ February 11, 2023. In addition, PBGC
ERISA, PBGC also may limit the filing
periods during which an application will specify on its website, at least 21
of SFA applications to filings for plans
days in advance, the date the last 2
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that are in one or more of four ‘‘priority’’ will be accepted only for a plan that is
in the category (or one of the categories) priority groups (groups 5 and 6) may
categories during a period limited to
within the first 2 years after March 11, to which the period is limited. This file.
2021. mechanism is consistent with section This table shows when applications
While PBGC is confident in its ability 4262(d), although not a direct for each priority group may begin to be
to process an application within the implementation of that provision, which filed.
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Federal Register / Vol. 86, No. 130 / Monday, July 12, 2021 / Rules and Regulations 36607
Priority group Description of priority group Date plans may apply for SFA
1 ...................... Plans already insolvent or projected to become insolvent be- Beginning on July 9, 2021.
fore March 11, 2022.
2 ...................... Plans that implemented a benefit suspension under section Beginning on January 1, 2022, or earlier date specified on
305(e)(9) of ERISA as of March 11, 2021. PBGC’s website.
Plans expected to be insolvent within 1 year of the date an
application for SFA is filed.
3 ...................... Plans in critical and declining status that had 350,000 or more Beginning on April 1, 2022, or earlier date specified on
participants. PBGC’s website.
4 ...................... Plans projected to become insolvent before March 11, 2023 ... Beginning on July 1, 2022, or earlier date specified on
PBGC’s website.
5 ...................... Plans projected to become insolvent before March 11, 2026 ... Date to be specified on PBGC’s website at least 21 days in
advance of such date, but no later than February 11, 2023.
6 ...................... Plans for which PBGC computes the present value of financial Date to be specified on PBGC’s website at least 21 days in
assistance under section 4261 of ERISA to be in excess of advance of such date, but no later than February 11, 2023.
$1 billion (in the absence of SFA).
7 ...................... Additional plans that may be added by PBGC based on other Date to be specified on PBGC’s website no later than March
circumstances similar to those described for priority groups 11, 2023.
1–6.
As priority groups open, PBGC will priority requirements and can be March 11, 2021. Beginning with PBGC’s
continue to accept applications from accommodated in accordance with the acceptance of ‘‘priority group 2’’ filings,
plans in earlier priority groups. While processing system. Otherwise, PBGC PBGC will accept emergency filings
the priority mechanism may entail a will not consider the application filed from these plans during periods when
relatively short deferral of an and will notify the applicant that the PBGC would not otherwise accept such
application for a given plan until its application must be filed in accordance applications. A filer submitting an
respective priority group opens, the with the processing system and application under the emergency filing
amount of SFA ultimately awarded will instructions on PBGC’s website. process must substantiate the claim of
reflect the amount required to pay all PBGC will accept as many emergency status and notify PBGC, in
benefits due pursuant to the statute.14 applications as the agency estimates it accordance with the SFA instructions
Applications of plans in a priority can process in 120 days. Once the on PBGC’s website at www.pbgc.gov,
category must also be submitted to the number of applications reaches that before submission of the impending
Secretary of the Treasury under section level, the filing window will application.
432(k)(1)(D) of the Code. If that temporarily close until PBGC has
requirement applies to an application, PBGC Action on Applications
capacity to process more applications.
PBGC will transmit the application to PBGC will maintain a dedicated web Section 4262(g) of ERISA provides
the Treasury Department on behalf of page for applications on its website at that PBGC can either approve or deny
the plan, and the Treasury Department www.pbgc.gov to inform prospective an application for SFA and establishes
has provided in guidance (Notice 2021– applicants about the current status of a short time period during which PBGC
38) that it will treat the requirement the filing window, as well as to provide must act or an application is deemed
under section 432(k)(1)(D) as satisfied. advance notice of when PBGC expects approved. As described under § 4262.11
The third mechanism is a notification to open or temporarily close the filing of the regulation, PBGC must act on an
system on PBGC’s website to keep window. PBGC will contact interested application within 120 days after the
prospective applicants apprised of when prospective applicants via email when date an initial or revised application is
a filing window opens or closes and (if such new information is available. properly and timely filed. If PBGC
applicable) to what priority groups PBGC will also post information about approves an application, it will notify
filing is limited. This mechanism will the status of filed applications. the plan sponsor of the payment of SFA
enable applicants to know when the A plan sponsor may contact PBGC in accordance with § 4262.12.
system is accepting their priority informally to discuss a potential If PBGC denies an application, it will
group’s filing. application for SFA. notify the plan sponsor in writing of the
In sum, the system works like this: reasons for the denial. An application
• Applications will be accepted Emergency Filings may be denied because it is incomplete
initially only from plans in the highest PBGC recognizes that in rare (it does not accurately include the
priority group. PBGC will begin circumstances a plan may experience an information required to be filed);
accepting applications from the other event that brings it closer to insolvency because an assumption is unreasonable,
priority groups as of the dates described than previously projected. Consistent a proposed change in assumption is
earlier in this section of the preamble with section 4262(d)(1)(D) of ERISA, individually unreasonable, or the
(and set forth in § 4262.10(d)(2) of the which allows PBGC to add priority proposed changed assumptions are
regulation) and posted on PBGC’s categories as it determines appropriate unreasonable in the aggregate; or
website at www.pbgc.gov. based on other similar circumstances, because the plan is not an eligible
• Applications are processed based PBGC is including an emergency filing multiemployer plan. For example,
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on capacity. An application will be process to accept priority applications pending approval of an application if
considered filed on the date it is from a plan that is insolvent or expected PBGC determines that documentation
electronically submitted to PBGC if the
to be insolvent under section 4245(a) of supporting a certification of critical and
application meets any applicable
ERISA within 1 year of filing an declining status is missing or the plan
14 For instance, the value of plan assets may
application, or a plan that has sponsor has not responded to a PBGC
fluctuate during a deferral period and the amount implemented a suspension of benefits request for information to clarify an
of SFA will adjust based on that experience. under section 305(e)(9) of ERISA as of item in that documentation, PBGC’s
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36608 Federal Register / Vol. 86, No. 130 / Monday, July 12, 2021 / Rules and Regulations
notice will identify the missing be significant. Instead, § 4262.12 before other plan assets are used for
information or documentation required provides that PBGC will pay a plan the these purposes). In addition, SFA (and
to complete the application. If PBGC amount demonstrated under the plan’s earnings) must be invested by plans in
denies an application, the plan sponsor application, determined as of the SFA investment-grade bonds or other
may choose to submit a revised measurement date, plus interest on that investments as permitted by PBGC in
application or withdraw the denied amount, representing the time § 4262.14. These limitations on the use
application. If the plan sponsor submits differential between the computation of SFA reflect the purpose of SFA. As
a revised application, the revised and the date PBGC sends payment (not provided for under section 4262(j)(1) of
application must not differ from the the bank settlement date) and using the ERISA and in § 4262.4, SFA is the
denied application except to the extent interest rate equal to the rate required amount required for the plan to pay all
necessary to address the reasons stated under § 4262.4(e)(1). benefits due during the SFA coverage
in PBGC’s notification for the denial. In Section 4262.12(d) of the regulation period taking into account all plan
other words, PBGC is not requiring a provides that PBGC will pay SFA to a resources and obligations. SFA should
plan sponsor to refile the entire plan in a lump sum or substantially so 15 not be used in a manner that would
application. PBGC only needs the as soon as practicable upon approval of divert SFA funds to other purposes—for
information that cures the reasons the plan’s SFA application. PBGC instance, reducing sources of plan
specified in the denial notice. expects payment to be made usually income, such as employer contributions
The plan sponsor may withdraw an within 60 days, but no later than 90 or withdrawal liability, or increasing
application (in writing and in days after the plan’s SFA application is plan obligations, such as to pay for
accordance with the SFA instructions approved by PBGC or deemed approved additional future increases in benefits.
on PBGC’s website, www.pbgc.gov) at (and in any event not later than
any time before or after PBGC denies the September 30, 2030). Payment will be Permissible Investments
application, but not after PBGC has made in accordance with payment Section 4262(l) of ERISA requires that
approved the application. If an instructions provided by the plan in its SFA received, and any earnings thereon,
application is withdrawn, the plan application. Payment will be considered may be used to make benefit payments
sponsor may refile the application as a made when, in accordance with the and pay plan expenses, and such SFA
revised application. plan’s payment instructions, PBGC no and earnings must be held separately
For any revised application, PBGC longer has ownership of the amount from other plan assets. Section 4262(l)
requires that the ‘‘base data’’ (the SFA being paid. Any adjustment for delay also requires that SFA funds be invested
measurement date, participant census will be borne by PBGC only to the in investment-grade bonds or other
data, and interest rate assumption) extent that it arises while PBGC has investments permitted by PBGC.
remain the same as reported on the ownership of the funds.
plan’s initial application to guard For a plan with an obligation to repay Given the statute’s requirement that
against multiple filings for purposes of financial assistance under section 4261 SFA funds, and any earnings on
changing this data. Once PBGC has of ERISA, the regulation describes the investment of those funds, be used
accepted an initial application for process for that repayment. solely to pay benefits and plan
processing, PBGC believes that it is in Unlike assistance under section 4261, expenses, PBGC understands that SFA
the best interest of all parties to avoid section 4262(a)(2) of ERISA provides funds should be invested in relatively
the duplicate work and delays that payment of SFA is not a loan safe vehicles that will help ensure that
associated with changes to the base subject to repayment obligations. short-term needs to pay benefits and
data. Accordingly, if the plan sponsor However, PBGC clarifies in plan expenses can be met. That section
withdraws an application and submits a § 4262.12(d)(1) that SFA is subject to 4262(l) of ERISA refers to investment-
revised application it must use the base recalculation or adjustment to correct a grade bonds first, supports this view.
data from its initial application, but it clerical or arithmetic error. PBGC will, The allowance under section 4262(l) for
may make other changes. and plans must, make payments as ‘‘other investments permitted by the
PBGC’s decision on an application for needed to reflect any such changes in a corporation’’ could provide some
SFA is a final agency action for timely manner. SFA is also subject to flexibility (as well as limited exposure
purposes of judicial review under the debt collection if PBGC determines that to other assets), but PBGC in this
Administrative Procedure Act (5 U.S.C. a payment for SFA to a plan exceeded interim final rule is reluctant to allow
704). the amount to which the plan was for investment vehicles with
entitled. Section 4262.12(d)(2) provides fundamentally different characteristics
Payment of Special Financial the rules for payment of a debt owed to without further input from the public.
Assistance the Federal Government. Section 4262.14 of the regulation
Section 4262(j) of ERISA provides that describes the permitted investments of
SFA is the amount required for an Restrictions on Special Financial SFA, referred to as permissible
Assistance
eligible plan to pay all benefits due from investments. To give effect to the
the date PBGC pays the SFA to the plan Section 4262(l) of ERISA places evident intention that SFA be invested
until the last day of the plan year ending restrictions on the use of SFA. These in relatively safe investments, the
in 2051. But as described earlier in this restrictions are described in § 4262.13 of regulation permits SFA and earnings on
preamble, a plan sponsor does not know the regulation. SFA received, and any SFA to be invested only in fixed income
when SFA will be paid at the time the earnings thereon, must be segregated securities that must be considered
sponsor prepares an application. The from other plan assets and may only be investment grade except for a 5 percent
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SFA amount supported by an used to make benefit payments and pay sleeve that allows a plan to hold on to
application and approved by PBGC will plan expenses (but SFA may be used investments that were considered
be the amount appropriate to a date in investment grade at the time of purchase
15 For example, if a plan’s SFA payment exceeds
the past. The amount of SFA could be but are no longer of that credit quality.
the statutory limitation for a federal wire of $10
recomputed as of the date of payment, billion, the plan will receive multiple Fedwire
Thus, SFA funds will be fairly protected
yet the result would still be an estimate payments that will equal the approved lump sum and plans will have clear expectations
and the burden of computation would amount. about what the income return will be.
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Federal Register / Vol. 86, No. 130 / Monday, July 12, 2021 / Rules and Regulations 36609
Permissible investments may be held that are held in separate accounts (i.e., • Which organizations are qualified
in individual fixed-income securities or not through a permissible fund vehicle), to manage and advise on these vehicles?
in commingled funds, such as Exchange must be supported by liquid assets that • Can the vehicles, as they might be
Traded Funds (ETFs), mutual funds, are cash or cash equivalents used in multiemployer plan portfolios
pooled trusts, or other commingled denominated in U.S. dollars. This will or in the pool of SFA assets, be clearly
securities (which are defined in the ensure that the plan or the investment defined and easily used?
regulation as permissible fund vehicles). manager will be able to cover the (2) Should permissible investments of
To ensure the quality of the securities derivative exposure with little risk to SFA assets be limited to fixed income
that may be invested with SFA, the SFA assets. securities? For instance, should the rule
regulation provides that permissible In listening sessions with interested permit investment of a percentage of
investments are considered investment parties, PBGC heard concerns about SFA assets in certain stock ETFs or
grade if a fiduciary, within the meaning how overly restrictive requirements on mutual funds that have investment
of section 3(21) of ERISA, who is or how SFA assets could be invested could profiles that are not materially riskier
seeks the advice of an experienced have significant adverse impacts on than fixed income-based investment
investor (such as an Investment Advisor overall plan financial health. For grade securities?
registered under section 203 of the instance, with interest rates on fixed (3) What is the appropriate amount of
Investment Advisor’s Act of 1940) income securities remaining at SFA assets that may be permitted to be
makes such a determination. historically extremely low levels, both invested in non-investment grade
For purposes of the regulation, SFA and other plan assets could be securities?
investment grade means publicly traded depleted and be unable to pay plan (4) What is the proper relationship to
securities for which the issuer has at benefits long before 2051. PBGC agrees restrictions on SFA asset investments to
least adequate capacity to meet the with such concerns. Because PBGC other plan asset allocations?
financial commitments under the thought it important for plans exploring Conditions for Special Financial
security for the projected life of the asset whether to apply for SFA to know what Assistance
or exposure. Adequate capacity means restrictions could be placed on
that the risk of default by the obligor is To ensure that SFA is used for the
investment of SFA funds, PBGC is
low and the full and timely repayment purpose of paying benefits and the
providing a starting point for discussion
of principal and interest on the security expenses related to those benefit
on permissible investments of SFA
is expected. These definitions are payments, section 4262(m)(1) of ERISA
assets in this interim final rule. With an
consistent with other Federal agency gives PBGC authority, in consultation
eye toward finding a more appropriate
regulations that make reference to with the Secretary of the Treasury, to
balance between certainty and safety of
investment grade securities in impose reasonable conditions on an
investments on the one hand, and the
compliance with Section 939A of the eligible multiemployer plan that
opportunity for plans to have flexibility
Dodd Frank Act of 2010.16 Further, the receives SFA. Conditions may relate to
to decide appropriate overall investment
requirement that securities be increases in future accrual rates and any
policies on the other, PBGC seeks public
considered investment grade by an retroactive benefit improvements,
input for refining § 4262.14. In
experienced investor acknowledges that allocation of plan assets, reductions in
particular, PBGC requests responses,
plans receiving SFA, and their advisors, employer contribution rates, diversion
with corresponding data, on the
have the requisite investment of contributions to, and allocation of
following:
knowledge and experience to make expenses to, other benefit plans, and
(1) PBGC is interested in
sound investment decisions. withdrawal liability. In determining
understanding the potential benefits and
Plans may be able to access fixed- what conditions to impose, in
risks of investing SFA assets in other
income securities from overseas so long consultation with the Treasury
vehicles that are or have the nature of
as the securities are denominated in Department, PBGC considered, among
fixed income. These might include
U.S. dollars. In practice, this would other things, the potential actions of
synthetic replications of fixed income
mean that such securities are accessible contributing employers and the security
securities, insurance contracts, hybrid
mainly within publicly traded markets. of the accrued benefits of plan
securities, preferred stock or other
To acknowledge that securities held participants. These considerations are
vehicles. In this regard, the following
in ETFs, mutual funds, other discussed in greater detail in the
questions are of interest:
commingled funds, or directly through • What are the advantages of regulatory impact analysis section of the
a portfolio of individual securities, often investing in such vehicles, relative to a rule.
are supplemented by derivatives that Under certain circumstances, a plan
portfolio of investment grade fixed
replicate exposure to physical bonds or sponsor may request approval from
income, in terms of expected returns,
that implement hedging strategies to PBGC for an exception to conditions
reduced risk or other improved
protect against downside risk, the relating to reductions in employer
outcomes?
regulation permits investment in contribution rates, transfers or mergers,
• What are the disadvantages of
vehicles allowing for such strategies so and settlement of withdrawal liability.
investing in such vehicles relative to a
long as any derivative or leveraging These exceptions are explained later in
portfolio of investment grade fixed
strategy does not increase the interest this section of the preamble. PBGC is
income, including lower returns, higher
rate risk or credit risk of the investments soliciting public comment on whether
risk, inequitable outcomes amongst
beyond the risk in a similar portfolio of there are other circumstances relating to
participants or other issues?
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physical securities (i.e., non-derivative the conditions described under
• What are the implementation and
securities) with the same market value. § 4262.16 where PBGC should consider
management costs of investing in such
Further, any notional derivative providing approval for exceptions.
vehicles?
exposure 17 on permissible investments (a) Benefit Increases
total value of a position, how much value a position
16 See, e.g., 12 CFR 16.2.
controls, or an agreed-upon amount in the contract.
Section 4262.16(b) imposes
17 Notional value is a term often used to value the Definition provided on ‘‘Investopedia’’ at https:// reasonable conditions on a plan that
underlying asset in a derivatives trade. It can be the www.investopedia.com/terms/n/notionalvalue.asp. receives SFA with respect to the types
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36610 Federal Register / Vol. 86, No. 130 / Monday, July 12, 2021 / Rules and Regulations
of benefits and benefit increases year (or until the date the plan is during the SFA coverage period, the
described in section 4022A(b)(1) of projected to become insolvent, if earlier) contributions required for each CBU
ERISA, without regard to the time the of projected benefit payments and must not be less than, and the definition
benefit or benefit increase has been in administrative expenses. of the CBUs must not be different from,
effect. These conditions are intended to By imposing investment constraints those set forth in collective bargaining
prevent excessive increases in benefits on SFA assets in section 4262(l) of agreements or plan documents in effect
that would result in a transfer of SFA ERISA and providing PBGC the on March 11, 2021 (including agreed to
beyond the payment of benefits at the authority to impose additional contribution rate increases through the
level that participants were promised as constraints on asset allocation in section expiration date of the collective
of the date of enactment of section 4262, 4262(m), the statute contemplates a bargaining agreements).
without being overly restrictive. The desire to prevent excessive risk-taking The regulation provides an exception
condition does not apply to the required by plans that receive SFA. PBGC views to this condition where the plan sponsor
reinstatement of benefits suspended the gradual increase in the proportion of determines that the risk of loss to plan
under sections 305(e)(9) or 4245(a) of assets allocated to fixed income as a participants and beneficiaries is
ERISA or any restoration of benefits plan approaches insolvency as a lessened by the reduction. Where the
under 26 CFR 1.432(e)(9)–1(e)(3). sensible and prudent approach to reduction affects annual contributions
The condition in § 4262.16(b)(1) investing over a gradually shortening over $10 million and over 10 percent of
restricts retrospective benefit increases time horizon. However, PBGC is all employer contributions, PBGC must
by providing that a benefit or benefit interested in whether this condition is also determine that the change lessens
increase must not be adopted during the seen as preventing plans from achieving the risk of loss to participants and
SFA coverage period (defined in reasonable investment objectives. PBGC beneficiaries. Information required to be
§ 4262.2 of the regulation) if it is in encourages interested parties to submitted to PBGC for a request for
whole or in part attributable to service respond, and provide supporting data, approval of a proposed changed is
accrued or other events occurring before to the following questions: described in § 4262.16(d)(2). The
the adoption date of the amendment. • Will the requirement to maintain 1 exception is intended, for example, to
This condition is needed because year (or until the date the plan is allow a contributing employer to reduce
retroactive increases in benefits harm projected to become insolvent, if earlier) contributions below collectively
the funded position of the plan without of benefit payments and administrative bargained rates so that the employer
improving expected future plan income. expenses in investment grade fixed may continue in business and not be
The condition in § 4262.16(b)(2) income assets result in an allocation forced to withdraw in conjunction with
restricts prospective benefit increases by that is significantly different from the a bankruptcy. This condition generally
providing that a benefit or benefit allocation that the plan’s investment is intended to prevent reductions in
increase must not be adopted during the policy (after receiving SFA) would contribution rates that may accelerate
SFA coverage period unless the plan otherwise attain? plan insolvencies, while providing
actuary certifies that employer • What are the advantages and limited flexibility for employers with
contribution increases projected to be disadvantages of PBGC not imposing extenuating financial circumstances.
sufficient to pay for the benefit increase any conditions under section 4262(m) of With respect to the allocation of
have been adopted or agreed to, ERISA on asset allocation compared to contributions and other practices during
provided that these increased the proposed condition requiring 1 year the SFA coverage period, § 4262.16(e)
contributions were not included in the (or until the date the plan is projected prohibits a decrease in the proportion of
determination of SFA. The plan sponsor to become insolvent, if earlier) of benefit income (contributions, investment
must demonstrate that a benefit increase payments and administrative expenses returns, etc.) or an increase in the
is paid for in the statement of in investment grade fixed income? proportion of expenses allocated to a
compliance described under • Could an alternative condition, or plan that receives SFA. This prohibition
§ 4262.16(i). This condition is intended modification of the condition under applies to written or oral agreements or
to guard against plans implementing § 4262.16(c), better achieve the objective practices (other than a written
significant benefit increases that may of preventing excessive risk-taking by agreement in existence on March 11,
accelerate plan insolvencies and hasten plans while allowing plans to meet their 2021, to the extent not subsequently
an inability to pay plan-level benefits. investment objectives? amended or modified) under which
However, plans still have the flexibility income or expenses are divided or to be
(c) Contribution Decreases, Allocating divided between a plan that receives
to offer active participants more
Contributions and Other Practices SFA and one or more other employee
attractive benefit accruals when the plan
is able to afford them. Section 4262.16(d) of the regulation benefit plans.
These conditions on benefit increases imposes reasonable conditions on a plan Among the practices covered by this
are in addition to the limitations under that receives SFA relating to prohibition is any allocation or
section 305(f)(1)(B) of ERISA (and contribution decreases to ensure that reallocation of contribution rates from
corresponding section 432(f)(1)(B) of the SFA is used for the exclusive purpose the plan receiving SFA to a newly
Code) applicable to plans in critical of paying benefits and reasonable formed pension plan. Similarly, plan
status. administrative expenses and is not expenses can be paid by a plan only if
effectively transferred to contributing they are properly allocable to that plan.
(b) Allocation of Plan Assets employers through decreased Accordingly, another prohibited
Section 4262.16(c) imposes a contribution obligations. Similarly, practice is a change in the allocation of
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condition on a plan that receives SFA § 4262.16(e) imposes reasonable expenses with other benefit plans that
relating to the allocation of plan assets. conditions relating to allocation of serves to increase the proportion of
This condition requires that, during the income or expenses with another expenses to be paid by the plan
SFA coverage period, plan assets, employee benefit plan and other receiving SFA.
including SFA, must be invested in practices. However, the prohibition under
permissible investments as described in For the condition on contribution § 4262.16(e) does not apply to a good
§ 4262.14 sufficient to pay for at least 1 decreases, § 4262.16(d) provides that faith allocation of contributions
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Federal Register / Vol. 86, No. 130 / Monday, July 12, 2021 / Rules and Regulations 36611
pursuant to a reciprocity agreement. (If accrue benefits under another existing employer’s obligation to pay for
the principal purpose of entering into, or newly formed plan. unfunded vested benefits. Doing so is
amending, or modifying a reciprocity particularly important for plans that
(e) Withdrawal Liability
agreement after March 11, 2021, is to have developed an adverse demographic
circumvent § 4262.16(e), any allocation Under sections 4201 through 4225 of structure, with a small contribution base
made pursuant to such reciprocity ERISA, when a contributing employer relative to their unfunded vested
agreement will not be considered as withdraws from an underfunded benefits, which is the condition of many
made in good faith.) The prohibition multiemployer plan, the plan sponsor of the plans that are or will become
also does not apply to a good faith assesses withdrawal liability against the eligible for SFA.
allocation of contributions where the employer. Withdrawal liability The prescribed interest assumptions
contributions to a plan that receives represents a withdrawing employer’s must be used until the later of 10 years
SFA required for each base unit are not proportionate share of the plan’s after the end of the plan year in which
reduced (except if the reduction is unfunded benefit obligations and is an the plan receives payment of SFA or the
approved by PBGC). It also does not important source of income for the plan. last day of the plan year in which the
apply to a good faith allocation of the To assess withdrawal liability, the plan plan no longer holds SFA or any
costs of securing shared space, goods, or sponsor must determine the earnings thereon in a segregated
services, where such allocation does not withdrawing employer’s (1) allocable account. The minimum 10-year period
constitute a prohibited transaction share of the plan’s unfunded vested for using these required assumptions is
under ERISA or is otherwise exempt benefits (the value of nonforfeitable similar to the time period for the special
from the prohibited transaction benefits that exceeds the value of plan withdrawal liability rules for benefit
provisions pursuant to section 408(b)(2), assets) as of the end of the plan year suspensions under MPRA.
408(c)(2), or 408(a) of ERISA, or of the before the employer’s withdrawal as PBGC determined that these are
actual cost of services provided to the provided under section 4211, and (2) reasonable conditions because SFA does
plan by an unrelated third party. As annual withdrawal liability payment as not result from employer contributions,
with the other conditions under provided under section 4219. Under and, without such conditions, the
§ 4262.16, the condition under section 4219(c)(1), an employer’s receipt of SFA could substantially
§ 4262.16(e) is intended to ensure that withdrawal liability may be reduced if reduce withdrawal liability owed by a
plans receiving SFA do not engage in the period required to amortize the withdrawing employer. That could
liability exceeds 20 years. cause more withdrawals in the near
transactions that may accelerate plan
To preserve SFA for the payment of future than if the plan did not receive
insolvency.
benefits and expenses and avoid an SFA, which would reduce plan income
(d) Transfers or Mergers indirect transfer of SFA to a and be an additional burden for these
withdrawing employer by reducing the plans. Congress specified in section
Section 4262.16(f) provides that employer’s withdrawal liability, in 4262 of ERISA that SFA and earnings
during the SFA coverage period, a plan § 4262.16 PBGC uses its authority under thereon may be used by a plan to make
must not engage in a transfer of assets section 4262(m) of ERISA to place benefit payments and pay plan
or liabilities (including a spinoff) or reasonable conditions relating to expenses. Payment of SFA was not
merger except with PBGC’s approval. withdrawal liability on a plan that intended to reduce withdrawal liability
Notwithstanding anything to the receives SFA. PBGC determined that a or to make it easier for employers to
contrary in PBGC’s regulation on reasonable condition on a plan that withdraw.
mergers and transfers between receives SFA is to require specified In addition, under § 4262.16(h) any
multiemployer plans (29 CFR part interest assumptions to be used for settlement of withdrawal liability
4231), the plans involved in the purposes of determining withdrawal during the SFA coverage period must be
transaction must request approval from liability.18 made only with PBGC approval if the
PBGC. A request for approval must Under § 4262.16(g), for withdrawals present value of the liability settled is
contain information that would be that occur after the plan year in which greater than $50 million (calculated as
required to be submitted under the plan receives SFA, the interest described under § 4262.16(h)(1)).
§ 4231.10 and the additional actuarial assumptions used in determining Approval ensures that any negotiated
and financial information described in unfunded vested benefits for purposes settlements of material size are in the
§ 4262.16(f)(2). PBGC will approve a of determining withdrawal liability best interests of the participants in the
proposed transfer or merger if: (1) The must be mass withdrawal interest plan, and do not create an unreasonable
transaction complies with section assumptions under § 4281.13(a) of risk of loss to PBGC. The information
4231(a)–(d) of ERISA, (2) the transfer or PBGC’s regulation on Duties of Plan required to be submitted for a request
merger, or the larger transaction of Sponsor Following Mass Withdrawal for approval of a proposed withdrawal
which the transfer or merger is a part, (29 CFR part 4281). PBGC’s interest liability settlement is under
does not unreasonably increase PBGC’s assumptions used for mass withdrawal § 4262.16(h)(3).
risk of loss respecting any plan involved liability approximate the market price
in the transaction, and (3) the transfer or insurance companies charge to assume (f) Reporting and Audit
merger is not reasonably expected to be a pension-benefit-like liability. Using In order to monitor compliance with
adverse to the overall interests of the mass withdrawal interest assumptions the conditions imposed on plans that
participants and beneficiaries of any of for purposes of calculating withdrawal receive SFA, PBGC requires under
the plans involved in the transaction. liability is reasonable because § 4262.16(i) that plan sponsors file with
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An example of a larger transaction is withdrawal liability is the final PBGC each plan year, beginning with
where the trustees of a plan receiving settlement of the withdrawing the plan year after the payment of SFA
SFA arrange a transfer of assets and and through the last day of the last plan
18 PBGC intends to propose a separate rule of
liabilities from the plan and amend the year ending in 2051, a statement of
general applicability under section 4213(a) of
plan to substantially or completely end ERISA to prescribe actuarial assumptions which
compliance with the terms and
benefit accruals in connection with the may be used by a plan actuary in determining an conditions of SFA. The statement must
plan’s active participants beginning to employer’s withdrawal liability. be filed with PBGC no later than 90 days
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36612 Federal Register / Vol. 86, No. 130 / Monday, July 12, 2021 / Rules and Regulations
after the end of the plan year and in reinstatement and make-up payments, section 4245 of ERISA will be subject to
accordance with the statement of taking into account any restoration of the rules and guarantee for insolvent
compliance instructions on PBGC’s benefits under 26 CFR 1.432(e)(9)– plans in effect when the plan becomes
website at www.pbgc.gov. 1(e)(3), and know when to expect the insolvent.
PBGC may conduct periodic audits of reinstatement and make-up payments. • A plan that receives SFA is not
plans that have received SFA to review The notice also informs participants and eligible to apply for a suspension of
compliance with the terms and beneficiaries how to contact the benefits under section 305(e)(9) of
conditions of the SFA program. Department of Labor if they need ERISA.
Reinstatement of Benefits Previously assistance in understanding their rights Section 4262.17 also provides that a
Suspended under the reinstatement process. The plan that receives SFA and meets the
Department has advised that if eligibility requirements for partition of
Section 4262(k) of ERISA imposes two participants and beneficiaries better the plan under section 4233(b) of ERISA
conditions on a plan that receives SFA understand the benefits they will be may apply for partition under section
and previously suspended benefits in receiving as a result of the plan 4233. One of those requirements, in
accordance with sections 305(e)(9) or receiving SFA, it will help the section 4233(b)(2), provides that a
4245(a) of ERISA. A plan must reinstate Department meet its obligations under multiemployer plan is eligible for
any benefits that were suspended and section 4262(k) of ERISA to ensure that partition if ‘‘the corporation determines,
must provide payments to certain suspended benefits are reinstated and after consultation with the Participant
participants or beneficiaries to make up make-up payments made. and Plan Sponsor Advocate . . ., that
past amounts of benefits previously Section 4262(k) of ERISA states that the plan sponsor has taken (or is taking
suspended. ‘‘the Secretary, in coordination with the concurrently with an application for
As provided under section 4262(k) of Secretary of the Treasury, shall ensure partition) all reasonable measures to
ERISA,19 § 4262.15 requires plans to that an eligible multiemployer plan that avoid insolvency, including the
reinstate these previously suspended receives special financial assistance’’ maximum benefit suspensions under
benefits as of the month in which SFA reinstates suspended benefits and section 305(e)(9), if applicable[.]’’
is paid, and to provide make-up provides make-up payments required by Section 4262(m)(6) provides that a plan
payments with respect to the previously the statute. The Department of Labor that receives SFA is not eligible to apply
suspended benefits, in accordance with notes that it will need access to, and if for a subsequent suspension of benefits
guidance issued by the Treasury requested, copies of records to ensure under MPRA. Therefore, for a plan that
Department and the IRS. This guidance that plans receiving SFA reinstate the has received SFA, a suspension of
has been issued as Notice 2021–38. suspended benefits of participants and benefits under section 305(e)(9) is not
Section 4262(k) and § 4262.15 give the beneficiaries as required by section ‘‘applicable’’ within the meaning of
plan sponsor flexibility to design 4262(k). Plan fiduciaries have an section 4233(b)(2) and is not a
payment of make-up amounts as a single obligation under title I of ERISA to reasonable measure available to the
lump sum within 3 months of the maintain complete and accurate records, plan.
payment date of SFA, or in equal including information the Department Finally, § 4262.17 includes a
monthly installments over a period of 5 may need to ensure the timely severability provision that provides that
years, commencing within 3 months of reinstatement of suspended benefits and if any of the provisions of this interim
the payment date, with no installment payment of make-up payments under final rule are found to be invalid or
payment adjusted for interest. section 4262(k) of ERISA. The stayed pending further agency action,
The plan sponsor of a plan with Department has advised that a plan’s the remaining portions of the rule
benefits that were suspended under failure to maintain adequate and would remain operative.
section 305(e)(9) or 4245(a) of ERISA is complete records could result in
required in § 4262.15(c) to furnish a violations of sections 107, 209, and 404 Compliance With Rulemaking
notice of reinstatement to participants of ERISA. The Department is Guidelines
and beneficiaries whose benefits were considering issuing guidance to address Administrative Procedure Act
previously suspended and then the records and information that plans
reinstated in accordance with section The Administrative Procedure Act at
receiving SFA will need to maintain and
4262(k) of ERISA. The requirements for 5 U.S.C. 553(b) provides that notice and
retain to comply with title I of ERISA.
the notice, including content comment requirements do not apply
requirements, are in notice of Other Provisions when an agency, for good cause, finds
reinstatement instructions, in an Section 4262 of ERISA contains other that they are impracticable,
addendum to the SFA application provisions that apply to SFA and plans unnecessary, or contrary to the public
instructions, available on PBGC’s receiving SFA. These provisions are interest. An exception is also provided
website at www.pbgc.gov. enumerated under § 4262.17 of the at 5 U.S.C. 553(d)(3) to the requirement
PBGC is providing for this notice of regulation: of a 30-day delay before the effective
reinstatement so that participants and • SFA must not be capped by the date of a rule ‘‘for good cause found and
beneficiaries are adequately informed guarantee under section 4022A of published with the rule.’’ Section 9704
about the amount (and calculation) of ERISA. of the American Rescue Plan (ARP) Act
• A plan receiving SFA is required to of 2021 set up a ‘‘Special Financial
19 Section 4262(k) of ERISA contains rules that
continue to pay premiums due under Assistance Program for Financially
are parallel to section 432(k) of the Code. Under Troubled Multiemployer Plans.’’ PBGC
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section 9704(d)(3) of ARP, the Secretary of the
section 4007 of ERISA for participants
Treasury has interpretive jurisdiction over the rules and beneficiaries in the plan. is issuing this rule without advance
for determining the benefit reinstatement and make- • A plan that receives SFA is deemed notice and public comment as an
up payments that must be made by a multiemployer to be in critical status within the interim final rule to allow for immediate
plan receiving SFA, for purposes of ERISA as well meaning of section 305(b)(2) of ERISA implementation of this program.
as the Code. Under section 4262(k), the Secretary
of Labor, in coordination with Secretary of the until the last plan year ending in 2051. Under new section 4262(c) of ERISA,
Treasury, must ensure benefits are reinstated and • A plan that receives SFA and PBGC is mandated to issue regulations
previously suspended benefits paid. subsequently becomes insolvent under or guidance setting forth the
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Federal Register / Vol. 86, No. 130 / Monday, July 12, 2021 / Rules and Regulations 36613
requirements for eligible plans to apply PBGC has determined that prior notice interim final rule effective on July 12,
for special financial assistance (SFA) and comment through the issuance of a 2021. PBGC does not want to unduly
within a short 120 days of the date of notice of proposed rulemaking is delay providing financial assistance to
enactment of ARP (March 11, 2021). impracticable and that the public plans.
Moreover, PBGC must review interest is best served by issuing this
Regulatory Impact Analysis
applications within only 120 days of interim final rule. Further, prior notice
filing and plans must apply by the and comment is impracticable within (1) Relevant Executive Orders for
statutory cutoff date of December 31, the challenging statutory deadline under Regulatory Impact Analysis
2025 (December 31, 2026, for revised which PBGC must issue regulations to Under Executive Order (E.O.) 12866,
applications). The compressed timeline set forth requirements for special OMB reviews any regulation determined
for issuing rules, applying for financial assistance applications, and to be a ‘‘significant regulatory action.’’
assistance, and processing applications within the limited statutory timeframe Section 3(f) of E.O. 12866 defines a
expresses a clear urgency to get (already begun) in which PBGC has to ‘‘significant regulatory action’’ as an
appropriate assistance to eligible plans prioritize the filing of applications of action that is likely to result in a rule
as quickly as possible. plans with the most urgent need for that: (1) Has an annual effect on the
Underscoring that urgency, Congress assistance. However, PBGC is requesting economy of $100 million or more, or
authorized PBGC to prioritize the filing comments at the time this interim final
adversely affects in a material way a
of applications for eligible plans with rule is issued and may include changes
sector of the economy, productivity,
the greatest need, but only during the in a final rule in response to those
first 2 years after March 11, 2021. competition, jobs, the environment,
comments. For the same reasons
Recognizing that need, PBGC in this public health or safety, or State, local or
discussed earlier, pursuant to 5 U.S.C.
interim final rule is prioritizing tribal governments or communities (also
553(d)(3), PBGC is making this rule
applications of plans, including soon-to- referred to as economically significant);
effective on July 12, 2021.
be insolvent plans and already insolvent (2) creates serious inconsistency or
plans that previously suspended Congressional Review Act otherwise interferes with an action
benefits of participants and Pursuant to Subtitle E of the Small taken or planned by another agency; (3)
beneficiaries—benefits that must be Business Regulatory Enforcement materially alters the budgetary impacts
reinstated and restored through make- Fairness Act of 1996 (also known as the of entitlement grants, user fees, or loan
up payments as a requirement of Congressional Review Act or CRA) (5 programs, or the rights and obligations
receiving SFA. Any delay of the U.S.C. 801 et seq.), the Office of of recipients thereof; or (4) raises novel
effective date of the rule would be Management and Budget (OMB) has legal or policy issues arising out of legal
contrary to the financial interests of the designated this interim final rule as a mandates, the President’s priorities, or
participants and beneficiaries in these ‘‘major rule,’’ as defined by 5 U.S.C. the principles set forth in the E.O.
plans. If financial assistance is delayed 804(2)(a), which is a rule likely to result OMB has determined that this interim
and plans become insolvent, benefits for in an annual effect on the economy of final rule is economically significant
participants and beneficiaries will be $100 million or more. Section 808(2) of under section 3(f)(1) and has therefore
reduced. For plans already insolvent the CRA provides that, notwithstanding reviewed this rule under E.O. 12866.
with participant benefits that were the effective date of a major rule defined E.O. 13563 supplements and reaffirms
already reduced, any delay will result in under section 801, any rule which an the principles, structures, and
participants and beneficiaries having to agency for good cause finds that notice definitions governing contemporary
wait longer to have their benefits and public procedure thereon are regulatory review that were established
reinstated and to receive their make-up impracticable, unnecessary, or contrary in E.O. 12866, emphasizing the
payments. to the public interest, shall take effect at importance of quantifying both costs
Furthermore, the interim final rule such time as the Federal agency and benefits, reducing costs,
imposes reasonable conditions on promulgating the rule determines. This harmonizing rules, and promoting
eligible plans that receive SFA, as good cause justification supports waiver flexibility. It directs agencies to assess
permitted under section 4262(m)(1) of of the 60-day delayed effective date for the costs and benefits of available
ERISA. PBGC finds good cause for major rules under the CRA. regulatory alternatives and, if regulation
making the conditions provided in the As discussed earlier, because of the is necessary, to select regulatory
rule effective simultaneously with the urgent need for the SFA program, PBGC approaches that maximize net benefits
application requirements. Plan sponsors has determined that this interim final (including potential economic,
need to know, before applying for SFA, rule must take effect on the date of environmental, and public health and
what conditions will be imposed on the publication. This immediate effective safety effects, distributive impacts, and
plan. The conditions may affect a plan date is necessary based on the mandate equity).
sponsor’s decision to apply for SFA or of section 4262(c) of ERISA to issue PBGC has provided an assessment of
its determination of the amount of SFA. regulations or guidance setting forth the the potential benefits, costs, and
For example, the condition on requirements for SFA applications transfers associated with this interim
withdrawal liability may affect the within 120 days of the date of final rule.
assumptions used to determine the enactment of ARP. This short statutory
deadline is to allow eligible plans, (2) Introduction and Need for
amount of SFA in the plan’s
particularly plans that are close to Regulation
application. The conditions in the
interim final rule are integral to the insolvency or already insolvent, to begin As discussed earlier in the preamble,
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application requirements and decisions applying for much needed financial section 9704 of the American Rescue
being made by plan sponsors, and, assistance. Under the circumstances, Plan (ARP) Act of 2021, ‘‘Special
therefore, should be effective without PBGC has determined that prior notice Financial Assistance Program for
delay. and comment through the issuance of a Financially Troubled Multiemployer
Accordingly, because of the urgent notice of proposed rulemaking is Plans,’’ establishes a new section 4262
need to get financial assistance to impracticable and that the public of ERISA. To implement section 4262,
eligible plans as quickly as possible, interest is best served by making this this interim final rule adds to PBGC’s
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36614 Federal Register / Vol. 86, No. 130 / Monday, July 12, 2021 / Rules and Regulations
regulations a new part 4262 (Special or actions that could reduce future plan unless the plan actuary certifies that
Financial Assistance by PBGC). It is income, such as reductions to employer contribution increases
through this program that PBGC will contribution rates or employer projected to be sufficient to pay for the
provide special financial assistance withdrawals. Each of these actions has benefit increase have been adopted or
(SFA) to eligible multiemployer pension the potential to accelerate plan agreed to, and provided that such
plans from a fund established by ARP 20 insolvencies, which would bring about increased contributions were not
for SFA purposes and credited with participant benefit cuts and increased included in the determination of SFA.
transfers from the general fund of the future claims to PBGC’s multiemployer Plans in critical status are already
Treasury Department. insurance program that may impair subject to constraints on increasing
Before the enactment of ARP on PBGC’s ability to pay financial future benefit accrual levels. Under
March 11, 2021, the Congressional assistance under section 4261. section 305(f)(1) of ERISA, they must be
Budget Office (CBO) projected the SFA able to fund any benefit improvements
(3) Regulatory Action using contributions that are not already
program under section 4262 of ERISA to
pay approximately $86 billion in total PBGC strives to implement the SFA contemplated within their rehabilitation
assistance to on average (across model program established under this interim plans.
simulations) 185 plans.21 PBGC has final rule in a manner that is consistent The interim final rule similarly would
estimated the transfer amounts of the with the following key objectives: (1) To prohibit plans from implementing
SFA program using ME–PIMS, PBGC’s transfer to a plan the amount required significant benefit increases that likely
stochastic modeling tool, and projects under section 4262 of ERISA as soon as could accelerate insolvencies after
the aggregate SFA to be approximately practicable; (2) to prioritize the receiving taxpayer-funded assistance.
$94 billion in assistance payments to applications of plans in imminent need However, it is evident that attracting
more than 200 plans and $150 million of financial support and where and retaining active members to these
to PBGC to administer the SFA program. participants’ suspended benefits are to financially troubled plans is critical to
PBGC further estimates that plans that be restored; (3) to establish an efficient ensuring that the plans retain
received financial assistance from PBGC system for processing applications; and contribution income levels sufficient to
under section 4261 of ERISA in the form (4) to ensure prudent stewardship of sustain plan assets. Accordingly, the
of loans will repay PBGC in aggregate taxpayer-funded appropriations for interim final rule allows plans to
approximately $200 million. SFA, including the prevention of waste, provide benefit increases when these
SFA is expected to assist plans fraud, and abuse in the SFA program. increases can be paid for by additional
Section 4262(m) of ERISA gives PBGC employer contributions. The condition
covering more than 3 million
authority, in consultation with the also does not apply to the required
participants, including by providing
Secretary of the Treasury, to impose reinstatement of benefits suspended
funds for make-up payments to restore
reasonable conditions on an eligible under section 305(e)(9) or 4245(a) of
previously suspended benefits that total
multiemployer plan that receives SFA ERISA or to any restoration of benefits
approximately $150 million for
relating to increases in future accrual under 26 CFR 1.432(e)(9)–1(e)(3).
currently insolvent plans and
rates and any retroactive benefit
approximately $550 million for plans Conditions Related to Retroactive
improvements, allocation of plan assets,
that have adopted approved benefit Benefit Improvements
reductions in employer contribution
suspensions under MPRA. Based on the The interim final rule provides that,
rates, the allocation of contributions and
average of 500 stochastic model during the SFA coverage period, plans
other practices, and withdrawal
simulations, ME–PIMS projects that that receive SFA are strictly prohibited
liability. In determining what
over 100 plans that would have from adopting an amendment to provide
conditions to impose, in consultation
otherwise become insolvent during the any retroactive benefit improvements.
with the Treasury Department, PBGC
next 15 years will instead forestall Unlike increases to the level of future
evaluated the regulatory alternatives
insolvency as a direct result of receiving accruals, which incentivize active
under section 4262(m) to set conditions
SFA. members to participate in the plan and
based on the following objectives: (1)
Section 4262(m) of ERISA provides can thereby improve the expected
Meeting the goals of ARP in providing
PBGC with specific regulatory authority contribution income, increases to
for the SFA program; (2) stewardship of
(in consultation with the Secretary of retroactive benefit levels harm the
taxpayer-funded appropriations for
the Treasury) to impose reasonable funded position of the plan without
SFA; (3) maintaining the security of the
conditions on eligible multiemployer improving expected future plan income.
accrued pension benefits (current and
plans that receive SFA (see Conditions
future accruals) of participants in plans Conditions Related to Allocation of Plan
for special financial assistance earlier in
that receive SFA; and (4) preservation of Assets
the preamble). Absent the imposition of
the solvency of the PBGC
any conditions, there would be a The interim final rule provides that,
multiemployer insurance program.
potential for employers and plan The regulatory action and related during the SFA coverage period, plans
sponsors to take actions that could economic considerations for each must hold a sufficient portion of total
impair the financial health of their plans condition are described as follows. plan assets, which includes all
and thereby jeopardize the retirement segregated accounts (including SFA), in
security of plan participants and PBGC’s Conditions Related to Future Benefit permissible investments (described in
multiemployer insurance program. Accruals § 4262.14) to meet expected plan benefit
Examples include actions that will The interim final rule provides that, payments and administrative expenses
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increase plan obligations, such as during the SFA coverage period for at least 1 year (or until the date the
amendments to increase benefit levels, (beginning on the plan’s SFA plan is projected to become insolvent, if
measurement date through the last day earlier). This requirement is in addition
20 Specifically, section 9704 of ARP establishes an
of the last plan year ending in 2051), to the restrictions on investments under
eighth fund under section 4005 of ERISA.
21 Congressional Budget Office Cost Estimate, plans that receive SFA can only accept § 4262.14. For plans with a large
February 17, 2021, https://www.cbo.gov/system/ a collective bargaining agreement (CBA) proportion of plan assets as SFA, this
files/2021-02/hwaysandmeansreconciliation.pdf. that increases future benefit accruals additional condition is not likely to
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Federal Register / Vol. 86, No. 130 / Monday, July 12, 2021 / Rules and Regulations 36615
result in any additional restrictions on investment returns, etc.) or an increase risk of loss respecting any plan involved
asset allocation until the plan’s SFA in the proportion of expenses allocated in the transaction and (3) the transfer or
account is depleted. to a plan that receives SFA is merger is not reasonably expected to be
The interim final rule provides plans prohibited. This prohibition applies to adverse to the overall interests of the
that receive SFA with the opportunity to written or oral agreements or practices participants and beneficiaries of any of
invest in a portfolio that can benefit (other than a written agreement in the plans involved in the transaction.
from risk and illiquidity premiums over existence on March 11, 2021, to the This condition is to ensure that plans
the long-term investment horizon. This extent not subsequently amended or that receive taxpayer-funded assistance
flexibility to invest in other assets is modified) under which income or do not subsequently engage in
likely to extend the solvency of these expenses are divided or to be divided transactions that may allocate
plans, and the limit on that flexibility between a plan that receives SFA and contributions away from the plan in a
will only constrain plans that would one or more other employee benefit manner that is projected to accelerate
otherwise accept an inappropriate level plans. However, the prohibition does insolvency.
of risk after receiving taxpayer not apply to a good faith allocation of
assistance. contributions pursuant to a reciprocity Conditions Related to Withdrawal
agreement. (If the principal purpose of Liability
Conditions Related to Reductions in
Employer Contribution Rates entering into, amending, or modifying a Under the interim final rule, a plan
reciprocity agreement after March 11, must use the interest assumptions under
The interim final rule provides that, 2021, is to circumvent this condition, § 4281.13(a) to determine withdrawal
during the SFA coverage period, the any allocation made pursuant to such liability beginning for withdrawals after
contributions required for each CBU reciprocity agreement will not be the plan year in which the plan receives
must not be less than, and the definition considered as made in good faith.) The SFA. This condition continues to apply
of the CBUs used must not be different
prohibition also does not apply to a until the later of 10 years after the end
from, those set forth in the CBA or plan
good faith allocation of contributions of the plan year in which the plan
documents (including agreed to
where the contributions to a plan that receives payment of SFA or the last day
contribution increases to the end of the
receives SFA required for each base unit of the plan year in which the segregated
collective bargaining agreements) in
are not reduced (except if the reduction SFA asset account is fully depleted.
effect on March 11, 2021. However, an
is approved by PBGC). It also does not The interim final rule also provides
exception is provided where a plan
apply to a good faith allocation of the that, during the SFA coverage period,
sponsor determines that the risk of loss
costs of securing shared space, goods, or plans that receive SFA cannot enter into
to plan participants and beneficiaries is
services, where such allocation does not a negotiated settlement agreement with
lessened by the reduction. Where the
reduction affects annual contributions constitute a prohibited transaction a withdrawing employer that is in
over $10 million and over 10 percent of under ERISA or is otherwise exempt excess of $50 million without first
all employer contributions, the plan from the prohibited transaction obtaining approval from PBGC. It is
sponsor must request approval from provisions pursuant to section 408(b)(2), important to ensure that any negotiated
PBGC, which must also determine that 408(c)(2), or 408(a) of ERISA, or of the settlements of material size are not
the change lessens the risk of loss to actual cost of services provided to the projected to be harmful to participants
participants and beneficiaries. Plans in plan by an unrelated third party. in the plan or harmful to PBGC’s
critical status are already subject to This condition is to ensure that plans multiemployer insurance program.
constraints on reducing future do not inappropriately reallocate The interim final rule would prevent
contribution rates and must abide by the contributions away from the plan to the payment of SFA from resulting in
terms of their rehabilitation plans. The other benefit programs or decreases in withdrawal liability
interim final rule is intended to broadly inappropriately reallocate expenses assessments and thereby reduce the
prevent reductions in contribution rates from other benefit programs to the plan. incentive for employers to withdraw
that may accelerate the future In addition, during the SFA coverage from these plans. The purpose of SFA
insolvencies of plans, while still period, a plan receiving SFA must not is to help plans pay for benefits and
providing very limited flexibility for engage in a transfer of assets or plan expenses and not to indirectly
employers with extenuating financial liabilities (including a spinoff) or merger subsidize employers to exit these plans.
circumstances. except with PBGC’s approval. PBGC
(4) Estimated Impact of Regulatory
will approve a proposed transfer or
Conditions Related to the Allocation of Action
merger if: (1) The transaction complies
Contributions and Other Practices with section 4231(a)–(d), (2) the transfer The following table summarizes the
Under the interim final rule, during or merger, or the larger transaction of estimated transfers and costs expected
the SFA coverage period, a decrease in which the transfer or merger is a part, as a result of implementation of the SFA
the proportion of income (contributions, does not unreasonably increase PBGC’s program.
PV amount PV amount 2027–2051
2021 2022 2023 2024 2025 2026
(3% rate) (7% rate) (Total) 22
Annual Transfer Amounts
SFA payments to plans $86.35 bil- $77.33 bil- $1.46 billion $43.68 bil- $23.03 bil- $13.32 bil- $8.89 billion $3.33 billion $0.47 billion.
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(total nominal value of lion. lion. lion. lion. lion.
$94.2 billion). I I I I I I
22 SFA payments to plans are expected to be $474 million in 2030. Additional PBGC expenses are expected to be $726,800 per year from 2027 through
million in 2027 and $0 thereafter. PBGC expected to be incurred from 2031 through 2051, 2051. Condition exemption filings are expected to
administrative expenses are expected to be $14 but would not be funded through general be $19,600 per year from 2027 through 2051.
million per year from 2027 through 2029 and $10.5 appropriations. Annual compliance filings are
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36616 Federal Register / Vol. 86, No. 130 / Monday, July 12, 2021 / Rules and Regulations
PV amount PV amount 2027–2051
2021 2022 2023 2024 2025 2026
(3% rate) (7% rate) (Total) 22
Financial assistance loan ($194.17) ($186.92) ($200.00) $0 ............... $0 ............... $0 ............... $0 ............... $0 ............... $0.
repayment to PBGC million. million. million.
(total nominal value of
$200 million).
Total transfer $86.16 bil- $77.14 bil- $1.26 billion $43.68 bil- $23.03 bil- $13.32 bil- $8.89 billion $3.33 billion $0.47 billion.
amounts (total lion. lion. lion. lion. lion.
nominal value of
$94.0 billion).
Annual Cost Amounts
PBGC administrative ex- $129.57 mil- $108.41 mil- $20.50 mil- $17.50 mil- $15.75 mil- $15.00 mil- $14.75 mil- $14.00 mil- $52.50 mil-
penses (total nominal lion. lion. lion. lion. lion. lion. lion. lion. lion.
value of $150 million).
SFA applications ............... $8,091,600 $7,232,400 $1,199,300 $2,121,800 $2,183,300 $1,998,800 $1,260,800 $78,800 ...... $0.
Benefit reinstatement par- $69,900 ...... $66,000 ...... $34,400 ...... $38,700 ...... $0 ............... $0 ............... $0 ............... $0 ............... $0.
ticipant notices.
Annual compliance filings $12,495,000 $7,231,200 $0 ............... $99,500 ...... $275,400 .... $456,500 .... $622,200 .... $726,800 .... $18,168,750.
Condition exemption filings $354,000 .... $209,900 .... $0 ............... $0 ............... $19,600 ...... $19,600 ...... $19,600 ...... $19,600 ...... $489,250.
Total cost amounts .... $150.58 mil- $123.15 mil- $21.73 mil- $19.76 mil- $18.23 mil- $17.47 mil- $16.65 mil- $14.83 mil- $71.16 mil-
lion. lion. lion. lion. lion. lion. lion. lion. lion.
Filing and Issuance Requirements 305(e)(9) or 4245(a) of ERISA must issue section 4262(m)(1) of ERISA. The
As discussed in this interim final rule, a notice of reinstatement to participants estimated results were produced by
to request SFA for a multiemployer and beneficiaries whose benefits were ME–PIMS, PBGC’s stochastic modeling
plan, a plan sponsor must, under previously suspended and then tool used to project the future solvency
section 4262 of ERISA and part 4262, reinstated. PBGC estimates that over the and potential financial assistance under
file an application with PBGC. The next 3 years (2021–2023) an average of section 4261 for each plan in the U.S.
applications for SFA must include 11.33 plans annually (34 total plans) multiemployer pension plan system.23
information about the plan, plan will issue the notice of reinstatement to The level of complexity and the lack of
documentation, and actuarial an average of 3,050 participants and availability of complete plan-level data
information. The information is beneficiaries at an aggregate average needed to program the specifications
necessary for PBGC to verify a plan’s annual cost of $24,367. under the range of alternative regulatory
eligibility for SFA, amount of requested A plan sponsor that receives SFA also actions under section 4262(m) are
SFA, and if applicable, inclusion in a is required to administer the plan in barriers to producing precise financial
priority group. In addition, under part accordance with conditions prescribed estimates for each potential action.
4262, a plan that has received SFA is by PBGC in § 4262.16. A plan sponsor Instead, PBGC conducted a single
required to file a compliance notice may request approval from PBGC for an benchmark scenario for each regulatory
with PBGC once every year until 2051. exception under certain circumstances condition that illustrates the order-of-
As discussed further in the Paperwork for conditions relating to reductions in magnitude financial impact.
Reduction Act section, the estimated contributions, transfers or mergers, and
settlement of withdrawal liability. PBGC The baseline assumptions represent
average cost (dollar equivalent of the in-
expects these determination requests to PBGC’s best-estimate assumptions for
house hour burden + contractor costs) to
prepare the one-time application to be infrequent. PBGC estimates that it determining the aggregate amounts of
PBGC is $30,750, and the estimated will receive an average of 2.2 requests SFA under section 4262 of ERISA and
average cost to prepare the annual per year beginning in 2023 at a cost of financial assistance under section 4261
statement of compliance is $2,550. $19,570 per year (averaged over 2021– based on employer and plan behavior
PBGC estimates that over the next 3 2023 = $6,523). that remains consistent before and
years (2021–2023) it will receive Over the next 3 years (2021–2023), the following the distribution of SFA. The
annually an average of 60 applications total average annual cost for the benchmark scenario assumptions
for SFA at an aggregate average annual information collection is $2,000,840 represent a single scenario that was
cost of $1,845,000 and 49 annual ($1,845,000 + $124,950 + $24,367 + used to estimate each alternative
statements of compliance at an aggregate $6,523). regulatory action that was considered.
average annual cost of $124,950.
Conditions for Plans That Receive SFA
In addition, certain plan sponsors that 23 The following web page on PBGC’s website
receive SFA are subject to participant The following table provides provides more detailed information about PBGC’s
Multiemployer Program Pension Insurance
disclosure and reporting requirements. estimated financial impacts under a Modeling System (ME–PIMS): https://
A plan sponsor of a plan with benefits benchmark scenario analysis for each of www.pbgc.gov/about/projections-report/pension-
that were suspended under sections the 6 areas for conditions listed under insurance-modeling-system.
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Federal Register / Vol. 86, No. 130 / Monday, July 12, 2021 / Rules and Regulations 36617
Benchmark scenario
Regulatory condition Baseline assumption Estimated benchmark impact * Comments
assumption
Future Benefit Accru- No assumed accrual increases An immediate 10% increase in $5 billion to $8 billion in section Plans are already constrained on in-
als. future accruals followed by 4261 Financial Assistance creasing accrual levels based on
annual increases based on (estimated through 2070). rehabilitation plan requirements.
assumed wage index in- The estimated impact is primarily
creases (no corresponding due to accelerated plan insolven-
contribution rate increases). cies. Most increases to benefit ac-
crual rates would not be covered
under PBGC guaranteed benefit
limits.
Retroactive Benefit No assumed accrual increases A one-time 10% increase in ret- $7 billion to $10 billion in sec- Plans are already constrained on in-
Accruals. roactive accrued benefits for tion 4261 Financial Assist- creasing benefit levels based on re-
all active participants in- ance (estimated through habilitation plan requirements. The
creases (no corresponding 2070). estimated impact is primarily due to
contribution rate increases). accelerated plan insolvencies. Most
increases to accrued benefits would
not be covered under PBGC guar-
anteed benefit limits.
Allocation of Plan As- Baseline stochastic returns All plans that receive SFA uti- $5 billion to $15 billion in sec- Plans required to invest all available
sets. under ME–PIMS model, with- lize an LDI strategy to match tion 4261 Financial Assist- plan assets in high quality fixed in-
out restrictions on asset allo- assets to benefit payments. ance (estimated through come securities are expected to at-
cation. 2070). tain lower investment returns, which
accelerates plan insolvencies.
Reduction in Contribu- Level contribution rates (no as- A one-time 20% decrease in $20 billion to $40 billion in sec- The estimated impact includes the ac-
tion Rates. sumed decreases). the per-capita contribution tion 4261 Financial Assist- celeration of projected plan insol-
rate increases (no cor- ance (estimated through vencies resulting from reduced con-
responding reduction in fu- 2070). tribution levels, as well as lower
ture accruals). contribution and withdrawal liability
income following insolvency used to
partially offset benefit payments.
Allocation of Contribu- No assumed reallocation of A one-time immediate decline $10 billion to $25 billion in sec- Reallocation of contributions to other
tions and Other contributions to other plans. to CBUs of 20%, followed by tion 4261 Financial Assist- plans could take the form of plan
Practices. CBUs projected with annual annual 1.3% declines (in- ance (estimated through transactions such as spinoffs or li-
1.3% decline. cludes corresponding reduc- 2070). ability transfers, which are not ex-
tion in future accruals). plicitly modeled.
Withdrawal Liability .... No assumed future employer Employers representing 35% of $15 billion to $20 billion in sec- Plans are assumed to project the in-
withdrawals explicitly factored active members withdraw im- tion 4262 SFA. creased level of employer with-
into modeling. mediately after receiving SFA. drawals as part of assumption set-
ting for SFA determination pur-
poses.
* The estimated impacts that increase the $94 billion of SFA amounts under section 4262 of ERISA occur from 2021 through 2027. The estimated impacts for all
‘‘Section 4261 Financial Assistance’’ represent the aggregate nominal amount of this assistance provided through 2070. ‘‘Section 4261 Financial Assistance’’ is the
multiemployer insurance program financial assistance PBGC provides in periodic payments upon plan insolvency under section 4261 of ERISA, which is limited to
PBGC guarantee amounts.
(5) Regulatory Alternatives Considered ERISA. A secondary condition may true impact is unknown and subject to
eliminate some existing flexibility but a great deal of uncertainty.
Conditions Related to Future Benefit
could prevent plans from adopting Another regulatory alternative was
Accruals
benefit improvements that prove considered under which PBGC would
PBGC first considered the ultimately to be unaffordable for the limit levels of future increases based on
implications of foregoing any regulatory plan. If a plan that receives SFA were wage indexation. This alternative would
authority provided under section able to subsequently implement allow plans with limited flexibility to
4262(m) of ERISA to impose reasonable significant increases to the future adopt increases but would prevent
conditions related to future benefit accrual rate, it would likely accelerate significant improvements that may
accruals. The primary factor in support the plan’s insolvency date which would prove unaffordable. PBGC considered
of the option to not regulate is that jeopardize participant benefits and that certain eligible plans may have
additional constraints on benefit impose financial strain on PBGC’s recently imposed substantial reductions
improvements may be unnecessary and multiemployer insurance program. in the accrual level to forestall
may be considered onerous. Plans that PBGC estimates that a one-time 10 insolvency, such that the current level
receive SFA will be deemed to be in percent increase in the future accrual of accruals are not sufficient to retain
critical status through the plan year rate accompanied by annual increases active members. Although this
ending in 2051 and will be subject to based on the national average wage alternative would have helped to limit
the terms of their applicable index, for all active participants, could the financial impact below the $5
rehabilitation plan. A rehabilitation increase the aggregate nominal amount billion to $8 billion range modeled in
plan generally restricts a plan from of future financial assistance under the sensitivity scenario, it was
increasing benefits unless the plan is section 4261 of ERISA by approximately determined to be too restrictive.
able to provide additional contribution $5 billion to $8 billion. Absent Yet another regulatory alternative was
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income that is not already contemplated regulatory action, it is unknown the considered under which PBGC would
with the rehabilitation plan. extent to which employers can and strictly prohibit any increases in future
Although this may be applicable for would increase future accrual rates. benefit accruals until 2051. Under this
many plans, there may be additional PBGC would generally expect the approach, the value of plan accrual rates
benefits to imposing a secondary financial impact to be less than this could erode significantly due to
restriction on benefit increases as estimated range due to the existing inflation. As the benefits lose value, it
permitted under section 4262(m) of rehabilitation plan constraints, but the would likely become increasingly
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36618 Federal Register / Vol. 86, No. 130 / Monday, July 12, 2021 / Rules and Regulations
difficult for plans to retain their active recent years. The benefit of this foregoing any regulatory condition with
members. Plans could suffer irreparable approach would be to improve respect to asset allocation. However,
harm to the contribution base as a potentially the retirement security of under most economic scenarios, PBGC
result, which would likely guarantee active plan participants, who have expects a more favorable outcome both
that plans would go insolvent. As a experienced the disproportionate to plan solvencies and future PBGC
result, PBGC determined that this impact of benefit reductions. However, program outlays by imposing less
regulatory alternative would harm plan increases to future accrual rates more restrictive conditions related to asset
participants and the multiemployer effectively bolster the future engagement allocation, such as the condition in the
insurance program. of active participants than retroactive interim final rule.
benefit improvements. By prohibiting A separate regulatory alternative was
Conditions Related to Retroactive considered under which PBGC would
all retroactive benefit improvements,
Benefit Improvements require all plan assets to be invested in
plans will remain on a more favorable
PBGC first considered the implication financial path and any surplus income accordance with the restrictions for SFA
of foregoing any regulatory authority would be better utilized by improving under section 4262(l) of ERISA (i.e.,
provided under section 4262(m) of future accruals to help attract and retain investment-grade bonds or other
ERISA to impose reasonable conditions active members. investments as permitted by PBGC).
related to retroactive benefit This condition would effectively require
improvements. The primary support for Conditions Related to Allocation of Plan plans to pursue a liability-driven
not regulating is that additional Assets investment strategy under which fixed
constraints on benefit improvements PBGC first considered the income assets are matched to expected
may be unnecessary and may be implications of foregoing any regulatory benefit payments to immunize the
considered onerous. Plans that receive authority provided under section portfolio from risk. This condition
SFA are deemed to be in critical status 4262(m) of ERISA to impose reasonable would be highly restrictive on a plan’s
through the plan year ending in 2051 conditions related to asset allocation. ability to select plan assets. It would
and will be subject to the terms of their There were two primary factors in mitigate year-to-year volatility in plan
applicable rehabilitation plan. A support of this approach. First, section funded status and would severely
rehabilitation plan generally restricts a 4262(l) already restricts the investment restrict a plan’s attainable investment
plan from increasing benefits unless the of SFA to investment-grade bonds and returns and thus potentially accelerate
plan is able to provide additional other investments as permitted by the insolvency of the plan. Because
contribution income that is not already PBGC. This condition alone serves as a available fixed income yields are
contemplated with the rehabilitation significant constraint on a plan’s ability expected to be lower than the interest
plan. to pursue higher returns in risk-seeking rate limit defined under section
However, as with the advantages of a assets, particularly for plans that had 4262(e)(3), plans would generally
condition on future benefit accruals previously been insolvent or close to become insolvent before the 2051 plan
discussed earlier, a secondary condition insolvency and received an amount of year. Based on modeling using ME–
on retroactive benefit increases could SFA that is large in proportion to the PIMS, PBGC estimates that this
prevent plans from adopting benefit amount of existing plan assets. Second, regulatory alternative could increase
improvements that ultimately prove to imposing conditions that severely future financial assistance payments
be unaffordable for the plan. PBGC restrict the level of return-seeking assets under section 4261 by $5 billion to $15
estimates that a one-time 10 percent may impair a plan’s ability to achieve billion over the next four decades. Due
increase in retroactive accrued benefits greater investment returns and forestall to the increased financial impact of this
for all active participants could increase insolvency. Although a higher option and the adverse impact to plan
the aggregate nominal amount of future proportion of return-seeking assets participants resulting from accelerated
financial assistance under section 4261 exposes plans to greater losses in the plan insolvencies, PBGC did not choose
by approximately $7 billion to $10 event of adverse market conditions, the to pursue this alternative.
billion. Absent regulatory action, the long-term investment horizon affords
extent to which employers can and plans the risk capacity to recoup these Conditions Related to Reductions in
would increase retroactive benefits is losses. Employer Contribution Rates
unknown. PBGC would generally expect The primary risk to foregoing any PBGC first considered the
the financial impact to be less than this regulatory action to impose conditions implications of foregoing any regulatory
estimated range due to existing on asset allocation is the potential for a authority provided under section
rehabilitation plan constraints, but the scenario under which plans that receive 4262(m) of ERISA to impose reasonable
true impact is unknown and subject to SFA invest heavily in highly risky, conditions related to reductions in
a great deal of uncertainty. speculative assets and the market employer contribution rates. The
Another regulatory alternative experiences a severe, prolonged primary benefit of this option is that it
considered would allow for retroactive downturn. Plans may choose to pay all could provide plans with flexibility to
benefit improvements, subject to benefits and administrative expenses reduce contribution rates if it is
rehabilitation plan constraints, but only from the SFA account before exhausting expected to attract or retain employers
up to a specified limit. The alternative any existing plan assets. Following the in the plan. Any mechanism that allows
would provide plans with limited depletion of SFA, plans would then plans to bolster their active membership
flexibility to increase benefits, but also experience no constraints on their asset could help to improve their funded
prevent excessive improvements that allocation and could seek to invest in status through increased contribution
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would impair a plan’s financial highly risky assets. Although the long- levels. A plan’s authority to allow for
position. Yet another alternative would term investment horizon does afford reduced contribution rates during the
be to limit the amount of retroactive plans with time to recoup losses, a collective bargaining process is already
benefit increases to a restoration of severe and prolonged downturn could constrained by the terms of their
accrued benefits to levels available cause irreparable harm to the plan’s rehabilitation plan, which is mandated
before reductions applied pursuant to financial position. PBGC is unable to for plans certified in critical status.
rehabilitation plan requirements in measure a precise financial impact for However, if plans are able to allow for
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Federal Register / Vol. 86, No. 130 / Monday, July 12, 2021 / Rules and Regulations 36619
reductions in employer contribution parties may not allocate any flexibility analysis requirements of the
rates, the contribution income into the contributions away from the plan Regulatory Flexibility Act do not apply.
plan may decrease if the reduced rates whereas other bargaining parties may See 5 U.S.C. 601(2).
do not effectively increase plan allocate a substantive portion of
Paperwork Reduction Act
participation. Plans may view SFA as a contributions away from the plan.
windfall that will allow for contribution Under this benchmark scenario, This interim final rule contains a
rate relief that benefits employers at the financial assistance under section 4261 collection of information that PBGC has
expense of the plan’s financial health. of ERISA would increase by submitted to the Office of Management
Although the financial impact is likely approximately $10 billion to $25 billion and Budget (OMB) for review and
to be significantly less than the $23 over the following decades. However, approval under the Paperwork
billion to $36 billion range estimated the extent to which bargaining parties Reduction Act. OMB’s decision
under the ME–PIMS benchmark would engage in these types of strategies regarding this information collection
scenario for a 20 percent universal is highly uncertain. request will be available at http://
reduction in assumed contribution rates www.Reginfo.gov. An agency may not
Conditions Related to Withdrawal conduct or sponsor, and a person is not
(primarily due to the aforementioned
Liability required to respond to, a collection of
rehabilitation plan constraints), PBGC
expects there to be a material (albeit PBGC first considered the information unless it displays a
unknown) impact. implications of foregoing any regulatory currently valid OMB control number.
A separate regulatory alternative was authority provided under section PBGC estimates that over the next 3
considered under which PBGC would 4262(m) of ERISA to impose reasonable years an annual average of 60 plan
strictly prohibit plans from accepting conditions related to withdrawal sponsors will file applications for SFA
any collective bargaining agreement liability. Absent any conditions, plans (39 in 2021, 69 in 2022, and 71 in 2023).
under which there was a reduction in may anticipate a potential surge of PBGC needs the information in the
the contribution rate. This alternative is employer withdrawal upon receipt of application to review a plan’s eligibility
similar to the provision in the interim the SFA. Plans would account for this for SFA, priority group status, and
final rule but does not allow for any anticipated outcome by requesting a amount of requested SFA, and to make
exceptions to the prohibition. PBGC greater amount of SFA in their payment of SFA. PBGC estimates that
recognizes that employers that are on applications to PBGC (plans would do each application requires $30,000 in
the brink of insolvency may be able to so by setting the actuarial assumptions contractor cost and 10 hours of in-house
avoid bankruptcy by reducing the accordingly). The extent to which the fund time. Thus, the application
contribution rate to the pension plan. aggregate amount of SFA provided imposes estimated annual burdens of
Although this exception reduces short under section 4262 is impacted is $1,800,000 (60 × $30,000) and 600 (60
term contribution income to the plan, it unknown, but PBGC estimates that it × 10) hours.
may increase long-term contribution could range from 10% to 30%. The PBGC estimates that over the next 3
levels by enabling the contributing greater the amount of SFA that is years an annual average of 49 plan
employer to stay solvent and have the provided to plans, the greater the sponsors will file Annual Statements of
resources available to contribute to the reduction in the employers’ unfunded Compliance (0 in 2021, 39 in 2022, and
plan. vested benefit obligations and therefore 108 in 2023). PBGC needs the
the greater the incentive for employers information in this statement to ensure
Conditions Related to the Allocation of to withdraw from the plans. This that a plan is compliant with the
Contributions and Other Practices outcome could materially increase the conditions imposed upon its receiving
PBGC considered the implications of amounts of SFA provided under section SFA. PBGC estimates that each Annual
foregoing any regulatory action under 4262. Statement of Compliance requires
section 4262(m) of ERISA to impose A separate regulatory alternative was $2,400 in contractor cost and 2 hours of
reasonable conditions related to the considered under which PBGC would in-house fund time. The Annual
allocation of contributions and other mandate that, during the SFA coverage Statement of Compliance imposes
practices. The primary benefit of this period, SFA assets are disregarded in estimated annual burdens of $117,600
option is that the bargaining parties the determination of unfunded vested (49 × $2,400) and 98 (49 × 2) hours.
would retain full discretion over how to benefits for the assessment of Over the next 3 years an average of
allocate contributions to benefit withdrawal liability. This alternative 11.33 plans per year (16 plans in 2021,
programs that align with their desired would prevent a decrease in the value 18 plans in 2022, and 0 in 2023) will be
preferences. Regulatory action by PBGC of employer unfunded benefit required to send notices to participants
could be considered onerous. obligations due to receipt of SFA and with suspended benefits. This notice is
However, PBGC recognizes that thereby block an incentive from arising intended to ensure participants
absent any regulations the bargaining that may cause employers to withdraw understand the calculation and dates of
parties could take actions that allocate from these plans. This would mitigate their reinstated benefits and, if
contributions away from the pension against a change in plan assumptions for applicable, make-up payments. PBGC
plan and allow it to fail and become increased employer withdrawals within estimates that the burden for each plan
covered under PBGC’s insurance the application for SFA that would in to prepare required notices is $2,000 in
program. PBGC used ME–PIMS to turn increase the aggregate transfers of contractor cost and 2 hours of in-house
estimate the financial impact of a 25 SFA across all plans under section 4262. fund time. Thus, these notices impose
percent one-time reduction in CBUs for estimated annual burdens of $22,667
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This alternative was determined to be
all plans that receive SFA. This would more administratively complex and (11.33 × $2,000) and 22.66 (11.33 × 2)
reflect the efforts that may be made by therefore less desirable. hours. PBGC is considering issuing a
some plans to shift hours away from the model notice and hereby solicits public
plan to increase contribution allocations Regulatory Flexibility Act comment on whether a model notice
to other programs. The 25 percent Because PBGC is not publishing a would be helpful.
reduction percentage was set as an general notice of proposed rulemaking Also, PBGC estimates that beginning
average to reflect that some bargaining under 5 U.S.C. 553(b), the regulatory in 2023, PBGC will receive an average
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36620 Federal Register / Vol. 86, No. 130 / Monday, July 12, 2021 / Rules and Regulations
of 2.2 requests per year (averaged over • 4 hours and $12,000 for a proposed 2.53), which means a cost equivalent of
2021–2023 = 0.73 per year) for transfer or merger; and $54,240 assuming a blended hourly rate
determinations concerning a transfer of • 2 hours and $2,000 for a proposed of $75 for employer and fund office
assets or liabilities (including a spinoff) settlement of withdrawal liability. administrative, clerical, and supervisory
or merger (1 per year); a withdrawal PBGC estimates that, beginning in time. The estimated aggregate average
liability settlement greater than $50 2023, for 2.2 determination requests, the annual cost burden for 2021–2023 for
million (1 per year); or a contribution aggregated average annual hour burden the information collection in part 4262
decrease (.2 (1 every 5 years)) (0 plans will be 7.6 hours (1.6+4+2 employer and is $1,946,600 ($1,800,000 + $117,600 +
in 2021, 0 plans in 2022, and 2.2 plans fund office hours) and the aggregated $22,667 + $6,333), which means
in 2023). PBGC needs the information average annual cost burden will be approximately 4,867 contract hours
requested to make a determination on $19,000 ($5,000 + $12,000 + $2,000 in assuming an average hourly rate of $400
the proposed transaction, withdrawal contractor costs). For 2021–2023, PBGC for work done by outside actuaries and
liability settlement, or contribution estimates an average annual hour
attorneys. The actual hour burden and
decrease. PBGC estimates an average burden of 2.53 hours (7.6/3) and average
cost burden per plan will vary
annual hour burden (employer and fund annual cost burden of $6,333 ($19,000/
depending on plan size and other
office hours) and average annual cost 3).
The estimated aggregate average factors.
burden (contractor costs) per request of:
• 1.6 hours (8 hours × .2) and $5,000 annual hour burden for 2021–2023 for The estimated average annual burden
($25,000 × .2) for a proposed the information collection in part 4262 figures for 2021–2023 are shown in the
contribution change; is 723.20 hours (600 + 98 + 22.67 + following chart.
Hour burden Hour burden—
Average number of respondents p/year Cost burden
hours equivalent cost
Applications for SFA: 60 .............................................................................................................. 600 $45,000 $1,800,000
Annual compliance statements: 49 ............................................................................................. 98 7,350 117,600
Notice of reinstatement: 11.33 .................................................................................................... 22.67 1,700 22,667
Requests for determination: 1 (0.73) ........................................................................................... 2.53 190 6,333
Totals: 121 ............................................................................................................................ 723.20 54,240 1,946,600
Plan sponsors of multiemployer plans • Enhance the quality, utility, and PART 4262—SPECIAL FINANCIAL
applying for SFA are required to file an clarity of the information to be ASSISTANCE BY PBGC
application with PBGC with the collected; and
required information under part 4262. • Minimize the burden of the Sec.
For payment of SFA, they are required collection of information on those who 4262.1 Purpose.
to include with an application for SFA, are to respond, including the use of 4262.2 Definitions.
common form SF 3881, ACH Vendor/ appropriate automated, electronic, 4262.3 Eligibility for special financial
Miscellaneous Payment Enrollment, mechanical, or other technological assistance.
OMB control no. 1530–0069. collection techniques or other forms of 4262.4 Amount of special financial
information technology, e.g., permitting assistance.
Written comments and 4262.5 PBGC review of plan assumptions.
recommendations for the information electronic submission of responses.
4262.6 Information to be filed.
requirements under this interim final List of Subjects 4262.7 Plan information.
rule should be sent to the Office of 4262.8 Actuarial and financial information.
Information and Regulatory Affairs, 29 CFR Part 4000
4262.9 Application for a plan with a
Office of Management and Budget, Employee benefit plans, Pension partition.
Attention: Desk Officer for Pension insurance, Pensions, Reporting and 4262.10 Processing applications.
Benefit Guaranty Corporation through recordkeeping requirements. 4262.11 PBGC action on applications.
www.reginfo.gov/public/do/PRAMain. 4262.12 Payment of special financial
29 CFR Part 4262
Find this particular information assistance.
collection by selecting ‘‘Currently under Employee benefit plans, Pension 4262.13 Restrictions on special financial
Review—Open for Public Comments’’ or insurance, Pensions, Reporting and assistance.
by using the search function. To be recordkeeping requirements. 4262.14 Permissible investments of special
assured of consideration, comments For the reasons given above, PBGC is financial assistance.
must be submitted by August 11, 2021. amending 29 CFR chapter XL as follows: 4262.15 Reinstatement of benefits
PBGC is soliciting public comments previously suspended.
PART 4000—FILING, ISSUANCE, 4262.16 Conditions for special financial
to— COMPUTATION OF TIME, AND assistance.
• Evaluate whether the collection of RECORD RETENTION 4262.17 Other provisions.
information is necessary for the proper
performance of the functions of the ■ 1. The authority citation for part 4000 Authority: 29 U.S.C. 1302(b)(3), 1432.
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agency, including whether the continues to read as follows:
§ 4262.1 Purpose.
information will have practical utility; Authority: 29 U.S.C. 1083(k), 1302(b)(3).
• Evaluate the accuracy of the The purpose of this part is to
§ 4000.3 [Amended] prescribe rules governing applications
agency’s estimate of the burden of the
collection of information, including the ■ 2. In § 4000.3, amend paragraph (b)(4) for special financial assistance under
validity of the methodology and by adding ‘‘4262,’’ after ‘‘4245,’’. section 4262 of ERISA and related
assumptions used; ■ 3. Add part 4262 to read as follows: requirements.
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Federal Register / Vol. 86, No. 130 / Monday, July 12, 2021 / Rules and Regulations 36621
§ 4262.2 Definitions. of the Code after December 16, 2014, has (3) Changes in assumptions. If a plan
The following terms are defined in remained insolvent, and has not determines that use of the assumptions
§ 4001.2 of this chapter: Code, ERISA, terminated under section 4041A of under paragraph (d)(2) of this section is
fair market value, IRS, multiemployer ERISA as of March 11, 2021. unreasonable, the plan’s application
plan, PBGC, plan, and plan sponsor. In (b) Specified year. For purposes of may include a proposed change in the
addition, for purposes of this part: this section, the term specified year assumptions (excluding the plan’s
Form 5500 means the Annual Return/ means a plan year specified by the plan interest rate assumption), as described
Report of Employee Benefit Plan sponsor beginning in 2020, 2021, or in § 4262.5.
required to be filed for employee benefit 2022. The specified years for paragraphs
plans under sections 104 and 4065 of (a)(3)(i), (ii), and (iii) of this section § 4262.4 Amount of special financial
ERISA and sections 6057(b) and 6058(a) need not be the same. assistance.
of the Code. (c) Additional rules for critical status (a) In general. Subject to paragraph (f)
Merger means merger as defined in plans—(1) Elected status. Election of of this section, the amount of special
§ 4231.2 of this chapter. critical status under section 305(b)(4) of financial assistance for a plan is the
SFA coverage period means the ERISA does not satisfy the requirement amount (if any), subject to adjustment
period beginning on the plan’s SFA for the certification of critical status by for the date of payment as described in
measurement date and ending on the the plan’s actuary under paragraph § 4262.12, by which—
last day of the last plan year ending in (a)(3)(i) of this section. (1) The value, as of the plan’s SFA
2051. (2) Percentage. The percentage measurement date, of all SFA-eligible
SFA measurement date means the last calculated as— plan obligations; exceeds
day of the calendar quarter immediately (i) The current value of net assets as (2) The value, as of the plan’s SFA
preceding the date the plan’s of the first day of the plan year that was measurement date, of all SFA-eligible
application was filed. required to be entered on the Form 5500 plan resources.
Special financial assistance or SFA Schedule MB that was required to be (b) SFA-eligible plan obligations. The
means special financial assistance from filed for a specified year; plus value of SFA-eligible plan obligations as
PBGC under section 4262 of ERISA. (ii) The current value of withdrawal of the plan’s SFA measurement date, is
Transfer and transfer of assets or liability due to be received by the plan the sum of—
liabilities means transfer and transfer of on an accrual basis, reflecting a (1) The present value of benefits
assets or liabilities as defined in reasonable allowance for amounts expected to be paid by the plan during
§ 4231.2 of this chapter. considered uncollectible, as of the first the SFA coverage period including any
§ 4262.3 Eligibility for special financial day of the plan year for the specified reinstatement of benefits attributable to
assistance. year in paragraph (c)(2)(i) of this section the elimination of reductions in a
(if not already included in the current participant’s or beneficiary’s benefit due
(a) In general. Subject to all the
value of net assets in paragraph (c)(2)(i) to a suspension of benefits under
provisions of this section, a
multiemployer plan is eligible for of this section); divided by sections 305(e)(9) or 4245(a) of ERISA as
special financial assistance in any of the (iii) The current liability attributable required under § 4262.15 and any
following cases: to all benefits as of the first day of the restoration of benefits under 26 CFR
(1) Critical and declining status plans. plan year required to be entered on the 1.432(e)(9)–1(e)(3), and assuming such
The plan is in critical and declining Form 5500 Schedule MB specified in reinstatements are paid beginning as of
status within the meaning of section paragraph (c)(2)(i) of this section. the SFA measurement date; and
305(b)(6) of ERISA for the specified (d) Actuarial assumptions. (2) The present value of
year; or Determinations of eligibility under administrative expenses expected to be
(2) Plans with a suspension of paragraph (a)(1) or (3) of this section paid by the plan using plan assets
benefits. A suspension of benefits has must be made in accordance with the during the SFA coverage period,
been approved with respect to the plan provisions in this paragraph (d). excluding the amount owed to PBGC
under section 305(e)(9) of ERISA as of (1) Certifications completed before under section 4261 of ERISA (which is
March 11, 2021; or January 1, 2021. For certifications of added to the amount of special financial
(3) Critical status plans. The plan: plan status completed before January 1, assistance in § 4262.12 determined as of
(i) Is certified to be in critical status 2021, PBGC will accept assumptions the date special financial assistance is
within the meaning of section 305(b)(2) incorporated in the determination of paid).
of ERISA for a specified year; and whether a plan is in critical status or (c) SFA-eligible plan resources. The
(ii) The percentage calculated under critical and declining status as value of SFA-eligible plan resources as
paragraph (c)(2) of this section was less described in section 305(b) of ERISA of the plan’s SFA measurement date, is
than 40 percent; and unless such assumptions are clearly the sum of—
(iii) The ratio of the total number of erroneous. (1) The fair market value of plan
active participants at the end of the plan (2) Certifications completed after assets on the SFA measurement date;
year required to be entered on the Form December 31, 2020. For certifications of and
5500 that was required to be filed for a plan status completed after December (2) The present value of future
specified year to the sum of inactive 31, 2020, the determination of whether contributions, withdrawal liability
participants (retired or separated a plan is in critical status or critical and payments, and other payments expected
participants receiving benefits, other declining status for purposes of to be made to the plan (excluding the
retired or separated participants entitled eligibility for special financial amount of financial assistance under
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to future benefits, and deceased assistance must be made using the section 4261 of ERISA and special
participants whose beneficiaries are assumptions that the plan used in its financial assistance to be received by
receiving or are entitled to receive most recently completed certification of the plan) during the SFA coverage
benefits) required to be entered on such plan status before January 1, 2021, period.
Form 5500 was less than 2 to 3. unless such assumptions (excluding the (d) Deterministic basis. The
(4) Insolvent plans. The plan became plan’s interest rate assumption) are projections in paragraphs (b)(1) and (2)
insolvent for purposes of section 418E unreasonable. and (c)(2) of this section must be
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36622 Federal Register / Vol. 86, No. 130 / Monday, July 12, 2021 / Rules and Regulations
performed on a deterministic basis measurement date if the events had not (i) Example 1. Plan A applies for
using a single set of assumptions as occurred, as determined in a reasonable special financial assistance. If the
described in paragraph (e) of this manner. limitation in paragraph (f)(1)(i) of this
section. The projections must be based (ii) The special financial assistance of section did not apply, Plan A would be
on participant census data as of the first a plan that experiences a merger event entitled to special financial assistance in
day of the plan year in which the plan’s during the period described in the amount of $20X. Before the SFA
initial application for special financial paragraph (f)(1)(i) of this section is measurement date, but on or after July
assistance is filed, or, if the date on limited to the sum of the amounts of 9, 2021, Plan A transferred a portion of
which the plan’s initial application for special financial assistance that would its assets and liabilities to Plan B. If the
special financial assistance is filed is have applied to the plans involved in transfer had not occurred, Plan A
less than 270 days after the beginning of the merger on the SFA measurement would, as of the SFA measurement date,
the current plan year and the actuarial date if the merger had not occurred, as be entitled to special financial
valuation for the current plan year is not determined in a reasonable manner. If assistance in the amount of $40X.
complete, the projections may instead any of the plans involved in the merger Although an event described in
be based on the participant census data also experiences one or more of the paragraph (f)(2) of this section occurred
as of the first day of the plan year events described in paragraph (f)(2), (3), with respect to Plan A, Plan A’s special
preceding the year in which the plan’s or (4) of this section during the period financial assistance is unaffected by the
initial application for special financial described in paragraph (f)(1)(i) of this limitation in paragraph (f)(1)(i) of this
assistance is filed. section, the amount of special financial section and is $20X. Plan B also applies
(e) Actuarial assumptions. The assistance for that plan on the SFA for special financial assistance. If the
amount of special financial assistance measurement date, determined as if the limitation in paragraph (f)(1)(i) of this
must be determined in accordance with merger had not occurred, must be section did not apply, Plan B would be
generally accepted actuarial principles determined in accordance with entitled to special financial assistance in
and practices and the provisions in this paragraph (f)(1)(i) of this section. the amount of $30X. If the transfer from
paragraph (e). (2) Transfers. The event described in Plan A had not occurred, Plan B would,
(1) The assumed interest rate is the this paragraph (f)(2) is a transfer of as of the SFA measurement date, be
lesser of the rate in paragraph (e)(1)(i) or assets or liabilities (including a spinoff). ineligible for special financial
(ii) of this section. (3) Benefit increases. The event assistance. As a result of the event
(i) The interest rate in this paragraph described in this paragraph (f)(3) is the described in paragraph (f)(2) of this
(e)(1)(i) is the interest rate used for execution of a plan amendment section, the limitation in paragraph
funding standard account purposes as increasing accrued or projected benefits (f)(1)(i) of this section reduces Plan B’s
projected in the plan’s most recently under a plan, other than a restoration of special financial assistance from $30X
completed certification of plan status suspended benefits that satisfies the to $0.
before January 1, 2021. requirements of 26 CFR 1.432(e)(9)– (ii) Example 2. Plan C applies for
(ii) The interest rate in this paragraph 1(e)(3). special financial assistance. If the
(e)(1)(ii) is the interest rate that is 200 (4) Contribution reductions. The event limitation in paragraph (f)(1)(ii) of this
basis points higher than the rate described in this paragraph (f)(4) is the section did not apply, Plan C would be
specified in section 303(h)(2)(C)(iii) of execution of a document reducing a entitled to special financial assistance in
ERISA (disregarding modifications plan’s contribution rate (including any the amount of $40X. Before the SFA
made under clause (iv) of such section) reduction in benefit accruals adopted measurement date, but on or after July
for the month in which the plan’s simultaneously or arising from a pre- 9, 2021, Plans A and B were merged into
application for special financial existing linkage between benefit existing Plan C. If the mergers had not
assistance is filed or one of the 3 accruals and contributions), but only if occurred, Plan A would not be eligible
preceding months, as selected by the the plan does not demonstrate (in for special financial assistance, and Plan
plan. accordance with the special financial B and Plan C would be entitled,
(2) The assumptions other than the assistance instructions on PBGC’s respectively, to $10X and $5X of special
interest rate are those used for the plan’s website at www.pbgc.gov) that the risk financial assistance as of the SFA
most recently completed certification of of loss to participants and beneficiaries measurement date. As a result of the
plan status before January 1, 2021, is reduced (disregarding special merger event described in paragraph
unless such assumptions are financial assistance) by execution of the (f)(1)(ii) of this section, the limitation in
unreasonable. document. The document referred to in paragraph (f)(1)(ii) of this section
(3) If a plan determines that use of the this paragraph (f)(4) is either— reduces Plan C’s special financial
assumptions under paragraph (e)(2) of (i) A collective bargaining agreement assistance from $40X to $15X.
this section is unreasonable, the plan’s not rejected by the plan; or (iii) Example 3. Plan A applies for
application may include a proposed (ii) A document reallocating special financial assistance. If the
change in the assumptions (excluding contribution rates. limitation in paragraph (f)(1)(i) of this
the plan’s interest rate assumption (5) Effect of pre-event ineligibility. In section did not apply, Plan A would be
under paragraph (e)(1) of this section), determining the amount of special entitled to special financial assistance in
as described in § 4262.5. financial assistance that would have the amount of $10X. Before the SFA
(f) Certain events—(1) General rules. applied to a plan if an event described measurement date, but on or after July
(i) The special financial assistance of a in this paragraph (f) had not occurred, 9, 2021, projected benefits under Plan A
plan that experiences one or more of the if the plan would have been ineligible were increased. If the increase had not
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events described in paragraphs (f)(2), for special financial assistance under occurred, Plan A would, as of the SFA
(3), and (4) of this section during the § 4262.3 in the absence of the event, measurement date, be ineligible for
period beginning on July 9, 2021, and then the amount of special financial special financial assistance. As a result
ending on the SFA measurement date is assistance is deemed to be $0 (zero). of the event described in paragraph
limited to the amount of special (6) Examples. The following examples (f)(3) of this section, applying the
financial assistance that would have illustrate the provisions of paragraph (f) limitation in paragraph (f)(1)(i) of this
applied to the plan on the SFA of this section. section and in accordance with
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Federal Register / Vol. 86, No. 130 / Monday, July 12, 2021 / Rules and Regulations 36623
paragraph (f)(5) of this section, Plan A actuarial principles and practices, authorized representative of the plan
is treated as being entitled to special taking into account the experience of sponsor; and
financial assistance of $0. the plan and reasonable expectations. (2) Include the following statements
(iv) Example 4. Plan A applies for The actuary’s selection of assumptions signed by an authorized trustee who is
special financial assistance. If the about future covered employment and a current member of the board of
limitation in paragraph (f)(1)(i) of this contribution levels (including trustees: ‘‘Under penalties of perjury
section did not apply, Plan A would be contribution base units and contribution under the laws of the United States of
entitled to special financial assistance in rates) may be based on information America, I declare that I have examined
the amount of $10X. Before the SFA provided by the plan sponsor, which this application, including
measurement date, but on or after July must act in good faith in providing the accompanying documents, and, to the
9, 2021, Plan A’s contribution rate was information. best of my knowledge and belief, the
reduced. Plan A’s benefit formula states (2) If a plan has a change in application contains all the relevant
that the monthly benefit accrual for a assumptions under paragraph (c) of this facts relating to the application, and
participant for a plan year is 2.0% of the section, each of the actuarial such facts are true, correct, and
contributions paid on behalf of the assumptions and methods (other than complete.’’
participant for that plan year. Since the interest rate) must be reasonable and (c) Actuarial calculations. All
there is a pre-existing linkage between the combination of those actuarial calculations that are required in an
benefit accruals and contributions, the assumptions and methods (excluding application for special financial
event described in paragraph (f)(4) of the interest rate) must also be assistance under this part must include
this section includes both the reduction reasonable. a certification by the plan’s enrolled
in benefit accruals and the reduction in (c) Changes in assumptions. If a plan actuary.
the contribution rate. If the contribution determines that use of an assumption (d) Clarifying information. PBGC may
rate reduction and the reduction in described in § 4262.3(d)(2) or require a plan sponsor to file additional
benefit accruals had not occurred, Plan § 4262.4(e)(2) is unreasonable, the plan’s information to clarify or verify
A would, as of the SFA measurement application may include a proposed information provided in the plan’s
date, be entitled to special financial change in the assumptions (excluding application. The plan sponsor must
assistance of $8X. Plan A does not the plan’s interest rate assumption). promptly file any such information with
provide a demonstration that the risk of (1) The application for special PBGC upon request.
loss to participants and beneficiaries is financial assistance must— (e) Duty to amend and supplement
reduced (disregarding special financial (i) Describe why the original application. The plan sponsor of a plan
assistance) due to the reduction in assumption is no longer reasonable; applying for special financial assistance
contribution rate and the reduction in (ii) Propose to use a different must—
benefit accruals. As a result of the assumption (the changed assumption); (1) Amend the plan to include the
events described in paragraph (f)(4) of and following special financial assistance
this section, the limitation in paragraph (iii) Demonstrate that the changed provision effective through the end of
(f)(1)(i) of this section reduces Plan A’s assumption is reasonable. the last plan year ending in 2051:
special financial assistance from $10X (2) PBGC will provide guidelines for ‘‘Beginning with the SFA measurement
to $8X. changed assumptions on PBGC’s date selected by the plan in the plan’s
website at www.pbgc.gov. application for special financial
§ 4262.5 PBGC review of plan assistance, the plan shall be
assumptions. § 4262.6 Information to be filed. administered in accordance with the
(a) In general. (1) As set forth in (a) In general. An application for restrictions and conditions specified in
§ 4262.3(d)(1), PBGC will accept the special financial assistance must section 4262 of ERISA and 29 CFR part
assumptions used by a plan to include the information specified in this 4262. This amendment is contingent
determine eligibility for special section and §§ 4262.7 (plan information) upon approval by PBGC of the plan’s
financial assistance under § 4262.3(d)(1) and 4262.8 (actuarial and financial application for special financial
unless PBGC determines that such information); a copy of the executed assistance.’’
assumptions are clearly erroneous. plan amendment required under (2) Amend the plan to reinstate
(2) PBGC will accept the assumptions paragraph (e)(1) of this section; a copy benefits, as described in § 4262.15(a)(1),
used by a plan to determine eligibility of the proposed plan amendment and make payments of previously
for special financial assistance under required under paragraph (e)(2) of this suspended benefits, described in
§ 4262.3(d)(2) or to determine the section; a completed checklist; and § 4262.15(a)(2), in accordance with
amount of special financial assistance other information as described in the guidance issued by the Secretary of the
under § 4262.4(e)(2) unless PBGC special financial assistance instructions Treasury under section 432(k)(2) of the
determines that an assumption is on PBGC’s website at www.pbgc.gov. If Code.
unreasonable. any of the information required for an (3) During any time in which an
(3) PBGC will accept a plan’s changes application for special financial application is pending approval by
in assumptions under paragraph (c) of assistance under this part is not PBGC, the plan sponsor must promptly
this section except to the extent that accurately completed or not filed with notify PBGC in writing as soon as the
PBGC determines that an assumption is the application, the application will not plan sponsor becomes aware that any
individually unreasonable, or the be considered complete. material fact or representation contained
proposed changed assumptions are (b) Required trustee signature. An in or relating to the application, or in
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unreasonable in the aggregate. application for special financial any supporting documents, is no longer
(b) Reasonableness of assumptions. assistance must— accurate, or that any material fact or
(1) Each of the actuarial assumptions (1) Be signed and dated by an representation was omitted from the
and methods used for the actuarial authorized trustee, who is a current application or supporting documents.
projections (excluding the interest rate member of the board of trustees and (f) Disclosure of information. Unless
assumption) must be reasonable in who is authorized to sign on behalf of confidential under the Privacy Act, all
accordance with generally accepted the board of trustees, or by another information that is filed with PBGC for
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36624 Federal Register / Vol. 86, No. 130 / Monday, July 12, 2021 / Rules and Regulations
an application for special financial reinstatement is the SFA measurement (10) Most recent plan financial
assistance under this part may be made date and that payments for previously statement (audited, or unaudited if
publicly available, at PBGC’s sole suspended benefits described in audited is not available).
discretion, on PBGC’s website at § 4262.15(a)(2) are paid or commence on (11) Bank account and other
www.pbgc.gov or otherwise publicly the SFA measurement date. If the plan information necessary for electronic
disclosed. Except to the extent required restored benefits under 26 CFR payment of funds.
by the Privacy Act, PBGC provides no 1.432(e)(9)–1(e)(3) before the SFA (12) All written policies and
assurance of confidentiality in any measurement date, the proposed procedures governing withdrawal
information or documentation included schedule should reflect the amount and liability determination, assessment,
in an application for special financial timing of payments of restored benefits collection, settlement, and payment.
assistance. and the effect of the restoration on the
§ 4262.8 Actuarial and financial
benefits remaining to be reinstated. information.
§ 4262.7 Plan information. (e) Plan documentation. An
(a) Basic information. An application application must include all of the (a) Required information. An
for special financial assistance must following plan documentation: application for special financial
include all of the following information (1) Most recent plan document or assistance must include all of the
with respect to the plan and amount of restatement of the plan document and following actuarial and financial
special financial assistance requested: all subsequent amendments adopted (if information:
(1) Name of the plan, Employer any), including a copy of the executed (1) For each plan year from the 2018
Identification Number (EIN), and three- plan amendment required under plan year until the most recent plan year
digit Plan Number (PN). § 4262.6(e)(1). for which the Form 5500 is required to
(2) Name of the individual filing the (2) A copy of the proposed plan be filed, the projection of expected
application and role of the individual amendment required under benefit payments as required to be
with respect to the plan. § 4262.6(e)(2) and certification by the attached to the Form 5500 Schedule MB
(3) Name, address, email, and plan sponsor that the plan amendment if the response to the question at line
telephone number of the plan sponsor will be timely adopted. 8b(1) of the Form 5500 Schedule MB is
and the plan sponsor’s authorized (3) Most recent trust agreement or ‘‘Yes’’.
representatives, if any. restatement of the trust agreement and (2) For a plan that has 10,000 or more
(4) The total amount of special all subsequent adopted amendments (if participants as required to be entered on
financial assistance requested. any). line 6f of the plan’s most recently filed
(b) Eligibility. An application must (4) Most recent IRS determination Form 5500, a listing of the 15 largest
identify the eligibility requirements in letter. contributing employers and the
§ 4262.3 that the plan satisfies to be (5) Actuarial valuation report contribution amounts for each for the
eligible for special financial assistance. completed for the 2018 plan year and most recently completed plan year.
An application for a plan that is eligible each subsequent actuarial valuation (3) Historical plan financial
under section 4262(b)(1)(C) of ERISA report completed before the date the information for each of the most recent
must include a demonstration to plan’s application was filed. 10 plan years immediately preceding
support that the plan meets the (6) Most recent rehabilitation plan (or the date the plan’s application was filed
eligibility requirements. funding improvement plan, if that separately identifies: Total
(c) Priority group identification. An applicable), including all subsequent contributions; total contribution base
application must identify any priority amendments and updates, and the units; average contribution rates;
group under § 4262.10(d)(2) that the percentage of total contributions number of active participants at the
plan is in. An application must include received under each schedule of the beginning of each plan year; and other
a demonstration to support the plan’s rehabilitation plan for the most recent sources of non-investment income,
inclusion in a priority group, unless the plan year available. If the most recent including, if applicable, withdrawal
plan is insolvent under section 4245(a) rehabilitation plan does not include liability payments collected,
of ERISA, has implemented a historical documentation of contributions from reciprocity
suspension of benefits under section rehabilitation plan changes (if any) that agreements, and other sources of
305(e)(9) of ERISA as of March 11, 2021, occurred in calendar year 2020 and contributions or income not already
is in critical and declining status (as later, these details must be provided in identified.
defined in section 305(b)(6) of ERISA) a supplemental document. (4) Information used to determine the
and had 350,000 or more participants, (7) Most recent Form 5500 and all amount of the requested special
or is listed on PBGC’s website at schedules and attachments (including financial assistance, based on a
www.pbgc.gov as a plan in priority the audited financial statement). deterministic projection, including all of
group 6, as defined under (8) Plan actuary’s certification of plan the following information—
§ 4262.10(d)(2)(vi). status required under section 305(b)(3) (i) Interest rate required under
(d) Plans with a suspension of of ERISA completed for the 2018 plan § 4262.4(e)(1), including supporting
benefits. If a plan previously suspended year and each subsequent annual details on how it was determined.
benefits under sections 305(e)(9) or certification completed before the date (ii) Fair market value of plan assets
4245(a) of ERISA, its application must the plan’s application was filed, with determined as of the SFA measurement
include a description of how the plan documentation supporting each date; a certification from the plan
will reinstate the benefits that were certification, which must include the sponsor with respect to the accuracy of
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previously suspended and a proposed projections and information required in this amount, including information that
schedule showing aggregate amount and the special financial assistance substantiates the asset value and any
timing of payments (in accordance with instructions on PBGC’s website at projections to the SFA measurement
§ 4262.15) to participants and www.pbgc.gov. date (including details and supporting
beneficiaries under the plan. The (9) Most recent statement for each of rationale); and a reconciliation of the
proposed schedule should be prepared the plan’s cash and investment fair market value of plan assets from the
assuming the effective date for accounts. date of the most recent plan financial
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Federal Register / Vol. 86, No. 130 / Monday, July 12, 2021 / Rules and Regulations 36625
statement to the SFA measurement date plan actuary in developing the cash § 4262.9 Application for a plan with a
showing contributions, withdrawal flow projections included in the partition.
liability payments, benefit payments, application. (a) In general. This section applies to
administrative expenses, and (b) Information required for changed plans partitioned under section 4233 of
investment income. assumptions. An application for a plan ERISA. A partitioned plan is in priority
(iii) Special financial assistance that proposes to change any assumption group 2 for purposes of § 4262.10(d).
determined as a lump sum as of the SFA used in the plan’s most recently (b) Filing requirements. A plan
measurement date. sponsor of a partitioned plan filing an
completed certification of plan status
(iv) For each plan year in the SFA application for special financial
before January 1, 2021, must include all
coverage period: The projected amount assistance must—
of contributions, projected withdrawal of the following information:
(1) File one application for the
liability payments, and other payments (1) A table identifying which original plan and successor plan.
expected to be made to the plan. assumptions used in demonstrating the (2) Include in the application—
(v) For each plan year in the SFA plan’s eligibility for special financial (i) A statement that the plan was
coverage period: Benefit payments assistance or in calculating the amount partitioned under section 4233 of
described in § 4262.4(b)(1) attributable of special financial assistance differ ERISA;
to the reinstatement of benefits under from those assumptions used in the (ii) A copy of the plan document and
§ 4262.15 that were previously plan’s most recently completed other amendments required under
suspended through the SFA certification of plan status before paragraph (c)(2) of this section; and
measurement date and any benefits January 1, 2021, and detailed narrative (iii) The information required in
restored under 26 CFR 1.432(e)(9)– explanations (with supporting rationale §§ 4262.6 through 4262.8.
1(e)(3). and information) as to why any (3) If a plan sponsor has already filed
(vi) For each plan year in the SFA assumption used in the certification is with PBGC any of the required
coverage period: Benefit payments no longer reasonable and why the information described in paragraph
described in § 4262.4(b)(1) (excluding changed assumption is reasonable. (b)(2)(iii) of this section, the plan
the payments in paragraph (a)(4)(v) of sponsor is not required to file that
(2) Deterministic cash flow projection
this section), separately for current information with its application for
(‘‘Baseline’’) in accordance with the
retirees and beneficiaries in pay status, special financial assistance. For any
special financial assistance instructions
terminated participants not yet in pay such information not filed with the
on PBGC’s website at www.pbgc.gov that
status, current active participants, and application, the plan sponsor must note
shows the amount of special financial
new entrants. on the checklist described under
(vii) For each plan year in the SFA assistance that would be determined if
§ 4262.6(a) when the information was
coverage period: Administrative all underlying assumptions used in the
filed.
expenses expected to be paid using plan projection were the same as those used (c) Rescission of partition order.
assets, excluding the amount owed in the actuarial certification of plan Effective when special financial
PBGC under section 4261 of ERISA. status last completed before January 1, assistance is paid under § 4262.12, and
(viii) For each plan year in the SFA 2021 (excluding the plan’s interest rate, in a manner consistent with the
coverage period: The projected which must be the same as the interest application procedure determined
investment income based on the interest rate required under § 4262.4(e)(1)). For under paragraph (b) of this section—
rate required under § 4262.4(e)(1) and purposes of this paragraph (b)(2), certain (1) PBGC will rescind the partition
the projected fair market value of plan changes in assumptions as described in order; and
assets at the end of each plan year. the special financial assistance (2) The plan sponsor must amend the
(ix) The present value as of the SFA instructions on PBGC’s website at plan to remove any provisions or
measurement date of each of the items www.pbgc.gov should be reflected in the amendments that were required to be
provided under paragraph (a)(4)(iv) Baseline projection. adopted under the partition order.
through (viii) of this section. (3) In accordance with the special
(5) Projected contributions and § 4262.10 Processing applications.
financial assistance instructions on
withdrawal liability payments used to PBGC’s website at www.pbgc.gov, a (a) In general. Any application for
calculate the requested special financial reconciliation of the change in the special financial assistance for an
assistance amount in § 4262.4, including requested special financial assistance eligible multiemployer plan must be
total contributions, contribution base due to each changed assumption from filed by the plan sponsor in accordance
units, average contribution rate(s), the Baseline to the requested special with the provisions of this part and the
reciprocal contributions (if applicable), financial assistance amount in special financial assistance instructions
additional contributions from the paragraph (a)(4)(iii) of this section, on PBGC’s website at www.pbgc.gov.
rehabilitation plan, and any other (b) Method of filing. An application
showing, for each assumption change
contributions, and number of active filed with PBGC under this part must be
from the Baseline, a deterministic
participants at the beginning of each made electronically in accordance with
projection calculated in the same
plan year. For withdrawal liability, the rules in subpart A of part 4000 of
manner as the requested amount in
separate projections for withdrawn this chapter. The time period for filing
§ 4262.4.
employers and for future assumed an application under this part must be
withdrawals. (c) Information required for certain computed under the rules in subpart D
(6) A description of the development events. An application for a plan with of part 4000 of this chapter.
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of the assumed future contributions and respect to which an event described in (c) Where to file. (1) An application
future withdrawal liability payments in § 4262.4(f) occurs on or after July 9, filed with PBGC under this part must be
paragraph (a)(5) of this section. 2021, must include the applicable filed as described in § 4000.4 of this
(7) For a plan that has 350,000 or information related to the event chapter.
more participants reported on line 6f of specified in special financial assistance (2) Section 432(k)(1)(D) of the Code
its most recently filed Form 5500, the instructions on PBGC’s website at requires an application in a priority
participant census data utilized by the www.pbgc.gov. category under paragraph (d)(2) of this
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36626 Federal Register / Vol. 86, No. 130 / Monday, July 12, 2021 / Rules and Regulations
section to be submitted to the Secretary earlier date specified on PBGC’s website filed in accordance with the processing
of the Treasury. If the requirement in at www.pbgc.gov. system and instructions on PBGC’s
the preceding sentence applies to an (iii) Priority group 3. A plan is in website at www.pbgc.gov.
application, PBGC will transmit the priority group 3 if the plan was in (f) Emergency filing. Beginning when
application to the Department of the critical and declining status (as defined PBGC accepts applications in priority
Treasury on behalf of the plan. in section 305(b)(6) of ERISA) and had group 2 described in paragraph (d)(2)(ii)
(d) When to file. Any initial 350,000 or more participants. A plan in of this section, and notwithstanding the
application for special financial priority group 3 may file an application processing system described in
assistance must be filed by December beginning on April 1, 2022, or such paragraph (d)(1) of this section, an
31, 2025, and any revised application earlier date specified on PBGC’s website application may be accepted for filing
must be filed by December 31, 2026. at www.pbgc.gov. if—
Any application other than a plan’s (iv) Priority group 4. A plan is in (1) It is an application for a plan that
initial application is a revised priority group 4 if the plan is projected either—
application regardless of whether it to become insolvent under section 4245 (i) Is insolvent or expected to be
differs from the initial application. of ERISA by March 11, 2023. A plan in insolvent under section 4245 of ERISA
(1) Processing system. To priority group 4 may file an application within 1 year of the date the plan’s
accommodate expeditious processing of beginning on July 1, 2022, or such application was filed; or
many special financial assistance earlier date specified on PBGC’s website (ii) Has suspended benefits under
applications in a limited time period: at www.pbgc.gov. section 305(e)(9) of ERISA as of March
(v) Priority group 5. A plan is in 11, 2021; and
(i) The number of applications
priority group 5 if the plan is projected (2) The filer notifies PBGC before
accepted for filing will be limited in
to become insolvent under section 4245 submitting the application that the
such manner that, in PBGC’s estimation,
of ERISA by March 11, 2026. The date application qualifies as an emergency
each application can be processed
a plan in priority group 5 may file an filing under this paragraph (f) in
within 120 days.
application will be specified on PBGC’s accordance with instructions on PBGC’s
(ii) Plans specified in paragraph (d)(2) website at www.pbgc.gov at least 21
of this section will be given priority to website at www.pbgc.gov.
days in advance of such date, and such (g) Informal consultation. Nothing in
file an application before plans not date will be no later than February 11,
specified in paragraph (d)(2) of this this section prohibits a plan sponsor
2023. from contacting PBGC informally to
section. (vi) Priority group 6. A plan is in
(iii) Notices on PBGC’s website at discuss a potential application for
priority group 6 if the plan is projected special financial assistance.
www.pbgc.gov will apprise potential by PBGC to have a present value of
filers of the current priority group(s) for financial assistance payments under § 4262.11 PBGC action on applications.
which applications are being accepted section 4261 of ERISA that exceeds (a) In general. Within 120 days after
and whether PBGC is accepting $1,000,000,000 if special financial the date an initial or revised application
applications for filing as well as other assistance is not ordered. PBGC will list for special financial assistance is
information about priority groups and the plans in priority group 6 on its properly and timely filed, PBGC will—
filing. website at www.pbgc.gov. The date a (1) Approve the application and
(2) Priority groups. Until not later plan in priority group 6 may file an notify the plan sponsor of the payment
than March 11, 2023, the plan sponsor application will be specified on PBGC’s of special financial assistance in
of an eligible multiemployer plan will website at www.pbgc.gov at least 21 accordance with § 4262.12; or
be given priority to file an application days in advance of such date, and such (2) Deny the application because—
if the plan is in one of the priority date will be no later than February 11, (i) The application is incomplete, and
groups in paragraphs (d)(2)(i) through 2023. notify the plan sponsor of the missing
(vii) of this section, listed in order of (vii) Additional priority groups. PBGC information; or
higher priority group to lower priority may add additional priority groups (ii) An assumption is unreasonable, a
group. When applications for plans in a based on other circumstances similar to proposed change in assumption is
priority group are accepted for filing, those described for the groups listed in individually unreasonable, or the
PBGC will continue to accept paragraphs (d)(2)(i) through (vi) of this proposed changed assumptions are
applications for plans in a higher section. If added, additional priority unreasonable in the aggregate, and
priority group, subject to paragraph groups and the date PBGC will begin notify the plan sponsor of the reasons
(d)(1) of this section. accepting applications for such for the determination; or
(i) Priority group 1. A plan is in additional priority groups will be posted (iii) The plan is not an eligible
priority group 1 if the plan is insolvent in guidance on PBGC’s website at multiemployer plan, and notify the plan
or is projected to become insolvent www.pbgc.gov. sponsor of the reasons the plan fails to
under section 4245 of ERISA by March (e) Filing date. An application will be be eligible for special financial
11, 2022. A plan in priority group 1 may considered filed on the date it is assistance; or
file an application beginning on July 9, submitted to PBGC if it meets the (3) Fail to act on the application, in
2021. applicable requirements in paragraph which case the application is deemed
(ii) Priority group 2. A plan is in (d) of this section and can be approved, and notify the plan sponsor
priority group 2 if the plan has accommodated in accordance with the of the payment of special financial
implemented a suspension of benefits processing system described in assistance in accordance with § 4262.12.
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under section 305(e)(9) of ERISA as of paragraph (d)(1) of this section or the (b) Incomplete application. PBGC will
March 11, 2021; or the plan is expected emergency filing process described in consider an application incomplete
to be insolvent under section 4245 of paragraph (f) of this section. Otherwise, under paragraph (a)(2)(i) of this section
ERISA within 1 year of the date the the application will not be considered unless the application accurately
plan’s application was filed. A plan in filed and PBGC will notify the applicant includes the information required to be
priority group 2 may file an application that the application was not properly filed under this part and the special
beginning on January 1, 2022, or such filed and that the application must be financial assistance instructions on
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Federal Register / Vol. 86, No. 130 / Monday, July 12, 2021 / Rules and Regulations 36627
PBGC’s website at www.pbgc.gov, (ii) Interest on the amount in correct a clerical or arithmetic error.
including all additional information that paragraph (a)(1)(i) of this section from PBGC will, and plans must, make
PBGC requires under § 4262.6(d). the SFA measurement date to the date payments as needed to reflect any such
(c) Application base data. (1) A plan’s PBGC sends payment (not the bank recalculation or adjustment in a timely
base data are— settlement date) at a rate equal to the manner.
(i) The plan’s SFA measurement date interest rate required under (2) If PBGC determines that a payment
as required to be reported in the plan’s § 4262.4(e)(1); plus for special financial assistance to a plan
initial application for special financial (iii) The amount owed to PBGC under exceeded the amount to which the plan
assistance; section 4261 of ERISA determined as of was entitled, any excess payment
(ii) The plan’s participant census data the date PBGC sends payment of special constitutes a debt to the Federal
used in the plan’s initial application for financial assistance; minus Government. If not paid within 90
special financial assistance; and (iv) Financial assistance payments calendar days after demand, PBGC may
(iii) The plan’s interest rate required under section 4261 of ERISA received reduce the debt by any action permitted
under § 4262.4(e)(1). by the plan between the SFA by Federal statute. Except where
(2) A plan’s base data are fixed by the measurement date and the date PBGC otherwise provided by statutes or
filing of the plan’s initial application sends payment of special financial regulations, PBGC will charge interest
and must be reported on any revised assistance, with interest on each such and other amounts permitted on an
application for the plan. financial assistance payment from the overdue debt in accordance with the
(d) Withdrawn applications. (1) A date thereof to the date PBGC sends Federal Claims Collection Standards (31
plan’s application for special financial payment as described in paragraph CFR parts 900 through 999). The date
assistance may be withdrawn at any (a)(1)(ii) of this section calculated at a from which interest is computed is not
time before or after PBGC denies the rate equal to the interest rate required extended by litigation or the filing of
application but not after PBGC has under § 4262.4(e)(1). any form of appeal.
approved the application. (2) The plan must include in its
(2) Any withdrawal of a plan’s application payment instructions in § 4262.13 Restrictions on special financial
application must be by written notice to accordance with the special financial assistance.
PBGC submitted by any person instructions on PBGC’s website at (a) In general. A plan that receives
authorized to submit an application for www.pbgc.gov. Payment will be special financial assistance must be
the plan and in accordance with the considered made by PBGC when, in administered in accordance with the
special financial assistance instructions accordance with the payment restrictions in this section and in
on PBGC’s website at www.pbgc.gov. instructions in the application, PBGC no § 4262.14.
(3) An application submitted for a longer has ownership of the amount (b) Restrictions. Special financial
plan after the withdrawal of an being paid. Any adjustment for delay assistance received, and any earnings
application is a revised application and will be borne by PBGC only to the thereon—
must comply with the requirements in extent that it arises while PBGC has (1) May be used by the plan only to
this part for an initial application except ownership of the funds. make benefit payments and pay
that it must use the base data required (b) Repayment of traditional financial administrative expenses;
in paragraph (c) of this section for the assistance. If a plan has an obligation to (2) Must be segregated from other plan
initial application. repay financial assistance under section assets;
(e) Denied applications. If PBGC 4261 of ERISA, PBGC will— (3) May be used before other plan
denies a plan’s application, and the (1) Issue a written demand for assets are used to make benefit
denied application is not withdrawn, repayment of financial assistance when payments and pay administrative
any revised application must not differ the application is approved; and expenses; and
from the denied application except to (2) Deduct the amount of financial (4) Must be invested in investment-
the extent necessary to address the assistance, including interest, that the grade bonds or other investments as
reasons cited by PBGC for the denial. plan owes PBGC from the special permitted by PBGC in § 4262.14.
(f) Revised applications. A plan’s financial assistance before payment to
the plan. § 4262.14 Permissible investments of
revised application is processed in the
special financial assistance.
same way as an initial application. (c) Date of payment of special
(g) Final agency action. PBGC’s financial assistance. Special financial (a) In general. A plan that receives
decision on an application for special assistance issued by PBGC will be paid special financial assistance may invest
financial assistance under this section is as soon as practicable upon approval of amounts attributable to such assistance
a final agency action under § 4003.22(b) the plan’s special financial assistance monies only in fixed income securities
of this chapter for purposes of judicial application but not later than the earlier denominated in U.S. dollars and in
review under the Administrative of— accordance with this section. For
Procedure Act (5 U.S.C. 701 et seq.). (1) Ninety days after a plan’s special purposes of this section, such securities
financial assistance application is are referred to as permissible
§ 4262.12 Payment of special financial approved by PBGC or deemed approved; investments.
assistance. or (b) Other definitions. For purposes of
(a) Amount of special financial (2) September 30, 2030. this section—
assistance. (1) The amount of special (d) Manner of payment. The payment (1) Adequate capacity to meet
financial assistance to be paid to or for of special financial assistance to a plan financial commitments means that the
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a plan by PBGC will be the total of— will be made by PBGC in a lump sum risk of default by the obligor is low and
(i) The amount required as or substantially so and is not a loan the full and timely repayment of
demonstrated by the plan sponsor on subject to repayment obligations. principal and interest on the security is
the application for such special Notwithstanding the foregoing, the expected.
financial assistance, determined under following payment obligations apply: (2) Permissible fund vehicles mean
§ 4262.4 as of the SFA measurement (1) Special financial assistance is exchange traded funds, mutual funds,
date; plus subject to recalculation or adjustment to pooled trusts, or other commingled
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36628 Federal Register / Vol. 86, No. 130 / Monday, July 12, 2021 / Rules and Regulations
securities whose investible assets are (1) Reinstate any benefits that were (ii) Those increased contributions
invested solely in fixed income suspended for participants and were not included in the determination
securities denominated in U.S. dollars, beneficiaries effective as of the first of the special financial assistance.
with an average credit quality, weighted month in which the special financial (c) Allocation of plan assets. During
by market value, that meets the assistance is paid to the plan; and the SFA coverage period, plan assets,
definition of investment grade. (2) Make payments equal to the including special financial assistance,
(3) Investment grade means publicly amounts of benefits previously must be invested in permissible
traded securities for which the issuer suspended to any participants or investments as described in § 4262.14
has at least adequate capacity to meet beneficiaries who are in pay status as of sufficient to pay for at least 1 year (or
the financial commitments under the the date that the special financial until the date the plan is projected to
security for the projected life of the asset assistance is paid. become insolvent, if earlier) of projected
or exposure. (b) A plan must make the payments in benefit payments and administrative
(4) Leverage means the right to a paragraph (a)(2) of this section either in: expenses.
return on a capital base that exceeds the (1) A single lump sum no later than (d) Contribution decreases. (1) During
investment which was contributed to 3 months after the date that the special the SFA coverage period, the
the entity or instrument achieving a financial assistance is paid to the plan; contributions to a plan that receives
return. special financial assistance required for
or
(c) Holdings. A plan must hold each contribution base unit must not be
(2) Equal monthly installments over a
permissible investments in either— less than, and the definition of the
period of 5 years, with the first
(1) Individual bonds, securities, or contribution base units used must not
installment paid no later than 3 months
other debt securities; or be different from, those set forth in
after the date that the special financial
(2) Permissible fund vehicles. collective bargaining agreements or plan
(d) Quality of permissible assistance is paid to the plan, with no
documents (including contribution
investments. Permissible investments installment payment adjusted for
increases to the end of the collective
must be considered investment grade by interest.
bargaining agreements) in effect on
a fiduciary, within the meaning of (c) The plan sponsor of a plan with March 11, 2021, unless the plan sponsor
section 3(21) of ERISA, who is or seeks benefits that were suspended under determines that the change lessens the
the advice of an experienced investor sections 305(e)(9) or 4245(a) of ERISA risk of loss to plan participants and
(such as an Investment Advisor must issue a notice of reinstatement to beneficiaries and, if the contribution
registered under section 203 of the participants and beneficiaries whose reduction affects annual contributions
Investment Advisor’s Act of 1940), benefits were previously suspended and over $10 million and over 10 percent of
except that up to 5 percent of the then reinstated in accordance with all employer contributions, PBGC also
aggregate market value of a plan’s assets section 4262(k) of ERISA. The determines that the change lessens the
attributable to special financial requirements for the notice are in notice risk of loss to plan participants and
assistance may be invested in securities of reinstatement instructions available beneficiaries.
or permissible fund vehicles that were on PBGC’s website at www.pbgc.gov. (2) A request for PBGC approval of a
investment grade at the time of purchase § 4262.16 Conditions for special financial proposed contribution change that
but are no longer investment grade. assistance. affects annual contributions over $10
(e) Leverage and derivative limitations (a) In general. A plan that receives million and over 10 percent of all
on permissible fund vehicles or portfolio special financial assistance must be employer contributions must be
of individual securities held by the plan. administered in accordance with the submitted by the plan sponsor or its
(1) Permissible investments, whether conditions in this section. duly authorized representative and must
held through permissible fund vehicles contain all of the following information:
(b) Benefit increases. This paragraph
or directly through a portfolio of (i) Name, address, email, and
(b) applies to benefits and benefit
individual securities may not be telephone number of the plan sponsor
increases described in section
supplemented by derivatives or and the plan sponsor’s authorized
4022A(b)(1) of ERISA without regard to
otherwise leveraged in a way that could representatives, if any.
the time the benefit or benefit increase (ii) The nine-digit employer
increase the interest rate risk or credit
has been in effect. This paragraph (b) identification number (EIN) assigned to
risk in the fund vehicle or portfolio
does not apply to the reinstatement of the plan sponsor by the IRS and the
beyond the risk in a portfolio of
benefits that were suspended under three-digit plan identification number
physical securities, meeting the
sections 305(e)(9) or 4245(a) of ERISA (PN) assigned to the plan by the plan
definition of permissible investments in
(as provided under § 4262.15) or a sponsor, and, if different, the EIN and
paragraph (a) of this section, equal to
restoration of benefits under 26 CFR PN last filed with PBGC. If an EIN or PN
the market value of the portfolio; and
1.432(e)(9)–1(e)(3). has not been assigned, that should be
(2) Any notional derivative exposure,
other than exposure gained through a (1) Retrospective. A benefit or benefit indicated.
permissible fund vehicle, must be increase must not be adopted during the (iii) Name, address, email, and
supported by liquid assets that are cash SFA coverage period if it is in whole or telephone number of the contributing
or cash equivalents denominated in U.S. in part attributable to service accrued or employer for which the proposed
dollars. other events occurring before the contribution change is being submitted,
adoption date of the amendment. and the employer’s authorized
§ 4262.15 Reinstatement of benefits (2) Prospective. A benefit or benefit
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representatives, if any.
previously suspended. increase must not be adopted during the (iv) Names and addresses of each
(a) In accordance with guidance SFA coverage period unless— controlled group member, along with a
issued by the Secretary of the Treasury (i) The plan actuary certifies that chart depicting the structure of the
under section 432(k) of the Code, a plan employer contribution increases controlled group by entity and its
with benefits that were suspended projected to be sufficient to pay for the ownership with ownership percentage.
under sections 305(e)(9) or 4245(a) of benefit increase have been adopted or (v) Audited financial statements
ERISA must: agreed to; and (income statement, balance sheet, cash
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Federal Register / Vol. 86, No. 130 / Monday, July 12, 2021 / Rules and Regulations 36629
flow statement, and notes) for the to address financial distress, including overall interests of the participants and
contributing employer and the cost cutting measures, employee count beneficiaries of any of the plans
consolidated group including the or compensation reductions, creditor involved in the transaction.
contributing employer, if available, for concessions obtained, and any other (2) A request for approval of a
the most recent 4 years, or, if audited restructuring efforts undertaken; also, proposed transfer of assets or liabilities
financial statements were not prepared, indicate whether any new profit-sharing (including a spinoff) or merger must be
unaudited financial statements, a or other retirement plan has been or will submitted by the plan sponsor or its
statement explaining why audited be established or if benefits under such duly authorized representative and must
statements are not available, and tax existing plan will be increased. contain the information that must be
returns with all schedules for the most (e) Allocating contributions and other submitted with a notice of merger or
recent 4 years available. The financial practices. During the SFA coverage transfer and a request for a compliance
statement submissions must: period, a decrease in the proportion of determination under subpart A of part
(A) Identify the cash contributions to income or an increase in the proportion 4231 of this chapter and all of the
the multiemployer plan for which the of expenses allocated to a plan that following actuarial and financial
contributing employer is seeking receives special financial assistance information for each of the plans
contribution relief; pursuant to a written or oral agreement involved in the transaction:
(B) Identify all outstanding or practice (other than a written (i) A certification by the enrolled
indebtedness, including the name of the agreement in existence on March 11, actuary that the plan or any of its
lender, the amount of the outstanding 2021, to the extent not subsequently component parts received special
loan, scheduled repayments interest amended or modified) under which the financial assistance and the most recent
rate, collateral, significant covenants, income or expenses are divided or to be value of special financial assistance
and whether the loan is in default; divided between a plan that receives assets.
(C) Identify and explain any material special financial assistance and one or (ii) A copy of the actuarial valuation
changes in financial position since the more other employee benefit plans is performed for each of the 2 plan years
date of the last financial statement; prohibited. The prohibition in the before the most recent actuarial
(D) To the extent that the contributing preceding sentence does not apply to a valuation filed in accordance with
employer has undergone or is in the good faith allocation of: § 4231.9(f) of this chapter.
process of undergoing a partial (1) Contributions pursuant to a (iii) A copy of the plan actuary’s most
liquidation, estimate the sales, gross reciprocity agreement; recent certification under section
profit, and operating profit that would (2) Costs of securing shared space, 305(b)(3) of ERISA, including a detailed
have been reported for each of the 3 goods, or services, where such description of the assumptions used in
years covered by the financial statement allocation does not constitute a the certification, and the basis under
for only that portion of the business that prohibited transaction under ERISA or which they were determined. The
is currently expected to continue; and is exempt from such prohibited description must include information
(E) State the estimated liquidation transaction provisions pursuant to about the assumptions used for the
values for any assets related to section 408(b)(2) or 408(c)(2) of ERISA, projection of future contributions,
discontinued operations or operations or pursuant to a specific prohibited withdrawal liability payments, and
that are not expected to continue, along transaction exemption issued by the investment returns, and any other
with the sources for the estimates. Department of Labor under section assumption that may have a material
(vi) Projected financial statements 408(a) of ERISA; effect on projections.
(income statement, balance sheet, cash (3) The actual cost of services (iv) A detailed statement certified by
flow statement) for the current year and provided to the plan by an unrelated an enrolled actuary that the transaction
the following 4 years as well as the key third party; or does not unreasonably increase PBGC’s
assumptions underlying those (4) Contributions where the risk of loss with respect to any plan
projections and a justification for the contributions to a plan that receives involved in the transaction. The
reasonableness for each of those key special financial assistance required for statement must include the basis for the
assumptions. The projections must each base unit are not reduced, except conclusion, supporting data,
include: as otherwise permitted by paragraph (d) calculations, assumptions, a description
(A) All business or operating plans of this section. of the methodology, the basis for
prepared by or for management, (f) Transfer or merger. During the SFA assumptions used, the projected date of
including all explanatory text and coverage period, a plan must not engage insolvency, and the present value of
schedules; in a transfer of assets or liabilities financial assistance expected to be paid
(B) All financial submissions, if any, (including a spinoff) or merger except to the plan by PBGC under section 4261
made within the prior 3 years to a with PBGC’s approval. Notwithstanding of ERISA as of the date of the
financial institution, government anything to the contrary in 29 CFR part transaction individually for each of the
agency, or investment banker in support 4231, the plans involved in the plans before and after the transaction.
of possible outside financing or sale of transaction must request approval from The present value of financial assistance
the business; PBGC. must be based on the guaranteed
(C) All recent financial analyses done (1) PBGC will approve a proposed benefits and administrative expenses
by an outside party with a certification transfer of assets or liabilities (including presented in the cash flow projections
by the employer’s chief executive officer a spinoff) or merger if PBGC determines under paragraph (f)(2)(v) of this section,
that the transaction complies with discounted using interest rates
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that the information on which each
analysis is based is accurate and section 4231(a)–(d) of ERISA and that published under section 4044 of ERISA.
complete; and the transaction, or the larger transaction (v) The statement in paragraph
(D) Any other relevant information. of which the transfer or merger is a part, (f)(2)(iv) of this section must include an
(vii) Description of events leading to does not unreasonably increase PBGC’s exhibit showing the annual cash flow
the current financial distress. risk of loss with respect to any plan projections for each plan before and
(viii) Description of financial and involved in the transaction, and is not after the transaction, through the year
operational restructuring actions taken reasonably expected to be adverse to the that each plan pays its last dollar of
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36630 Federal Register / Vol. 86, No. 130 / Monday, July 12, 2021 / Rules and Regulations
benefit (but not to exceed 100 years). (i) Implementation of the settlement is and conditions of the special financial
The cash flow projection should use an in the best interests of participants and assistance under this part and section
open group valuation until the plan beneficiaries; and 4262 of ERISA. The statement must be—
reaches insolvency. Annual cash flow (ii) The settlement does not create an (1) Filed no later than 90 days after
projections must reflect the following unreasonable risk of loss to PBGC. the end of the plan year; and
information: (3) A request for approval of a (2) Signed and dated by a trustee who
(A) Fair market value of assets as of proposed settlement of withdrawal is a current member of the board of
the beginning of the year, splitting the liability must be submitted by the plan trustees and authorized to sign on behalf
assets by special financial assistance sponsor or its duly authorized of the board of trustees, or by another
and non-special financial assistance representative and must contain all of authorized representative of the plan
amounts. the following information: sponsor.
(B) Contributions and withdrawal (i) Name, address, email, and (j) Audit. As authorized under section
liability payments. telephone number of the plan sponsor 4003 of ERISA, PBGC may conduct
(C) Plan level benefit payments and the plan sponsor’s authorized periodic audits of a plan that has
organized by participant type (e.g., representatives, if any. received special financial assistance to
active, retiree, terminated vested) for the (ii) The nine-digit employer review compliance with the terms and
projection period. identification number (EIN) assigned to conditions of the special financial
the plan sponsor by the IRS and the assistance under this part and section
(D) Guaranteed benefits payable post
three-digit plan number (PN) assigned to 4262 of ERISA.
insolvency by participant type (e.g., (k) Filing rules. The filing rules in this
active, retiree, terminated vested). the plan by the plan sponsor, and, if
different, the EIN and PN last filed with paragraph (k) apply to a request for
(E) Administrative expenses for the PBGC approval under paragraph (d), (f),
projection period. PBGC. If an EIN or PN has not been
assigned, that should be indicated. or (h) of this section and a statement of
(F) Assumed investment return compliance under paragraph (i) of this
separately for special financial (iii) A copy of the proposed
settlement agreement. section.
assistance and non-special financial (1) Method of filing. A filing described
(iv) A description of the facts leading
assistance amounts. under paragraph (d), (f), (h), or (i) of this
up to the proposed settlement,
(G) Fair market value of assets as of section must be made electronically in
including—
the end of the year. accordance with the rules in subpart A
(A) The date the employer withdrew
(vi) Any additional information PBGC of part 4000 of this chapter. The time
from the plan;
determines it needs to review a request (B) The calculation of the withdrawal period for filing a request or statement
for approval of a proposed transfer of liability amount, including payment of compliance must be computed under
assets or liabilities (including a spinoff) dates and amounts listed in the the rules in subpart D of part 4000 of
or merger. schedule for liability payments this chapter.
(g) Withdrawal liability interest provided to the withdrawn employer in (2) Where to file. A filing described
assumptions. A plan must use the accordance with section 4291(b)(1)(A) of under paragraph (d), (f), (h), or (i) of this
interest assumptions under § 4281.13(a) ERISA; section must be submitted as described
of this chapter to determine withdrawal (C) The amount(s) and date(s) of in § 4000.4 of this chapter.
liability for withdrawals after the plan withdrawal liability payments made;
year in which the plan receives payment § 4262.17 Other provisions.
and (a) Special financial assistance is not
of special financial assistance under (D) How the proposed settlement
§ 4262.12 and until the later of— capped by the guarantee under section
amount was determined (discount rate
(1) Ten years after the end of the plan 4022A of ERISA.
used, financial condition of the (b) A plan that receives special
year in which the plan receives payment employer, and other factors, as
of special financial assistance under financial assistance must continue to
applicable). pay premiums due under section 4007
§ 4262.12; or (v) Most recent 3 years of audited
(2) The last day of the plan year in of ERISA for participants and
financial statements and a 5-year cash beneficiaries in the plan.
which the plan no longer holds any flow projection for the employer with (c) A plan that receives special
special financial assistance or earnings which the plan proposes to settle. financial assistance is deemed to be in
thereon in a segregated account as (vi) A copy of the most recent critical status within the meaning of
required by § 4262.13(b)(2). actuarial valuation report of the plan. section 305(b)(2) of ERISA until the last
(h) Withdrawal liability settlement. (1) (vii) A statement certifying the day of the last plan year ending in 2051.
During the SFA coverage period, a plan trustees have determined that the (d) A plan that receives special
must obtain PBGC approval for a proposed settlement is in the best financial assistance and subsequently
proposed settlement of withdrawal interest of the plan and the plan’s becomes insolvent under section 4245
liability if the amount of the liability participants and beneficiaries. of ERISA will be subject to the rules and
settled is greater than $50 million (viii) Any additional information guarantee for insolvent plans in effect
calculated as the lesser of— PBGC determines it needs to review a when the plan becomes insolvent.
(i) The allocation of unfunded vested request for approval of a proposed (e) A plan that receives special
benefits to the employer under section withdrawal liability settlement. financial assistance is not eligible to
4211 of ERISA; or (i) Reporting. In accordance with the apply for a suspension of benefits under
(ii) The present value of withdrawal statement of compliance instructions on
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section 305(e)(9) of ERISA.
liability payments assessed for the PBGC’s website at www.pbgc.gov, a plan (f) A plan that receives special
employer discounted using the interest sponsor must file with PBGC each plan financial assistance and meets the
assumptions under § 4281.13(a) of this year, beginning with the plan year after eligibility requirements for partition of
chapter. the payment of special financial the plan under section 4233(b) of ERISA
(2) PBGC will approve a proposed assistance and through the last day of may apply for partition.
settlement of withdrawal liability if it the last plan year ending in 2051, a (g) If any provision in this part is held
determines— statement of compliance with the terms to be invalid or unenforceable by its
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Federal Register / Vol. 86, No. 130 / Monday, July 12, 2021 / Rules and Regulations 36631
terms, or as applied to any person or will be one of utter invalidity or Issued in Washington, DC.
circumstance, or stayed pending further unenforceability, in which event the Gordon Hartogensis,
agency action, the provision will be provision will be severable from this Director, Pension Benefit Guaranty
construed so as to continue to give the part and will not affect the remainder Corporation.
maximum effect to the provision thereof. [FR Doc. 2021–14696 Filed 7–9–21; 11:15 am]
permitted by law, unless such holding BILLING CODE 7709–02–P
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- Our copy
- FR-2021-07-12_2021-14696.pdf
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- www.govinfo.gov