Special Financial Assistance by PBGC (rule, 87 FR 40968, July 8, 2022)
Summary
A final rule with request for comment of the Pension Benefit Guaranty Corporation (PBGC), RIN 1212–AB53, printed in the Federal Register of Friday, July 8, 2022 (Vol. 87, No. 130). It states that on July 9, 2021, PBGC issued an interim final rule setting the requirements for special financial assistance (SFA) applications under the American Rescue Plan Act of 2021. With the approval of its board of directors, PBGC changes part 4262 of its regulations in response to public comments, including changes to the methodology to calculate SFA and to the permissible investments for SFA funds. The rule states that SFA is provided in the amounts required for eligible multiemployer plans to pay all benefits due through the plan year ending in 2051.
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Cite this document
“Special Financial Assistance by PBGC (rule, 87 FR 40968, July 8, 2022).”
Original at www.govinfo.gov. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/special-financial-assistance-by-pbgc-rule-87-fr-40968-july-8-2022-75d5ec1a0c/
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40968 Federal Register / Vol. 87, No. 130 / Friday, July 8, 2022 / Rules and Regulations
PENSION BENEFIT GUARANTY online instructions for submitting Plan Act of 2021, ‘‘Special Financial
CORPORATION comments. Assistance Program for Financially
• Email: reg.comments@pbgc.gov. Troubled Multiemployer Plans.’’ 1 This
29 CFR Part 4262 • Mail or Hand Delivery: Regulatory program enhances retirement security
Affairs Division, Office of the General for millions of Americans by providing
RIN 1212–AB53 Counsel, Pension Benefit Guaranty eligible multiemployer defined benefit
Corporation, 1200 K Street NW, pension plans with special financial
Special Financial Assistance by PBGC
Washington, DC 20005–4026. assistance (SFA) in the amounts
AGENCY: Pension Benefit Guaranty Commenters are strongly encouraged required for the plans to pay all benefits
Corporation. to submit public comments due during the period beginning on the
ACTION: Final rule with request for
electronically. PBGC expects to have date of payment of SFA through the
comment. limited personnel available to process plan year ending in 2051. In
public comments that are submitted on consultation with, and with the
SUMMARY: On July 9, 2021, PBGC issued paper through mail. Until further notice, approval of, PBGC’s board of directors
an interim final rule setting forth the any comments submitted on paper will (Board of Directors or Board), PBGC is
requirements for special financial be considered to the extent practicable. making changes to part 4262 of its
assistance applications and related All submissions must include the regulations in response to public
restrictions and conditions pursuant to agency’s name (Pension Benefit comments received on the interim final
the American Rescue Plan Act of 2021. Guaranty Corporation, or PBGC) and rule, including changes to the
PBGC is making changes to its title for this rulemaking (Special methodology to calculate SFA,
regulation in response to public Financial Assistance by PBGC) and the permissible investments for SFA funds
comments received on the interim final Regulation Identifier Number for this (SFA received and any earnings
rule, with an additional opportunity for rulemaking (RIN 1212–AB53). thereon), the application of conditions
comment solely on the condition Comments received will be posted on a plan that merges with a plan that
requiring a phased recognition of without change to PBGC’s website, receives SFA, and the withdrawal
special financial assistance in a plan’s www.pbgc.gov, including any personal liability conditions that apply to a plan
determination of withdrawal liability. information provided. Do not submit that receives SFA.2
DATES:
comments that include any personally PBGC’s legal authority for this
Effective date: This final rule is identifiable information or confidential rulemaking comes from section 4262 of
effective on August 8, 2022. business information. the Employee Retirement Income
Copies of comments may also be Security Act of 1974 (ERISA) (Special
Applicability dates: This final rule is
obtained by writing to Disclosure Financial Assistance by the
applicable to plans that apply or have
Division, Office of the General Counsel, Corporation), which requires PBGC to
applied for special financial assistance.
Pension Benefit Guaranty Corporation, issue regulations or guidance setting
For a plan that received special
1200 K Street NW, Washington, DC forth requirements for SFA applications,
financial assistance under part 4262 in
20005–4026 or calling 202–229–4040 permits PBGC to provide for how SFA
effect before August 8, 2022, § 4262.14
during normal business hours. If you are and earnings thereon are to be invested,
will not apply unless and until the plan
deaf, hard of hearing, or have a speech and permits PBGC, in consultation with
files a supplemented application under
disability, please dial 7–1–1 to access the Secretary of the Treasury, to impose
this part. Before the date that the plan
telecommunications relay services. reasonable conditions by regulation or
files a supplemented application under
FOR FURTHER INFORMATION CONTACT: other guidance on an eligible
this part, the rules under § 4262.14 in
effect before August 8, 2022 apply to the Daniel S. Liebman (liebman.daniel@ multiemployer plan that receives SFA.
plan. pbgc.gov; 202–229–6510), Deputy PBGC’s legal authority also comes from
For a plan that received special General Counsel, Program Law and section 4002(b)(3) of ERISA, which
financial assistance under part 4262 in Policy Department, Hilary Duke authorizes PBGC to issue regulations to
effect before August 8, 2022, (duke.hilary@pbgc.gov; 202–229–3839), carry out the purposes of title IV of
§ 4262.16(g)(2) will not apply unless the Assistant General Counsel for ERISA, and from section 4003(a) of
plan files a supplemented application Regulatory Affairs, or Stephanie Cibinic ERISA, which authorizes PBGC to
under this final rule. If the plan files a (cibinic.stephanie@pbgc.gov; 202–229– conduct investigations and audits.
supplemented application, 6352), Deputy Assistant General
Counsel for Regulatory Affairs, Office of Major Provisions of the Regulatory
§ 4262.16(g)(2) applies to the plan in Action
determining withdrawal liability for the General Counsel, Pension Benefit
withdrawals occurring on or after the Guaranty Corporation, 1200 K Street Part 4262 sets forth what information
date the plan files the supplemented NW, Washington, DC 20005–4026. If a plan is required to file to demonstrate
application. you are deaf, hard of hearing, or have a eligibility for SFA and the amount of
Comment date for withdrawal liability speech disability, please dial 7–1–1 to SFA to be paid by PBGC to the plan.
condition in § 4262.16(g)(2): Comments, access telecommunications relay The regulation identifies which plans
which should address only the services. will be given priority to file applications
withdrawal liability condition in SUPPLEMENTARY INFORMATION:
before March 11, 2023, and provides for
§ 4262.16(g)(2), must be received on or a processing system to accommodate the
Executive Summary filing and review of many applications
before August 8, 2022 to be assured of
consideration. Purpose and Authority
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1 The rule was published in the Federal Register
ADDRESSES: Comments on On July 9, 2021, the Pension Benefit on July 12, 2021, at 86 FR 36598.
§ 4262.16(g)(2) of this final rule may be Guaranty Corporation (PBGC) issued an 2 Under section 4002(a) of ERISA, PBGC is
submitted by any of the following interim final rule adding to its administered in accordance with policies
established by the Board of Directors, which is
methods: regulations a new part 4262 to made up of the Secretaries of the Department of
• Federal eRulemaking Portal: implement the requirements under Labor, the Department of the Treasury, and the
https://www.regulations.gov. Follow the section 9704 of the American Rescue Department of Commerce.
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Federal Register / Vol. 87, No. 130 / Friday, July 8, 2022 / Rules and Regulations 40969
in a limited amount of time. This part Department of the Treasury (Treasury On March 11, 2021, the President signed
also establishes permissible investments Department) for a suspension of benefits into law the American Rescue Plan
of SFA funds and other restrictions and under section 305(e)(9) of ERISA, which (ARP) Act of 2021 (Pub. L. 117–2),
conditions on plans that receive SFA. requires plans to show that the which amended title IV of ERISA to
PBGC is making changes in this final proposed suspension would enable address the immediate crisis facing
rule that revise part 4262, including them to avoid insolvency. Without such severely underfunded multiemployer
changes to the SFA measurement date, a showing, the Treasury Department plans and the solvency of PBGC, and to
the methodology to calculate SFA, cannot approve the application for a assist plans by providing funds to
permissible investments of SFA funds, suspension of benefits. Generally, under reinstate suspended benefits.
the application of conditions on a plan this process, plans may propose a
that merges with a plan that receives American Rescue Plan Act of 2021—
reduction of benefits to no less than 110
SFA, and the withdrawal liability Special Financial Assistance Program
percent of PBGC’s guaranteed benefit
conditions that apply to a plan that for Financially Troubled Multiemployer
amount. A plan that has taken all
receives SFA. Plans
reasonable measures, including
applying for a suspension of benefits, Section 4262 of ERISA creates a
Background program to enhance retirement security
may also request partition assistance
PBGC and the Multiemployer Insurance from PBGC (under section 4233 of for millions of Americans by providing
Program ERISA). A partition allows the plan to SFA to financially troubled
PBGC administers two insurance transfer responsibility for paying multiemployer plans. Under current
programs for private-sector defined monthly guaranteed benefits for a conditions, the SFA program is
benefit pension plans under title IV of portion of the plan’s participants and expected to assist about 200 financially
ERISA: one for single-employer defined beneficiaries to a newly created troubled plans. The SFA provided to
benefit pension plans and one for successor plan that receives financial these plans will forestall their
multiemployer defined benefit pensions assistance from PBGC. When a partition insolvency for many years into the
plans (multiemployer plans). In general, is approved, the original plan has an future and includes funds to reinstate
a multiemployer plan is a plan which is ongoing obligation to pay and preserve suspended monthly benefits going
maintained pursuant to one or more benefits for all participants at levels forward, and for make-up payments to
collective bargaining agreements above PBGC’s guaranteed amounts. All restore previously suspended benefits.
involving two or more unrelated plans approved for benefit suspensions In addition, the SFA program improves
employers. The multiemployer under MPRA as of March 11, 2021, the financial outlook for PBGC’s
insurance program protects the benefits certified—and Treasury confirmed multiemployer insurance program.
of approximately 10.9 million workers through review of plan applications— Section 9704 of ARP amends section
and retirees in approximately 1,400 that the proposed suspensions (in 4005 of ERISA to establish an eighth
plans. This final rule deals with combination with any partition) would fund for SFA from which PBGC will
multiemployer plans. enable the plans to avoid insolvency provide SFA to multiemployer plans
The multiemployer insurance indefinitely, as set forth in the Treasury pursuant to section 4262 of ERISA. The
program provides PBGC with tools to Department’s implementing regulations. eighth fund will be credited with
help plans that are insolvent or MPRA also allows critical and amounts from time to time as the
approaching insolvency to be able to declining plans to request financial Secretary of the Treasury, in
pay guaranteed benefits.3 This help is assistance from PBGC upon merging conjunction with the Director of PBGC,
primarily in the form of financial with another multiemployer plan determines appropriate, from the
assistance loans under section 4261(a) (‘‘facilitated mergers’’ under section general fund of the Treasury
of ERISA. Under that provision, when a 4231(e) of ERISA) if such financial Department. Transfers from the general
multiemployer plan becomes insolvent, assistance is necessary for the fund to the eighth fund cannot occur
PBGC provides periodic financial multiemployer plan to become or after September 30, 2030.
assistance payments to the insolvent remain solvent. Financial assistance to Section 4262 of ERISA sets forth the
plan in amounts that, together with the merged plan may promote mergers provisions for SFA, including which
existing plan assets and any other plan with more viable plans and eliminate plans are eligible to apply, the cutoff
income, are sufficient to pay guaranteed the need for benefit reductions. date for applications, rules relating to
In recent years, Congress considered a actuarial assumptions and PBGC’s
benefit amounts to participants and
range of proposals to address the determinations on applications,
beneficiaries. In general terms, a plan is
funding crisis in the multiemployer restrictions on the use of SFA, and that
insolvent if it cannot pay benefits under
pension system, including proposals to certain plans with suspended benefits 5
the plan when due during the current
expand PBGC’s partition authority, loan must reinstate those benefits
plan year. programs, and broader reforms to
The Multiemployer Pension Reform prospectively and provide make-up
stabilize multiemployer plans and payments to restore previously
Act of 2014 (MPRA) created pathways
extend the solvency of PBGC’s suspended benefits. Unlike the financial
under ERISA to enable certain
multiemployer insurance program. assistance provided under section 4261
distressed plans to avoid insolvency.
Many of the prominent efforts to of ERISA, which is in the form of a loan,
Plans that are in critical and declining
address issues facing the multiemployer a plan receiving SFA under section 4262
status 4 may apply to the U.S.
pension system included ideas to has no obligation to repay SFA.
3 Multiemployer plan guaranteed benefits are
effectively reverse MPRA benefit Section 4262 of ERISA requires PBGC
suspensions and provide for
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primarily nonforfeitable benefits and the maximum to prescribe in regulations or other
guarantee is set by law under section 4022A of reinstatement of the suspended benefits. guidance the requirements for SFA
ERISA.
4 Amultiemployer plan is incritical and declining
applications, including an alternate
the 14 succeeding planyears (or 19succeeding plan
status if the plansatisfies the criteria for critical years if theplan has a ratio of inactive participantsto
application for plans with an approved
statusunder section 305(b)(2) of ERISA and is active participants thatexceeds 2 to 1 or if the
projectedto become insolvent within the meaningof funded percentage of theplan is less than 80 5 Plans with suspended benefits pursuant to
section 4245 during the current planyear or any of percent). section 305(e)(9) or 4245(a) of ERISA.
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40970 Federal Register / Vol. 87, No. 130 / Friday, July 8, 2022 / Rules and Regulations
partition under section 4233 of ERISA. firms, other plan professionals, disagree with this condition, PBGC is
In addition, PBGC may prioritize participants, members of Congress, and interested in comments that articulate
applications during the first 2 years after other individuals. The comments, the rationale supporting such
March 11, 2021, prescribe how SFA PBGC’s responses to the comments, and disagreement. PBGC requests comments
funds are to be invested, and impose a summary of changes made to the on whether the determination of the
reasonable conditions on plans that interim final rule are discussed in the timeline under the final rule
receive SFA. next section. appropriately balances the interests of
Although PBGC’s rulemakings various stakeholders, or whether a
Section-by-Section Discussion of Public shorter (or longer) phase-in period
generally involve coordination and
Comments might protect the financial security of
consultation with two other agencies
that have jurisdiction over pension Overview and Purpose plan participants and beneficiaries
plans (the Treasury Department and the without placing an undue burden on
The final rule amends part 4262,
U.S. Department of Labor (Department withdrawing employers. PBGC is also
including changes from the interim final
of Labor or Department)), section 4262 interested in comments about a partial
rule regarding the SFA measurement
of ERISA specifically provides for phase-in condition, including how such
date, the determination of eligibility and
coordination and consultation with the a condition might work, and whether a
the amount ofSFA (including interest
Treasury Department, particularly on partial phase-in condition has any
rate assumptions and the calculation of
SFA applications involving a plan’s benefits or drawbacks as compared to
SFA for plans with an approved MPRA
reinstatement of benefits suspended the phase-in condition in this rule.
benefit suspension as of March 11,
under section 305(e)(9) of ERISA.6 The Finally, should there be a different
2021), the content of an application for phase-in rule for plans that will receive
statute also provides for consultation SFA, the process of applying, PBGC’s
with the Treasury Department with a large amount of SFA compared to their
review of applications,and restrictions non-SFA assets than for plans that will
respect to a plan that proposes in its (including permissible investment of
application to change certain receive a relatively small amount of SFA
SFA funds) and conditions on plans compared to their non-SFA assets (so
assumptions, with respect to a plan that receiving SFA. The final rule also makes
files an application under PBGC that the SFA account is projected to be
other clarifying and editorial changes to exhausted after a relatively short
regulations or guidance prioritizing part 4262.
certain applications, and on the period)?
In this document, PBGC is providing
conditions imposed on plans that for a 30-day comment period solely on Definitions—SFA Measurement Date
receive SFA.7 This final rule is a result the condition requiring a phased The SFA measurement date used in
of that coordination and consultation, recognition of SFA in a plan’s calculating the amount of SFA under
which will continue during the SFA determination of withdrawal liability in § 4262.4 was defined in § 4262.2 of the
program’s operation as plans apply for § 4262.16(g)(2), because it is an area of interim final rule as the last day of the
SFA. complexity that may benefit from calendar quarter immediately preceding
Interim Final Rule additional public comment. This will the date the plan’s application was filed.
provide an opportunity for additional This date was established by the filing
On July 9, 2021, PBGC issued an public comment on the condition and
interim final rule on Special Financial of the plan’s initial application for SFA.
will allow PBGC to assess the A few commenters raised general
Assistance by PBGC. Before the interim effectiveness of this withdrawal liability concerns about the uncertainty of the
final rule was issued, PBGC held condition, consider adjustments or plan’s SFA measurement date and
listening sessions with interested parties changes, and determine whether more having to change the SFA measurement
at their request. Representatives of clarification is needed regarding the date immediately after the end of the
PBGC’s Board of Directors (the condition or the mechanics of calendar quarter because of PBGC’s
Secretaries of the Department of Labor, implementation. To the extent PBGC metering system described in § 4262.10.
the Treasury Department, and the determines that adjustments or changes One of the commenters recommended
Department of Commerce) also to this withdrawal liability condition that PBGC consider adjusting the SFA
participated in these listening sessions. are appropriate and authorized, or that measurement date to allow plans
Most of the requesters provided letters further clarification is needed, PBGC intending to file, but unable to file
or agendas outlining their concerns. In may revise the condition accordingly. during a temporary closure of the filing
addition, other interested parties sent Broadly, PBGC is interested in hearing window, to use the plan’s original
PBGC letters communicating their from commenters about whether the intended SFA measurement date. A
views. PBGC considered the views and condition requiring a phased suggestion was made to allow plans to
concerns expressed, which helped to recognition of SFA in a plan’s submit a notice of intent to file. Another
inform the interim final rule. determination of withdrawal liability commenter recommended that non-
PBGC provided a 30-day comment strikes the correct balance among priority group plans be given the option
period 8 for the interim final rule and stakeholders, or if a different condition to freeze the SFA measurement date as
received over 100 comment letters from might work better. Additionally, PBGC of the earliest date a plan in priority
multiemployer plans and associations is interested in hearing from group 6 could apply or the end of the
representing multiemployer plans, stakeholders about what the expected calendar quarter before the date PBGC
contributing employers and associations impact of such a condition is likely to begins to accept applications for non-
representing employers, labor be, and whether additional clarification priority group plans. The commenters
organizations, actuarial consulting firms or guidance would be useful. stated this would save plans the burden
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and practitioners, financial services PBGC also requests comments about and expense of having to re-do their
6 See section 4262(n) of ERISA.
whether the phased recognition of SFA, applications if the applications cannot
7 See sections 4262(m) and 4262(n) of ERISA.
which reflects projected rather than be filed until the following calendar
8 PBGC considered comments received up to 1 actual market earnings and losses, quarter.
week after the 30-day comment period as timely expenses, and benefit payments, strikes PBGC understands that some
received during the comment period. the correct balance. If commenters commenters would like greater certainty
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Federal Register / Vol. 87, No. 130 / Friday, July 8, 2022 / Rules and Regulations 40971
about when an initial application may became law) and has remained insolvent, it should be eligible to apply
be filed to establish the plan’s SFA insolvent and has not terminated under for SFA, arguing that section 4262 of
measurement date. To address timing section 4041A of ERISA as of March 11, ERISA does not state that any plan
concerns related to preparing a plan’s 2021. terminated before 2020 through mass
application, in the final rule, PBGC is In its interim final rule, PBGC noted withdrawal is not eligible for relief.
changing the definition of the SFA that a plan that terminated by mass Section 4262(b)(1) of ERISA provides a
measurement date in § 4262.2 from ‘‘the withdrawal in a plan year that ended list of four types of plans that are
last day of the calendar quarter before January 1, 2020, is not eligible for eligible to apply for SFA, and PBGC
immediately preceding the date the SFA under section 4262(b)(1)(A) of cannot extend eligibility for SFA
plan’s application was filed’’ to ‘‘the last ERISA and § 4262.3(a)(1) (plans that are through its regulation to a plan that is
day of the third calendar month in critical and declining status in any not included in that list. As noted
immediately preceding the date the plan year beginning in 2020, 2021, or above, a plan that is terminated by mass
plan’s initial application for special 2022). This is because the rules under withdrawal in a plan year beginning
financial assistance was filed.’’ For section 432 of the Code, for plans in before 2020 does not meet the eligibility
example, if the plan’s initial application endangered, critical, and critical and requirements under section
was filed on March 15, 2023, its SFA declining status, do not apply to such a 4262(b)(1)(A) or (C) of ERISA or
measurement date would be December plan in any of those plan years.10 The § 4262.3(a)(1) or (3).
31, 2022; if the plan’s initial application interim final rule provided as an Section 4262.3(c)(1) of the regulation
was filed on July 1, 2023, its SFA example that, if a plan that was in provides that aplan that has elected to
measurement date would be April 30, critical and declining status in 2019 be in critical status under section
2023. terminated by mass withdrawal in that 305(b)(4) of ERISA, but is not certified
In addition, based on a commenter year, the plan would not be eligible for to be in critical status under section
suggestion, PBGC is adding a provision SFA under § 4262.3(a)(1) because it was 305(b)(2), is not an eligible
in § 4262.10 to provide a mechanism for not in critical and declining status in multiemployer plan. In response to a
plans to file a ‘‘lock-in application.’’ If 2020, 2021, or 2022. To provide further commenter, PBGC is further clarifying
a plan files a lock-in application, it will clarification, PBGC notes that for the that a plan is an eligible multiemployer
be considered the plan’s initial same reason, a plan that terminated by plan if it is certified to be in critical
application for SFA, establishing the mass withdrawal in a plan year status under section 305(b)(2) of ERISA
filing date for a plan’s initial application beginning before 2020 cannot be eligible during the 2020, 2021, or 2022 plan
and the plan’s base data (SFA for SFA under section 4262(b)(1)(C) of years (and otherwise meets the other
measurement date, census data, non- ERISA or under § 4262.3(a)(3) (plans criteria for an eligible critical status plan
SFA interest rate assumption, and SFA that are in critical status in any plan under § 4262.3(a)(3)), regardless of
interest rate assumption). This provision year beginning in 2020, 2021, or 2022). whether the plan made an election
is described in more detail later in the Two commenters stated that plans under section 305(b)(4) of ERISA to be
preamble under the subheading Lock-in terminated by mass withdrawal should in critical status in a previous year.
Application. In addition, a commenter requested
be eligible to apply for SFA. In
clarification as to how an election under
Eligible Multiemployer Plans particular, one commenter suggested
section 9701(a) of ARP affects SFA
There are four types of multiemployer that if a plan terminated by mass
eligibility. Section 9701(a) of ARP
plans identified in section 4262(b)(1) of withdrawal, but is not currently
permits a multiemployer plan sponsor
ERISA that are eligible to apply for SFA 10 Section 412(a)(1) of the Code requires a pension
to make an election relating to the plan’s
under § 4262.3 of PBGC’s regulation. plan to satisfy the minimum funding standard status under section 432(b) of the Code
This list is in section 4262(b)(1)(A) applicable to the plan for each plan year. In the case and section 305(b) of ERISA (section
through (D) of ERISA and consists of: of a multiemployer plan, section 412(a)(2)(C) 432 status) for certain plan years. If the
(1) A plan in critical and declining provides that participating employers must make plan sponsor makes the election under
contributions under the plan for a plan year that,
status (within the meaning of section in the aggregate, are sufficient to ensure that the section 9701(a) of ARP for a plan year,
305(b)(6) of ERISA) in any plan year plan does not have an accumulated funding then, notwithstanding the actuarial
beginning in 2020, 2021, or 2022. deficiency under section 431 as of the end of the certification of the plan’s status for the
(2) A plan with a suspension of plan year. Section 412(e)(4) provides that the plan year, the plan will have the same
benefits approved under section minimum funding rules under section 412 apply to
a multiemployer plan until the last day of the plan status as it had for the preceding plan
305(e)(9) of ERISA as of the date ARP year in which a plan terminates within the meaning year. IRS Notice 2021–57, 2021–44 IRB
became law (March 11, 2021). of section 4041A(a)(2) of ERISA (that is, termination 706, refers to an election under section
(3) A plan certified to be in critical by mass withdrawal or a cessation of the obligation 9701(a)(1) of ARP as a ‘‘freeze election,’’
status (within the meaning of section of all employers to contribute under the plan).
Accordingly, the rules of section 431 of the Code
and a multiemployer plan sponsor may
305(b)(2) of ERISA) that has a modified do not apply to such a plan for periods after the make a freeze election for the first plan
funded percentage of less than 40 plan year of termination. year beginning on or after March 1,
percent and a ratio of active to inactive The Internal Revenue Service (IRS) has informed 2020, or the next succeeding plan year.
participants which is less than 2 to 3, in PBGC that section 432 of the Code, which provides That guidance also provides that if a
any plan year beginning in 2020, 2021, rules for multiemployer plans in endangered status
or critical status, likewise does not apply to a freeze election applies for a plan year,
or 2022. multiemployer plan for periods after the plan year then the plan has an elected section 432
(4) A plan that became in solvent 9 for of termination within the meaning of section status, which may be different than the
purposes of section 418E of the Internal 4041A(a)(2) of ERISA. This is consistent with plan’s section 432 status as certified by
Revenue Code (the Code) after section 301(c) of ERISA (over which the Secretary
the plan’s actuary under section
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of the Treasury has interpretive jurisdiction
December 16, 2014 (the date MPRA pursuant to section 101 of Reorganization Plan No. 432(b)(3) of the Code for that plan year.
4 of 1978 (5 U.S.C. App.)), which provides that part Accordingly, if a plan is certified to be
9 A multiemployer plan is regarded as insolvent 3 of title I of ERISA, including the minimum in critical status (within the meaning of
as of the first day of the plan year in which it is funding rules parallel to sections 412, 431, and 432
projected to have insufficient resources to pay all of the Code, applies until the last day of the plan
section 305(b)(2) of ERISA) in any plan
benefits under the plan when due during the plan year in which the plan terminates within the year beginning in 2020 through 2022
year. meaning of section 4041A(a)(2) of ERISA. and meets the other criteria for an
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40972 Federal Register / Vol. 87, No. 130 / Friday, July 8, 2022 / Rules and Regulations
eligible critical status plan under nature of future withdrawal liability Summary of Changes Affecting the
§ 4262.3(a)(3), the plan would be payments, PBGC should consider Amount of Special Financial Assistance
eligible to apply for SFA regardless of excluding these payments from the The calculation of the amount of SFA
whether the plan has made a freeze determination of the plan’s eligibility under section 4262 of ERISA has
election. for SFA. PBGC considered the comment multiple interacting and technical
To ensure uniformity for applications but is not making the suggested change. components, including factors that the
and clarify what data to use to satisfy The inclusion of withdrawal liability statute does not define and leaves to
eligibility requirements for critical payments due to be received by the plan PBGC’s reasonable interpretation.
status plans under section 4262(b)(1)(C) is consistent with the meaning of Congress’ instruction to PBGC under
of ERISA, § 4262.3(a)(3) and (c)(2) of the current value of assets under section section 4262(c) of ERISA to ‘‘issue
final rule specify the data that is used 3(26) of ERISA, and the provision, as regulations or guidance setting forth
for this purpose on the Form 5500 drafted, recognizes the uncertain nature requirements for special financial
Schedule MB to determine the of future withdrawal liability payments assistance applications’’ therefore
‘‘modified funded percentage,’’ and the by providing for an allowance for requires PBGC, in coordination with its
data on either the Form 5500 or the amounts of withdrawal liability Board agencies,15 to apply its expertise
Form 5500 Schedule MB to determine considered uncollectible. in, and responsibility for, the
the ratio of active to inactive As explained earlier in this section of administration of title IV of ERISA to
participants. the preamble, section 4262(b)(1)(C) of promulgate regulations and application
Section 4262(b)(2) of ERISA defines ERISA requires, as one of the conditions instructions that comport with the
‘‘modified funded percentage’’ to mean of eligibility, that critical status plans statutory requirements.
the percentage equal to a fraction the have a ratio of active to inactive Many commenters argued that PBGC
numerator of which is the current value participants that is less than 2 to 3. The should exercise its discretion to
of plan assets (as defined in section interpret various components of the
statute does not specify what participant
3(26) of ERISA) and the denominator of calculation of the amount of SFA
count to use. To fill in this gap, the
which is current liabilities (as defined differently than in the interim final rule.
interim final rule referred to end-of-year
in section 431(c)(6)(D) of the Code). PBGC has considered these comments
The numerator for the plan’s funded participant counts on the Form 5500.
On the 2021 Form 5500, these are the and assessed whether any proposed
percentage under § 4262.3(c)(2) is
number of participants identified on changes to the interim final rule would
calculated using the current value of
line 6a(2) (for total number of active better achieve the statutory purpose
assets on line 2a of Form 5500 Schedule
participants) and the sum of lines 6b, evidenced by the text of the statute,
MB,11 which is also required to be
6c, and 6e (for inactive participants: which is discussed later in the
reported on line 1l, column (a) of the
retired or separated participants preamble. Following extensive analysis,
Schedule H,12 and adding to it the
receiving benefits, other retired or including projections of various
current value of withdrawal liability
separated participants entitled to future proposed changes on long-term plan
payments due to be received by the plan
benefits, and deceased participants solvency and funded status through
on an accrual basis reflecting a
whose beneficiaries are receiving or are 2051, as well as implementing the
reasonable allowance for amounts
entitled to receive benefits). One statutory instruction that PBGC consult
considered uncollectible 13 (if not
commenter suggested that plans be with the Treasury Department regarding
already included in the current value of
permitted to use either the participant considerations specific to the
net assets reported on line 2a). The
counts from the Form 5500 or the calculation of the amount of SFA for
value calculated for the numerator is
participant counts reported on the Form plans with approved suspensions of
consistent with the meaning of current
5500 Schedule MB, which the benefits under section 305(e)(9) of
value of assets under section 3(26) of
commenter noted may be different for a ERISA as of March 11, 2021 (MPRA
ERISA.14 The current value of assets
variety of reasons from the counts plans), PBGC has decided to adjust
includes total cash contributions due to
reported on the Form 5500. PBGC some of the interpretive choices set
be received on an accrual basis. One
considered the comment and decided to forth in the interim final rule on which
commenter suggested that the inclusion
permit plans to use either the PBGC received comments. Among the
of withdrawal liability receivables in the
participant counts from the Form 5500, adjustments in this final rule are the
asset value may cause some plans to be
as described above, or the beginning-of- expected rate of return on SFA assets to
ineligible and that, due to the uncertain
the-year participant counts on the Form be used in determining the amount of
11 All line references in this section are to the 5500 Schedule MB. On the Form 5500 SFA and the calculation of the amount
2021 Form 5500 and schedules. Schedule MB, these are the number of of SFA for MPRA plans.
12 The 2021 Form 5500 instructions provide that,
participants identified on line 2b(3)(c) 1. Pay All Benefits Due Through 2051
with certain exceptions, assets reported on line 2a
(for total number of active participants)
of Form 5500 Schedule MB should be the same as Section 4262(j) of ERISA sets certain
reported on line 1l, (column (a)) of the Schedule H. and the sum of lines 2b(1) and 2b(2) (for requirements for how much SFA an
13 PBGC notes that Financial Accounting inactive participants: retired eligible plan is to receive. Section
Standards Board (FASB) Accounting Standards participants and beneficiaries receiving 4262(j)(1) provides that ‘‘[t]he amount of
Codification (ASC) 960, Plan Accounting—Defined payment and terminated vested
Benefit Pension Plans 960–310–25–3A states: ‘‘A financial assistance provided to a
multiemployer plan may also have a receivable for participants). multiemployer plan eligible for
a withdrawing employer’s share of the plan’s In the final rule, PBGC makes changes financial assistance under this section
unfunded liability. The plan should record the to § 4262.3(a)(4) to clarify that an
receivable, net of any allowance for an amount shall be such amount required for the
eligible insolvent plan must have
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deemed uncollectible, when entitlement has been plan to pay all benefits due during the
determined.’’ become insolvent after December 16, period beginning on the date of payment
14 The withdrawal liability payments due to be 2014, and remained insolvent and not of the special financial assistance
received by the plan are not included in the terminated as of March 11, 2021. In
actuarial value of assets or the fair market value of payment . . . and ending on the last day
assets for purposes of sections 431 and 432 of the
order to have remained insolvent as of
Code and the corresponding sections 304 and 305 March 11, 2021, the plan must have 15 The Departments of Labor, the Treasury, and
of ERISA. become insolvent before that date. Commerce.
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Federal Register / Vol. 87, No. 130 / Friday, July 8, 2022 / Rules and Regulations 40973
of the plan year ending in 2051, with no amount of SFA needed to meet account for the fact that section 4262(l)
reduction in’’ benefits. Section projected liabilities through 2051. Using of ERISA requires plans receiving SFA
4262(j)(2) provides that ‘‘the funding an accurate projected rate of return for to have two separate pools of assets and
projections for purposes of this section each pool is critical for determining expressly contemplates that they will be
shall be performed on a deterministic whether SFA paid now is in the amount invested separately—with different
basis.’’ projected to ‘‘pay all benefits due’’ expected rates of return. PBGC also
Many commenters argued that the through the end of 2051, as required by believes that this approach better
mandatory language of section 4262(j)(1) section 4262(j)(1) of ERISA. harmonizes sections 4262(e), (j), and (l)
of ERISA, which states that the amount In the interim final rule, PBGC with each other. The statute must be
of SFA ‘‘shall’’ be such amount concluded that the same investment- read as a whole, and each section
‘‘required for the plan to pay all benefits return assumption should be used to construed in a manner that renders
due’’ through the end of 2051, means project both pools of assets. In reaching them compatible, not contradictory.
that if an eligible plan does not receive this conclusion, PBGC gave substantial
SFA sufficient to project solvency weight to section 4262(e)(2) of ERISA 3. SFA for MPRA Plans
through 2051, taking into account the which, as noted in the preamble to the
amount that SFA assets can reasonably interim final rule, requires a plan to use As described earlier in the preamble,
be expected to earn given the statutory an interest rate that is based on the rate the interim final rule provided a method
investment restrictions imposed by used in the plan’s most recent for eligible multiemployer plans to
section 4262(l), then the statute has not certification of plan status before calculate the amount of SFA based on
been implemented properly. Section January 1, 2021, subject to an interest the ‘‘amount required for the plan to pay
4262(j)(1) clearly requires an eligible rate limit. PBGC also gave substantial all benefits due during the period
plan’s SFA to be the amount necessary weight to section 4262(e)(4), which beginning on the date of payment of the
for the plan to pay all benefits through provides that if a ‘‘prior assumption is special financial assistance payment
2051. In addition to the use of the term unreasonable,’’ a plan may propose to . . . and ending on the last day of the
‘‘shall’’ in section 4262(j)(1) itself, other change that assumption if it explains plan year ending in 2051 . . .’’ under
provisions of section 4262 refer to why the assumption ‘‘is no longer section 4262(j)(1) of ERISA. The interim
section 4262(j) as ‘‘required’’ or a reasonable,’’ except that the plan ‘‘may final rule provided only one way to
‘‘requirement.’’ 16 not propose a change to the interest rate calculate the ‘‘amount required’’ for
otherwise required under this both MPRA plans and plans that are not
2. Interest Rates for SFA and Non-SFA
subsection.’’ MPRA plans.17 PBGC received several
Assets Many commenters raised concerns comments that raised issues with how
Plans will necessarily invest—and with PBGC’s approach. If the interest this calculation would work for MPRA
pay benefits out of—two separate pools rate in section 4262(e) of ERISA (which, plans. The commenters stated that the
of assets between the date of SFA for many plans would be close to 5.3 final rule should treat MPRA plans
payment and the end of 2051. This is percent based on pension funding differently when calculating the amount
because section 4262(l) of ERISA segment rates in December 2021), were of SFA.
requires plans to ‘‘segregate’’ SFA assets used to project the value of both SFA
from ‘‘other plan assets’’ and and non-SFA assets, but SFA Commenters raised several issues that
circumscribes investment of SFA assets. investments are limited to investment were unique to MPRA plans. For
For a plan to project accurately how grade bonds under section 4262(l) example, as part of the MPRA process,
much SFA is ‘‘required’’ for the plan ‘‘to (which would likely result in an actual all MPRA plans now eligible for SFA
pay all benefits due’’ through the end of rate of return close to 2 percent as of were required statutorily to demonstrate
the plan year ending in 2051, it must December 2021, assuming that PBGC that a proposed benefit suspension
project the SFA assets, adjusted for permitted no investments other than would improve their funded status such
earnings, needed to cover each year’s investment grade bonds and that current that the plan would avoid insolvency
benefit payments and expenses until yields on such bonds continued through ‘‘indefinitely.’’ To accept SFA, MPRA
exhausted, and the non-SFA ‘‘other plan 2051), the SFA amount would be plans must permanently reinstate those
assets,’’ adjusted for contributions and insufficient to meet the requirement of suspended benefits. Under the interim
earnings, needed to cover each year’s section 4262(j)(1) that it be the ‘‘amount final rule, however, MPRA plans would
benefit payments and expenses after the required for the plan to pay all benefits not receive more SFA than an amount
SFA assets are exhausted through the due’’ through the end of 2051. There is necessary to avoid insolvency through
end of the SFA coverage period. Thus, thus, asserted the commenters, an 2051. Thus, commenters described
an amount of SFA that accounts for inconsistency between these two MPRA plan trustees as facing an
existing plan assets under section provisions of the statute. Providing a unenviable choice between retaining the
4262(j), and the segregation and separate separate investment-return assumption existing benefit suspensions (enabling
investment of those assets from SFA for SFA assets that reflects the the plan to avoid insolvency
assets under section 4262(l), requires investment restrictions under section indefinitely at the cost of forgoing SFA)
two asset projections: one for a plan’s 4262(l) of ERISA would avoid this or applying for and receiving SFA and
SFA assets, and one for a plan’s non- inconsistency. PBGC recognizes that the reinstating the suspended benefits
SFA assets. interim final rule, without giving more (potentially jeopardizing the long-term
To make these two projections, plans weight to the requirement of section financial health of the plan which
must make assumptions about future 4262(j)(1), did not sufficiently address MPRA was originally intended to
events—including expected returns on this inconsistency. PBGC agrees with
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promote). Either choice would involve
investments—for each pool of assets to commenters that this concern would be favoring one set of participants over
calculate that pool’s projected value. alleviated by giving more weight to the
Differences in expected investment language of section 4262(j) than was 17 For purposes of determining the amount of SFA
returns for each pool of assets affect the given in the interim final rule. under § 4262.4, the final rule defines a MPRA plan
PBGC is therefore adjusting the rules under § 4262.4(a)(3)(ii) as a plan that is eligible for
16 Sections 4262(i)(1) and 4262(n)(1)(B) of ERISA. set forth in the interim final rule to SFA under § 4262.3(a)(2).
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40974 Federal Register / Vol. 87, No. 130 / Friday, July 8, 2022 / Rules and Regulations
another.18 A discussion of the likelihood of paying all benefits due preamble, the final rule allows plans to
comments on determining the amount through 2051. use a separate, specified interest rate
of SFA, including for plans that As noted in the interim final rule, assumption for projecting SFA assets
implemented MPRA benefit PBGC shares the concerns expressed by that is more closely aligned with the
suspensions, is presented later in this some commenters that overly rate of return estimated to be achievable
preamble under the subheading conservative limits on investment of on the permitted investments of SFA
Comments on Amount of Special SFA could adversely impact plans’ assets. PBGC determined that this
Financial Assistance. financial health. Permitting a wider change, together with the change in
Section 4262(n) of ERISA requires range of investments could help plans permitted investments, was necessary to
PBGC to coordinate with the Secretary be able to pay all benefits due through help enable eligible plans to pay all
of Treasury in prescribing the 2051. But the language of section 4262(l) benefits due through 2051, while
application process for eligible of ERISA also evinces an intent that limiting the risk that plans would incur
multiemployer plans, and the amount of SFA investments be relatively safe. significant losses through the
SFA needed by a plan that has Allowing SFA assets to be invested investment of SFA dollars. This is
suspended benefits under section predominantly in return-seeking assets supported by PBGC modeling and
305(e)(9) of ERISA that takes into risks plans not being able to pay all analysis. The changes to the interest rate
account the projected funded status of benefits due through 2051 given the assumption and to permissible
the plan at the end of 2051, the payment potential for severely adverse market investments are discussed later in this
of previously suspended benefits, and events. It could also put taxpayer- preamble under the subheadings
other relevant factors. Following funded assistance at significant risk of Interest Rates for SFA and Non-SFA
consideration of the issues raised by loss. Assets and Permissible Investments,
commenters, and as determined after As discussed later in the preamble, in respectively.
consultation with the Treasury consideration of comments received in
response to PBGC’s specific request, Comments on Amount of Special
Department, the final rule provides a Financial Assistance
methodology for determining an amount PBGC has amended in the final rule the
of SFA for MPRA plans that considers investment limitations set forth in the Under section 4262(a)(1) of ERISA,
these factors. PBGC’s consultation with interim final rule. Given PBGC’s PBGC is to provide SFA to an eligible
the Treasury Department and the intention that the investment choices multiemployer plan upon application.
provided under the interim final rule As discussed earlier in the preamble,
methodology for MPRA plans are
were always only a starting point for under section 4262(j)(1) the amount of
discussed later in the preamble under
discussion to find a more appropriate SFA to be provided is the ‘‘amount
the subheading Calculating the Amount
balance between certainty and safety of required for the plan to pay all benefits
of SFA.
investments on the one hand, and the due during the period beginning on the
4. Permissible Investments opportunity for plans to have flexibility date of payment of the special financial
One explicit avenue under the statute to decide appropriate overall investment assistance payment . . . and ending on
that could assist plans in being able to policies on the other, PBGC examined the last day of the plan year ending in
pay all benefits due through 2051 is how to adjust permissible investments 2051. . . .’’ This is referred to in
through PBGC’s authority under section in light of the feedback from section 4262(i)(1) as ‘‘the amount
commenters. In the final rule, PBGC is necessary as demonstrated by the plan
4262(l) of ERISA to allow SFA assets to
allowing plans that have received SFA sponsor.’’ Section 4262.4(a) of the
be invested in types of investments
to invest a percentage of SFA assets and interim final rule implemented section
other than investment grade bonds.
earnings thereon in certain ‘‘return- 4262(j)(1) by providing that the amount
Such other investments, for example,
seeking assets,’’ with the remainder of SFA for a plan is the amount (if any),
could have both a higher potential for
invested in investment grade fixed by which the value of all plan
reward and a higher risk than
income securities to help ensure that obligations exceeds the value of all plan
investment grade bonds, though the
risk of investment losses is mitigated. resources, determined as of the plan’s
higher risk of these investments may While expanding the range of SFA measurement date and limited to
raise different concerns about a plan’s permissible investments to include a the SFA coverage period (the period
percentage of return-seeking assets eases ending on the last day of the last plan
18 In July of 2021, the Department of Labor issued
the path for the plans to be able to pay year ending in 2051).
the ‘‘Statement on PBGC ‘Special Financial
Assistance’ Interim Final Rule for Eligible all benefits due through 2051, PBGC’s PBGC received numerous comments
Multiemployer Plans.’’ In that Statement, the modeling showed that it alone is on this section of the rule, as noted
Department said that in its ‘‘view, ARP’s inclusion unlikely to close the gap between the earlier in the preamble. Many of the
of plans that suspended benefits under MPRA and interest rate assumption to calculate the
the prohibition against a future MPRA suspension
commenters on the interim final rule
for a plan receiving SFA reflects a clear legislative amount of SFA and the expected rate of argued that PBGC’s implementation of
objective to allow plan fiduciaries to restore return on investment of SFA. Thus, section 4262(j)(1) was contrary to
benefits that were previously suspended and to PBGC and its Board examined other Congressional intent and the statutory
encourage all eligible plans to apply for SFA approaches that, in combination with
without raising potential fiduciary liability
direction for plans to receive SFA in an
concerns about undoing current or precluding greater flexibility in investments, could amount required for the plan to pay all
future MPRA suspensions.’’ The Department has fulfill the expectation of being able to benefits due through 2051.
advised PBGC that in its view the approach of the pay all benefits due through 2051 for all Many commenters disagreed with
final rule removes the risk that receipt of SFA will eligible plans. Alternatives are PBGC that the statute should be
harm the projected status of a MPRA plan at the end
described in the Regulatory Impact interpreted to require all plan assets and
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of 2051 more than not applying for and receiving
SFA. Accordingly, the Department takes the view Analysis section later in this preamble. future income (together, a plan’s
that a plan sponsor’s decision to apply for SFA PBGC and its Board have considered resources) to be considered when
would not violate section 404 of ERISA and the the commenters’ views and the determining the amount of SFA.
Department will bring no enforcement action with
respect to such decision. The implementation of
alternative approaches for assisting Several commenters raised the
such decision, however, will be subject to the plans to be able to pay all benefits due concern that some critical status plans
fiduciary and other requirements of title I of ERISA. through 2051. As noted earlier in the that meet statutory eligibility
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Federal Register / Vol. 87, No. 130 / Friday, July 8, 2022 / Rules and Regulations 40975
requirements and that may apply under interim final rule would result in these being made in response to comments
§ 4262.3 will not receive SFA or will plans receiving less in SFA than the PBGC received on assumptions
receive only minimal SFA under present value of the benefits the plans guidance it issued on July 9, 2021—
§ 4262.4 of the interim final rule. would be required to restore. Some of specifically, on the acceptable changes
Commenters said this is because many these commenters suggested excluding to a plan’s contribution rate assumption.
of these plans will have assets and other from the calculation of SFA that portion An example provided in the
resources that equal or exceed the of existing assets or future contributions assumptions guidance showed
present value of benefit obligations to fund post-2051 benefit obligations. contribution rate increases negotiated
through 2051, although insolvency may Others suggested providing an amount before March 11, 2021, being included
be projected after that date. Some of SFA sufficient to pay the reinstated in the plan’s contribution rate
commenters also noted that the outcome benefits beyond the plan year ending in assumption. Practitioners asked whether
of some eligible plans receiving zero or 2051. Commenters said the rule should the example meant that contribution
minimal SFA is inequitable and will allow MPRA plans to receive SFA and rate increases negotiated after March 11,
penalize plans whose trustees and continue to meet the MPRA solvency 2021, could be excluded. PBGC is
associated bargaining parties have been standard. providing in the final rule that
proactive under collective bargaining As explained in the preamble to the contribution rate increases agreed to on
agreements or rehabilitation plans to interim final rule, the heart of the matter or after July 9, 2021, the date PBGC’s
improve plan finances. Commenters is found in the requirement that SFA be interim final rule and initial
suggested this outcome would be ‘‘the amount necessary’’ or ‘‘required for assumptions guidance were issued, are
contrary to Congress’ intent in including the plan to pay all benefits due.’’ The excluded from employer contributions
these plans as eligible for SFA. Without statutory text provides not merely that paid and expected to be paid to the plan
SFA, these critical status plans will the amount of SFA be what is during the SFA coverage period (and, if
remain ‘‘financially vulnerable’’ ‘‘required’’ in the abstract to pay applicable, any benefit increases that
according to the commenters. benefits due through the end of 2051, result from the contribution increases
One commenter described SFA as an but specifies that SFA be in the amount are excluded from plan obligations
important tool to address the current required ‘‘for the plan’’ to pay all under § 4262.4(b)(1) and (c)(1)). PBGC
crisis, but the commenter said that it benefits due during this period. PBGC does not expect that excluding these
does not address the structural issues believes that Congress’ choice to modify negotiated contribution rate increases
that created the need for SFA. Another the term ‘‘required’’ with ‘‘for the plan’’ will result in an increase in the amount
commenter expressed support for the indicates that the amount of SFA should of SFA that a plan would receive
interim final rule’s implementation of take into account what resources the without the new provision. This is
the amount of SFA. The commenter said plan already has to pay benefits through because, without the provision, PBGC
to exclude current assets and future the end of 2051. expects that bargaining parties would
contributions from the calculation of Moreover, since the statute requires
wait until after the plan applies for SFA
SFA would be irresponsible. deterministic projections to be made
to negotiate contribution rate increases
Some commenters suggested there is through the end of the last plan year
(so as to exclude the contribution
support in the statute for alternatives to ending in 2051, the resources to be
increases from plan resources in the
§ 4262.4(a) of the interim final rule. considered must include plan assets and
calculation of SFA). However, this
Suggested alternatives include income. If Congress had contemplated a
practice would be detrimental to the
disregarding certain plan resources, different approach from accepted
plan’s financial health. PBGC expects
such as future contributions and future actuarial practice, Congress would have
that the new provision will eliminate
accruals, or carving out a portion of explicitly excluded the resources that it
current assets or future contributions to did not intend to be included in the this reason for delaying negotiation of
fund benefits after 2051. Others determination of the amount of SFA contribution rate increases.
suggested that the interim final rule’s ‘‘required for the plan.’’ Accordingly, Except for excluding the contribution
standard based on a projection of the additional funding necessary for the rate increases described directly above,
sufficiency to the last day of the plan plan to pay benefits depends on what the final rule does not adopt the
year ending in 2051 should be replaced funding—plan assets, contributions, suggestions from commenters to exclude
with one consistent with MPRA’s investment returns, etc.—the plan some or all of a plan’s resources.
standard to avoid insolvency already has available to pay those However, the final rule changes the
indefinitely. One commenter suggested benefits. To the extent that a plan has methodology for calculating the amount
this can be accomplished by other means available to pay benefits, it of SFA in § 4262.4, by specifying the
interpreting section 4262(j)(1) of ERISA does not require or need SFA for that interest rate assumption used to project
as providing SFA in an amount required purpose. returns on SFA assets and by providing
for a deterministic projection of plan According to PBGC’s modeling, not a methodology for determining SFA for
assets to be increasing during the last accounting for plan’s non-SFA assets MPRA plans that are eligible for SFA
plan year ending in 2051. Under one would easily enable all eligible plans to under § 4262.3(a)(2), and changes
suggested approach, the present value of pay all benefits due through 2051, as § 4262.14 to allow more flexibility in
plan resources needed to increase plan SFA would cover the entirety of plans’ permissible investments of SFA. PBGC’s
funding post-2051 would not be projected liabilities from ‘‘benefits due’’ modeling shows that these provisions
included in SFA-eligible plan resources. over the next 3 decades. However, are expected to enable plans to pay
Other commenters suggested PBGC’s modeling also shows that this benefits due through the plan year
disregarding all plan resources in approach could potentially triple the ending in 2051 if future experience is in
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determining the amount of SFA. cost of the SFA program. line with plan assumptions. The
Some MPRA plans commented that One exception added to the final rule provisions are discussed in detail in the
the receipt of SFA in the amount in § 4262.4(c)(3) permits plans to preamble under the subheadings
provided for under the interim final rule exclude from plan resources certain Calculating the Amount of SFA, Interest
will put their long-term solvency contribution rate increases agreed to on Rates for SFA and Non-SFA Assets, and
projections at risk. They noted that the or after July 9, 2021. This change is Permissible Investments.
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40976 Federal Register / Vol. 87, No. 130 / Friday, July 8, 2022 / Rules and Regulations
Calculating the Amount of SFA and the amount of SFA needed by a payments of the reinstated portion of
Section 4262.4(a) of the interim final plan that has suspended benefits under benefits through 2051, and any
rule provided that the amount of SFA section 305(e)(9) of ERISA. To restoration of benefits under 26 CFR
for a plan is the amount (if any), subject determine the amount of SFA under 1.432(e)(9)–1(e)(3)). These additional
to adjustment for the date of payment as § 4262.4, the final rule defines a MPRA SFA calculations in (2) and (3), set forth
described in § 4262.12, by which the plan under § 4262.4(a)(3) as a plan that in the final rule, accord with
value of all plan obligations exceeds the is eligible for SFA under § 4262.3(a)(2) requirements and considerations that
value of all plan resources, determined (a plan with an approved MPRA benefit are unique to MPRA plans.
suspension as of March 11, 2021). Thus, Under the second calculation, the
as of the plan’s SFA measurement date
a plan that is eligible for SFA under amount of SFA is the lowest amount
and limited to the SFA coverage period
§ 4262.3(a)(1), (3), or (4) and has necessary for actuarial projections to
(the period ending on the last day of the
implemented a suspension of benefits show the plan’s assets are increasing as
last plan year ending in 2051). Under
that has been approved under section of the last day of the plan year ending
the interim final rule, the value of plan
305(e)(9) of ERISA after March 11, 2021, in 2051. In calculating the amount of
obligations was the sum of the present
is not eligible for the amount of SFA SFA for plans that are not MPRA plans,
value of specified benefit payments and the statute requires that the amount of
determined under § 4262.4(a)(2) for a
administrative expenses. The value of SFA ‘‘shall be such amount required for
MPRA plan.
plan resources was the total of the fair the plan to pay all benefits’’ due through
market value of assets on the SFA 1. Calculation of SFA for MPRA Plans the end of the coverage period.19 The
measurement date and the present value Following consideration of the issues statutory text in section 4262(n)(1)(B) of
of future contributions, withdrawal raised by commenters described earlier ERISA, which applies specifically and
liability payments, and other payments in the preamble and of the only to MPRA plans, adds a further
expected to be made to the plan harmonization of the statutory text and consideration—the plan’s ‘‘projected
(excluding the amount of financial structure, and after consultation with funded status.’’ The final rule draws
assistance under section 4261 of ERISA the Treasury Department regarding the upon the demonstrations of ‘‘projected
and the amount of SFA to be received administration of the MPRA program, funded status’’ that current MPRA plans
by the plan) during the SFA coverage this final rule provides a different made as part of the MPRA process,
period. methodology for the calculation of SFA which distinguishes them from other
Two commenters stated that the for MPRA plans than was provided in SFA-eligible plans. As discussed earlier,
present value approach to determine the the interim final rule. Section all SFA-eligible MPRA plans
amount of SFA in the interim final rule 4262(n)(1)(B) of ERISA requires PBGC to demonstrated to the Treasury
does not properly take into account the consult with the Treasury Department Department that their proposed
timing of cash flows. The commenters regarding the amount of SFA needed for suspensions of benefits under MPRA
were concerned that under the present a MPRA plan based on the projected would be sufficient for the plan to avoid
value approach, plans with positive funded status of the plan at the end of insolvency indefinitely. Thus, the
cash flow toward the end of the 2051, the payment of previously methodology under the final rule
projection period could receive an suspended benefits, and other relevant provides the amount of SFA projected to
amount of SFA that results in a factors. These factors are distinct from be necessary to ensure that a MPRA
projected plan asset value below zero the generally applicable provision in plan’s projected funded status at the end
before the end of the SFA coverage section 4262(j)(1) of ERISA and reflect of the plan year ending in 2051
period. However, the commenters that Congress sought to ensure that continues to correspond to avoiding
acknowledged that plans eligible for PBGC accounts for MPRA plans’ unique insolvency indefinitely, which the plan
SFA are not expected to have a positive circumstances. demonstrated as a requirement of
cash flow during the projection period. As described earlier in the preamble, suspending benefits under MPRA. In
In addition, as described in detail in under the interim final rule, MPRA particular, MPRA plans will be able to
other sections of the preamble, PBGC plans faced the predicament where accept SFA without harming their
received many comments related to the either accepting or not accepting SFA projected funded status at the end of the
interest rate assumption a plan was could raise fiduciary concerns. In 2051 plan year.
required to use under the interim final deciding whether to apply for and PBGC has consulted with the
rule to calculate the amount of SFA in accept SFA, MPRA plans must consider Treasury Department as required by
the plan’s application. To address these not only the positive impact of section 4262(n)(1)(B) of ERISA. The
comments and to meet the statutory reinstated benefits on participants and final rule aligns with the standard for
requirements of section 4262(j) of beneficiaries currently receiving avoiding insolvency indefinitely in the
ERISA, in the final rule, PBGC is benefits, particularly current retirees Treasury Department’s final regulations
changing the methodology that a plan receiving benefits, but also consider on the suspension of benefits under
must use to determine the amount of whether the plan may put the future MPRA. This requirement generally is
SFA from a present value approach to benefits of active participants at risk if satisfied under the Treasury
a projection approach that ensures that it cannot project to avoid insolvency Department’s MPRA regulations if the
plan assets cannot go below zero before indefinitely. value of plan assets is projected to
the end of the SFA coverage period. Under the final rule, a MPRA plan can increase at the end of the relevant
In addition, the final rule, in apply for the greatest of: (1) the amount measurement period.20 This approach
§ 4262.4(a)(1) and (2), prescribes of SFA calculated for a plan that is not in the final rule, based on the Treasury
methodologies to determine SFA for a MPRA plan; (2) the lowest amount of
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Department’s MPRA regulations, takes
plans that are not MPRA plans and for SFA that is sufficient to ensure that the into account Congress’ direction in
plans that are MPRA plans. Section plan will project rising assets at the end section 4262(n)(1)(B) of ERISA that
4262(n) of ERISA requires PBGC to of the 2051 plan year; and (3) an amount PBGC consult with the Treasury
coordinate with the Secretary of of SFA equal to the present value of
Treasury in prescribing the application reinstated benefits (accounting for both 19 29 U.S.C. 1432(j)(1).
process for eligible multiemployer plans make-up payments needed, as well as 20 26 CFR 1.432(e)(9)–1(d)(5)(ii).
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Federal Register / Vol. 87, No. 130 / Friday, July 8, 2022 / Rules and Regulations 40977
Department regarding the amount of period, projected SFA assets and commenter recommended extending the
SFA needed ‘‘based on the projected projected non-SFA assets are both 270 days to 1 year to enable these plans
funded status of the plan as of the last greater than or equal to zero. to apply without having to wait until
day of the plan year ending in 2051.’’ The projected SFA assets for a plan the current valuation is completed.
Under the third calculation, the are determined by projecting SFA PBGC considered this comment and has
amount of SFA is the amount equal to forward annually until fully exhausted, concluded that a simpler rule will
the present value of reinstated benefits, using the annual cash flows specified in provide for data that are adequately up
including make-up payments and the § 4262.4(b) of the final rule, including to date. Under § 4262.4(d), as revised by
reinstated portion of future benefits benefits and administrative expenses the final rule, projections must be based
through 2051. Section 4262(n)(1)(B) of paid and expected to be paid by the on participant census data used to
ERISA requires PBGC to consult with plan during the SFA coverage period prepare the plan’s actuarial valuation
the Treasury Department to consider the (excluding benefit increases resulting report for the plan year that includes the
‘‘projected funded status’’ of MPRA from certain contribution increases and plan’s SFA measurement date, or, if
plans and ‘‘any other relevant factors’’ excluding the amount owed to PBGC there is no such report for that plan
and that ‘‘the amount of assistance . . . under section 4261 of ERISA), and year, for the preceding plan year.
is sufficient to pay benefits as required investment returns expected to be If a plan experiences a significant
in subsection (j)(1).’’ The determination earned on the SFA assets (calculated change in plan experience between the
of the amount of SFA under section using the SFA interest rate described in date of the plan’s participant census
4262(j)(1) of ERISA must take into new § 4262.4(e)(2)). data used to prepare the SFA
account ‘‘the reinstatement of benefits The projected non-SFA assets for a projections and the plan’s SFA filing
required under subsection (k).’’ The plan are determined by projecting the date, PBGC’s assumptions guidance
‘‘benefits required under subsection (k)’’ fair market value of plan assets on the (issued on PBGC’s website at
include both make-up payments to SFA measurement date forward www.pbgc.gov/guidance) provides
account for previously suspended past annually, using the annual cash flows guidelines on how to reflect that
benefits, i.e., those benefits described in specified in § 4262.4(c) of the final rule, significant change. Plans may, but are
section 4262(k)(2), and the reinstated including: the benefits and not required to, use the guidelines if
portion of future payments effective as administrative expenses paid and they are reasonable for the plan.
of the month SFA is paid to the plan, expected to be paid by the plan during
the SFA coverage period (excluding Interest Rates for SFA and Non-SFA
i.e., those benefits described in section
benefit increases resulting from certain Assets
4262(k)(1). Thus, the statute requires
MPRA plans that receive SFA to contribution increases and excluding As discussed earlier in the preamble,
reinstate benefits and requires the the amount owed to PBGC under section PBGC interprets the requirement in
amount of SFA to take into account the 4261 of ERISA) after the projected SFA section 4262(j)(1) of ERISA that SFA be
‘‘reinstatement of benefits’’ by MPRA assets are fully exhausted; employer provided in the ‘‘amount required for
plans. This present value approach does contributions (excluding certain the plan to pay all benefits due’’ through
that by providing MPRA plans an contribution rate increases), withdrawal the end of 2051 to mean the amount
amount of SFA that is sufficient to pay liability payments reflecting a required in addition to the plan’s non-
reinstated benefits. The ‘‘amount of reasonable allowance for amounts SFA assets. This means that plans will
assistance’’ is sufficient only if a MPRA considered uncollectible, and other pay benefits from two separate pools of
plan takes into account the payments expected to be made to the assets which, under the statute, must be
reinstatement of suspended benefits plan (excluding the amount of financial segregated and invested separately.
under both section 4262(k)(1) and (k)(2) assistance under section 4261 of ERISA Therefore, to calculate the amount of
of ERISA. The present value approach is and SFA) during the SFA coverage SFA ‘‘necessary for the plan to pay all
consistent with Congress’ direction that period; and investment returns expected benefits due’’ through the end of 2051,
PBGC should consult with the Treasury to be earned on the non-SFA assets plans must perform separate
Department regarding the amount of (calculated using the non-SFA interest calculations to project the value of each
SFA needed ‘‘to ensure the amount of rate described in new § 4262.4(e)(1)). pool of assets, each of which requires
assistance is sufficient . . . to pay Under § 4262.4, the deterministic the use of an interest rate assumption to
benefits as required in subsection projections must be based on recent reflect expected returns on that pool of
(j)(1).’’ 21 participant census data. Section assets.
Following PBGC’s consultation with 4262.4(d) of the interim final rule Section 4262(e)(2)(A) of ERISA
the Treasury Department, this final rule provided that participant census data provides an interest rate that plans must
provides a MPRA plan the amount of must be as of the first day of the plan use as part of the determination of the
SFA that is the greatest of these three year in which the plan’s initial amount of SFA under section 4262(j)(1).
calculations, which take into account application is filed, or, if the date on This rate is based on the rate used in the
the enumerated considerations the which the plan’s initial application is plan’s most recently completed
statute sets forth in section filed is less than 270 days after the certification of plan status before
4262(n)(1)(B). beginning of the current plan year and January 1, 2021, subject to an interest
the actuarial valuation for the current rate limit. The interest rate limit
2. Calculation of SFA for a Plan That Is plan year is not complete, the specified in section 4262(e)(3) is the rate
Not a MPRA Plan projections may instead be based on the that is 200 basis points higher than the
The amount of SFA for a plan that is participant census data as of the first rate specified in section 303(h)(2)(C)(iii)
a not a MPRA plan is calculated under day of the plan year preceding the year of ERISA (disregarding modifications
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§ 4262.4(a)(1) of the final rule as the in which the plan’s initial application is made under clause (iv) of such section)
lowest whole dollar amount (not less filed. PBGC received one comment ‘‘for the month in which the plan’s
than $0) for which, as of the last day of stating that some plans may be unable application for SFA is filed or the 3
each plan year during the SFA coverage to complete the actuarial valuation preceding months.’’ This provision
report within 270 days due to reporting places a ‘‘cap’’ on the interest rate,
21 Section 4262(n)(1)(B) of ERISA. delays and plan complexity. The which is any permissible rate for a
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40978 Federal Register / Vol. 87, No. 130 / Friday, July 8, 2022 / Rules and Regulations
month during the 4-month period and non-SFA assets, given their suggested that PBGC should provide a
ending with the month in which the different expected rates of return, and rate equal to the IRS’ third segment rate,
plan’s initial application was filed. that allowing plans to apply a different without adding the 200 basis points.
The interim final rule provided that a reasonable rate to SFA assets would be One commenter requested allowing
plan must use this interest rate as an a permissible exercise of PBGC’s plans to submit two calculations, with
assumption for the expected rate of discretion that would better achieve the one calculation based on the interest
return for both the SFA and the non- statute’s requirements. rate assumption in the interim final rule
SFA assets. Under § 4262.4(e)(1) of the In contrast, a few commenters stated and a second calculation using interest
interim final rule, the ‘‘assumed interest that the interest rate set forth in section rate assumptions that would more
rate’’ was the interest rate that is the 4262(e) of ERISA and the investment reasonably project actual returns for
lesser of the rate used by the plan for restrictions in section 4262(l) are plain SFA and non-SFA assets. PBGC would
funding standard account projections in directives of the statute. These then provide the plan an amount of SFA
the plan’s most recently completed commenters instead asked PBGC to to make up any discrepancy between
certification of plan status before reinterpret section 4262(j)(1) to change the two calculations.
January 1, 2021, or the rate that is 200 the determination of the amount of SFA In the interim final rule, PBGC
basis points higher than the rate by, for example, disregarding certain explained that to determine eligibility
specified in section 303(h)(2)(C)(iii) of categories of plan resources (or all plan for SFA, for certifications of plan status
ERISA (disregarding modifications resources) in determining the amount of completed after December 31, 2020,
made under clause (iv) of such section) SFA required by a plan. section 4262(e)(1) of ERISA requires a
for any month selected by the plan in Other commenters provided a number plan to use assumptions from its most
the 4-month period ending with the of suggestions regarding what interest recently completed certification of plan
month in which the plan’s application rate assumptions plans should be status before January 1, 2021, unless
was filed (or the month in which the permitted to use for SFA and non-SFA such assumptions (excluding the plan’s
initial application was filed if there was assets. The most common suggestion interest rate) are unreasonable. To
more than one filing date). was that the interest rate required under determine the amount of SFA, the
Many commenters discussed the section 4262(e) of ERISA should apply interim final rule noted that section
difference between the interest rate only to non-SFA assets and that PBGC 4262(e)(2) provides that a plan must
assumption used to calculate SFA under should allow a separate rate to apply to ‘‘use the interest rate used by the plan
§ 4262.4(e)(1) of the interim final rule, SFA assets. Many commenters in its most recently completed
and the expected lower return on SFA contended that the statute did not certification of plan status before
assets invested in permissible specify an interest rate for SFA assets, January 1, 2021, provided that such
investments under § 4262.14. These providing several arguments in support interest rate may not exceed the interest
commenters argued that the approach of of these contentions. Some pointed out rate limit.’’ Under section 4262(e)(4), if
applying a single interest rate to each that although section 4262(e) requires a plan determines that use of one or
pool of plan assets would be at odds plans to use the rate identified in that more prior assumptions is unreasonable,
with the statutory language in section section in calculating the amount of the plan may propose to change such
4262(j) of ERISA that the amount of SFA SFA, the statute does not specify how it assumption. Section 4262(e)(4) also
‘‘shall be such amount required for the is to be used, nor require that such rate provides that, notwithstanding this
plan to pay all benefits due during the be used for all purposes. Commenters language, plans cannot propose a
period beginning on the date of payment also argued that using the rate under change to the interest assumption. In the
of [SFA] and ending on the last day of section 4262(e) to project returns on interim final rule, PBGC interpreted
the plan year ending in 2051’’ (emphasis SFA assets would not make sense given these subsections of 4262(e), read
added). As noted earlier, commenters that section 4262(l) provides that SFA together, to mean that plans should use
argued that, under the interim final rule assets will be invested separately and the section 4262(e) interest rate to
approach, many, if not most, SFA- likely at lower rates of return than non- determine the amount of SFA, without
eligible plans would not receive the SFA assets, and because section a separate interest rate assumption for
SFA amount ‘‘required’’ to enable the 4262(j)(1) cannot be satisfied without projecting SFA assets. In interpreting
plans to pay benefits through the 2051 SFA assets being projected—for most section 4262(e), PBGC, in the interim
plan year. These commenters suggested plans—using an investment-return final rule, stated that it does not have
that an interest rate assumption required assumption lower than the interest rate authority to provide a different rate or
to be used to calculate the amount of in section 4262(e). Thus, many bifurcate the statutorily mandated
SFA under section 4262(e) and the commenters argued that PBGC should interest rate.
expected rate of return on permissible allow plans to use a different interest After further review of the statute,
investments under section 4262(l), rate for SFA assets so that plans will PBGC observes that section 4262(e) of
which were limited in the interim final receive sufficient SFA to pay full ERISA is general in its language
rule primarily to investment grade benefits through 2051, as required by regarding the determination of the
bonds, would make it impossible for section 4262(j)(1). These commenters amount of SFA and does not speak
plans to receive the amount of SFA argued that PBGC has the authority and directly to the precise question of the
required to pay benefits through 2051. the mandate to harmonize the various use of an interest rate to project returns
Some commenters illustrated this point provisions of section 4262 in this on SFA assets. Thus, PBGC has, after
by noting that their modeling showed manner. this further review of the statute,
that their plans would run out of money Some commenters further argued that, additional consultation with its Board
before 2051, a conclusion that PBGC has because the 2020 certifications of plan agencies, consideration of comments,
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confirmed through its own additional, status did not include an interest rate and extensive actuarial modeling,
more detailed modeling performed since assumption for projecting investment determined that an alternative
issuance of the interim final rule. returns on SFA assets, the interest rate interpretation of section 4262(e) that
Commenters argued that plans therefore should be a newly established addresses the limitations imposed by
should not be required to use the rate assumption and reflect expected returns the statute and PBGC on permissible
in section 4262(e) to project both SFA on SFA assets. A few other commenters investments, is reasonable and more
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Federal Register / Vol. 87, No. 130 / Friday, July 8, 2022 / Rules and Regulations 40979
likely to result in the SFA an eligible the statute’s instruction that plans plan’s ‘‘non-SFA interest rate.’’ This rate
plan receives being sufficient for the ‘‘shall’’ use that rate in determining the replaces the ‘‘assumed interest rate’’
plan to pay full benefits through 2051, amount of SFA.22 under the interim final rule. The
as provided under section 4262(j)(1) of However, after further statutory ‘‘assumed interest rate’’ was defined as
ERISA, than the interpretation adopted analysis and consideration of the interest rate that is the lesser of the
in the interim final rule. This result comments, PBGC recognizes that the rate used by the plan for funding
would not be possible solely by the statute does not specify the pool of standard account projections in the
increased flexibility in the investment of assets for which that rate must be used plan’s most recently completed
SFA assets under revised § 4262.14. as the assumed rate of return. In light of certification of plan status before
Therefore, after considering section this statutory silence, PBGC is January 1, 2021, or the interest rate
4262(e) together with sections 4262(j)(1) exercising discretion to make a ‘‘cap’’ selected by the plan in the 4-
and 4262(l) of ERISA, and in order to reasonable choice, consistent with month period ending with the month in
harmonize these provisions of the section 4262(j)(1), about the pool of which the plan’s application was filed
statute more effectively than in the assets for which the interest rate (or the month in which the initial
interim final rule, PBGC is providing for assumption in section 4262(e)(2) shall application was filed if there was more
two interest rate assumptions in the be used. As discussed earlier in the than one filing date). PBGC recognizes
final rule. preamble, PBGC has interpreted the that it is always to a plan’s advantage to
PBGC has considered, but does not requirement in section 4262(j) that SFA use the rate for the month in which the
agree with, comments that argued that shall be the amount ‘‘required for the rate is lowest. For simplicity, therefore,
PBGC has discretion to permit plans to plan’’ to pay all benefits due through the in the final rule PBGC is revising
not use in any manner the interest rate end of the plan year 2051 to mean that § 4262.4(e)(1)(ii) by specifying that the
identified in section 4262(e) of ERISA plans must consider existing assets in non-SFA interest rate ‘‘cap’’ is the
when calculating the amount of SFA. calculation of the SFA amount. Plans interest rate that is 200 basis points
The text of section 4262(e)(2) states that receiving SFA will therefore pay these higher than the rate specified in section
‘‘[i]n determining the amount of special benefits from two pools of assets: SFA 303(h)(2)(C)(iii) of ERISA (disregarding
financial assistance in its application, assets and non-SFA assets. Section modifications made under clause (iv) of
an eligible multiemployer plan shall use 4262(l) expressly contemplates that the such section) for the month in which
the interest rate used by the plan in its SFA assets may have a different that rate is the lowest among the 4
most recently completed certification of expected rate of return than non-SFA calendar months ending with the month
plan status before January 1, 2021, assets. In addition, as many commenters in which the plan’s initial application
provided that such interest rate may not noted, a mismatch between the for special financial assistance is filed,
exceed the interest rate limit’’ (emphasis investment restrictions in section taking into account only rates that have
added). Because the statute speaks 4262(l) and the interest rate identified in been issued by the Internal Revenue
directly to whether plans must use this section 4262(e)(2) also supports the Service as of the day that is the day
rate, PBGC does not have discretion to reasonableness of allowing plans to before the date the plan’s initial
allow plans not to use the interest rate apply a different and more realistic rate application is filed.
in section 4262(e)(2) at all. Although to SFA assets, including to meet the
plans may be able to forgo using other requirements of section 4262(j)(1). The second interest rate, defined in
assumptions from their most recently Given the investment restrictions under § 4262.4(e)(2) of the final rule, is the
completed certification of plan status section 4262(l), if the section 4262(e)(2) plan’s ‘‘SFA interest rate.’’ The SFA
before January 1, 2021, if they interest rate assumption were required interest rate is the lesser of the rate used
demonstrate to PBGC that those to be used in projecting SFA assets, by the plan for funding standard
assumptions ‘‘are no longer reasonable,’’ PBGC would not be providing the account projections in the plan’s most
section 4262(e)(4) makes clear that plans amount of SFA reasonably projected to recently completed certification of plan
cannot propose to change the be ‘‘required for the plan to pay all status before January 1, 2021, and an
requirement to use the interest rate in benefits due’’ through the plan year interest rate cap that is lower than the
section 4262(e)(2). This final rule ending in 2051. non-SFA interest rate cap. This lower
therefore maintains the requirement that Requiring plans to use the section cap reflects the restrictions on
plans use the section 4262(e) rate when 4262(e) rate for projecting the value of investment of SFA funds and the
calculating the amount of SFA. Under non-SFA assets, while providing for a investment returns plans can reasonably
the final rule, plans must use this rate different rate for projecting the value of expect to earn on SFA funds.23 The SFA
as the assumed rate of return on non- SFA assets, is a reasonable
23 PBGC determined that the average of the first
SFA plan assets. interpretation of the statute that
PBGC has considered arguments from and second segment rates specified in sections
harmonizes sections 4262(e), (j), and (l). 303(h)(2)(C)(i) and (ii) of ERISA (disregarding
commenters that the statute does not Accordingly, to calculate the amount modifications made under clause (iv) of such
expressly speak to whether the section of SFA for a plan under § 4262.4, the section) is likely to reasonably represent the yield
4262(e) rate must also be used as the plan must use two interest rate and therefore the expected return at any point in
assumed rate of return on SFA assets, assumptions: (1) the plan’s non-SFA time on the portion of the SFA required to be
invested in investment grade fixed income. As
which did not exist at the time of a interest rate used for calculating discussed later in the preamble under the
plan’s most recent certification of plan investment returns expected to be subheading Permissible Investments, up to 33
status before January 1, 2021, and which earned on the plan’s non-SFA assets, percent of SFA may be invested in return-seeking
will be invested separately, and under and (2) the plan’s SFA interest rate used assets and the expected return on SFA assets is the
weighted average of the expected returns for the
different statutory restrictions, from
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for calculating the investment return component parts. Using the interest rate cap
non-SFA assets. As explained earlier in expected to be earned on the plan’s SFA applicable to plan assets that are not subject to an
the preamble, the final rule maintains assets. investment limitation (200 basis points above the
that at least one of the components of The first interest rate, defined in third segment rate) as a cap for return-seeking assets
and an allocation of 33 percent of SFA to those
this overall calculation must be § 4262.4(e)(1) of the final rule, is the assets, the cap on the SFA interest rate—the
projected using the rate specified in weighted average of the caps for the component
section 4262(e)(2) of ERISA because of 22 See section 4262(e)(2) of ERISA. Continued
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40980 Federal Register / Vol. 87, No. 130 / Friday, July 8, 2022 / Rules and Regulations
interest rate cap is the interest rate that SFA a plan (or all plans in the case of designed to ensure that plans do not
is 67 basis points higher than the a merger) would have received had the receive more than the amount of SFA to
average of the rates specified in section events not occurred. PBGC included which they are entitled. As provided in
303(h)(2)(C)(i), (ii), and (iii) of ERISA these provisions in the interim final rule the interim final rule, PBGC concludes
(disregarding modifications made under in consultation with the Treasury that, to achieve that end, it is reasonable
clause (iv) of such section) for the Department. not to give effect to changes made to a
month in which such average is the With respect to mergers, plan’s structure or terms on or after July
lowest among the 4 calendar months § 4262.4(f)(1)(ii) of the regulation 9, 2021, if such changes would either
ending with the month in which the provides that if two or more plans are artificially inflate the amount of SFA to
plan’s initial application for special merged, then the SFA is limited so that which a plan is entitled or convert an
financial assistance is filed, taking into it does not exceed the sum of the SFA ineligible plan into an eligible plan.
account only rates that have been issued that would have been calculated for all Informing this conclusion, section
by the Internal Revenue Service as of of the plans involved in the merger had 4262(e)(2)(B) of ERISA provides, as a
the day that is the day before the date the plans applied separately for SFA. general rule, that the actuarial
the plan’s initial application is filed. Thus, a plan that would not have been assumptions to be used by a plan are the
Section 4262(f) of ERISA suggests that entitled to any SFA if not for a merger assumptions used in the plan’s actuarial
a plan may have multiple filing dates by that occurs on or after July 9, 2021, certification for the most recently
providing two application deadlines: cannot become entitled to SFA by completed certification of plan status
One for initial applications and one for merging with a plan that also would not before January 1, 2021 (unless those
revised applications. Until an otherwise be entitled to any SFA. A assumptions are unreasonable),
application is approved, there is no plan eligible for SFA may remain indicating that the plan applying for
limit to the number of times that a plan eligible after the merger; however, a SFA must have been in existence and
sponsor may file a revised application plan may not increase the amount of had an actuarial certification as to its
as long as the last revised application is SFA to which it is entitled by merging status before January 1, 2021. The
filed by the statutory deadline of with another plan or plans on or after provisions regarding interest rate
December 31, 2026. Once PBGC has July 9, 2021. assumptions under section 4262(e)(2)(A)
accepted an application for processing, PBGC considered two comments it are specific to the plan in its most recent
PBGC believes that it is in the best received related to these provisions and certification of plan status completed
interest of all parties to avoid the decided not to make any changes to before January 1, 2021, and, under
duplicative work and delays that would § 4262.4(f) in the final rule. One section 4262(e)(4), those assumptions
result if a revised application were to commenter stated generally that PBGC may not be changed. A manipulation of
use different interest rate assumptions. should not limit SFA or access to SFA those rates via a merger would not be
To prevent multiple filings for purposes because the protections already in place consistent with that prohibition.
of changing the interest rate under the Pension Protection Act of Although the statute does not directly
assumptions, if a plan’s application is 2006, MPRA, and ARP are sufficient to address plan mergers, in the case of
revised as provided under § 4262.11, the avoid abuse. A second commenter merged plans, each plan’s assumptions
non-SFA interest rate and SFA interest suggested that the amount of SFA from the most recently completed pre-
rate used for any revised application available to merged plans should not be 2021 certification of plan status must be
must be the same as the non-SFA limited to the amount each plan would maintained in order for section 4262(e)
interest rate and SFA interest rate have been separately eligible to receive. to be given effect with respect to the
required to be used for the plan’s initial The commenter argued that PBGC does plans that merged. PBGC’s rule fills the
application for SFA. not have authority to make rules gap left in the statute for the calculation
limiting SFA for two or more plans that of SFA for plans that have been
Calculating the Amount of SFA With involved in a merger occurring on or
Respect to Certain Events are merged, that a prohibition is not a
reasonable condition regarding after July 9, 2021.
Section 4262.4(f) of the regulation In addition, section 4262(m)(1) of
diversion of contributions, and that the
addresses the possibility that a plan may ERISA expressly authorizes PBGC, in
rule denies needed assistance to plans
implement certain changes to obtain consultation with the Secretary of the
that are facing insolvency.
more SFA than was intended by section Treasury, to impose reasonable
PBGC disagrees with the commenter’s
4262 of ERISA. In these situations, the conditions ‘‘on an eligible
assertion that PBGC does not have
amount of SFA that would apply to a multiemployer plan that receives
authority to address possible abuse of
plan is limited to the amount of SFA special financial assistance’’ relating to
the SFA program or to limit SFA, in the
determined as if the events described in certain aspects of plan terms or
case of a merger, to the amount each
§ 4262.4(f) had not occurred. These operations. Such conditions include
plan would have been separately
events include mergers, transfers of those relating to the diversion of
eligible to receive. As explained in the
assets or liabilities (including spinoffs), contributions to and allocation of
interim final rule, section 4262(b)(1) of
certain increases in accrued or projected expenses to other benefit plans,
ERISA establishes criteria for eligibility increases in future accrual rates,
benefits, and certain reductions in of a multiemployer plan for SFA, and
contribution rates. The limitation retroactive benefit improvements, and
section 4262(j) provides for determining reductions in employer contribution
applies to events that occur between the amount of the SFA. It is appropriate
July 9, 2021, and the SFA measurement rates. PBGC’s authority to impose
for PBGC, with its responsibility for reasonable conditions under section
date. To accommodate the possibility of carrying out the purposes of the title IV 4262(m)(1) is not limited to restrictions
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multiple events, the limitation does not insurance program,24 to impose
apply on an event-by-event basis but is on a plan following its receipt of SFA.
conditions on plans receiving SFA PBGC is authorized to impose
based on comparing the amount of SFA
a plan applies for with the amount of 24 PBGC’s inherent authority under section
conditions on a plan that ‘‘receives’’
4002(b)(3) of ERISA allows PBGC to adopt
SFA. PBGC’s authority is not limited to
parts—is the average of the three segment rates plus regulations to carry out the purposes of the title IV imposing conditions on a plan that has
67 basis points. insurance program. received SFA. That understanding of
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Federal Register / Vol. 87, No. 130 / Friday, July 8, 2022 / Rules and Regulations 40981
section 4262(m)(1) finds further support supplemented application is filed even plan’s SFA measurement date,
in section 4262(m)(2), which restricts if the supplemented application is not determined under the interim final rule
the conditions that PBGC can impose approved. A supplemented application as the last day of the calendar quarter
not only ‘‘following receipt of’’ SFA, but may be filed even if a plan would not immediately preceding the date the
also ‘‘as a condition of’’ SFA. That broad receive additional SFA as the result of plan’s initial application for SFA was
prohibition would be unnecessary if the filing. If the plan chooses to filed; the plan’s participant census data
PBGC’s authority under section supplement, the plan will file a required to be used in the plan’s initial
4262(m)(1) were limited to imposing supplemented application with the application for SFA under the interim
only post-receipt conditions. changes and information specified in final rule; and the plan’s non-SFA
The condition respecting mergers is the SFA supplemented application interest rate and SFA interest rate
consistent with PBGC’s authority under instructions on PBGC’s website at determined under § 4262.4(e)(1) and (2)
section 4262(m)(1) of ERISA to impose www.pbgc.gov to implement the of the final rule. Any SFA paid to the
reasonable conditions relating to the provisions of the final rule for plan under the provisions of the final
‘‘diversion of contributions to, and determining the amount of the plan’s rule will be adjusted as described in
allocation of expenses to, other benefit SFA, including the interest rate § 4262.12. A plan with a ‘‘pending
plans.’’ When two or more plans merge, assumptions under § 4262.4(e). A application’’ that chooses not to
each predecessor plan has diverted its supplemented application, like a withdraw and revise its application will
contributions and allocated its expenses revised application, must be filed by be paid the amount of SFA as
to the merged plan and thereby to each December 31, 2026, and in accordance determined under the interim final rule.
other merging plan. A merged plan, with the processing system (including The plan is not precluded from later
which combines assets and liabilities of priority groups) described in § 4262.10. filing a supplemented application.
two or more plans, each with its own set PBGC must review a supplemented If a plan applied for SFA under the
of participants and beneficiaries, to all application within 120 days of the filing interim final rule and it was not
of whom all the assets (and, thus, all the date. The plan cannot change the plan’s pending as of August 8, 2022, because
contributions) must be available SFA measurement date, fair market the plan’s application was denied or the
following the merger, is, in effect, value of assets, or participant census filer withdrew the plan’s application in
diverting contributions intended to data used in the plan’s application accordance with § 4262.11(d), the plan
benefit one set of participants (the approved under the interim final rule. may file a revised application (see the
participants in the plan that received The plan also cannot propose a change provisions for a ‘‘withdrawn
SFA) to another (the participants in in assumptions, except to propose a application’’ and a ‘‘denied application’’
each other merging benefit plan). change to the plan’s employer under § 4262.4(g)(3) and (4)
Accordingly, under section 4262(m) contribution assumption to exclude respectively). Any revised application
of ERISA, in conjunction with section must use the plan’s base data defined in
contribution rate increases agreed to on
4002(b)(3), PBGC is authorized to § 4262.4(g)(5). Base data include the
or after July 9, 2021, as permitted under
impose reasonable conditions that plan’s SFA measurement date,
§ 4262.4(c)(3) (in which case, the plan
ensure that SFA is provided to plans in determined under the interim final rule
must exclude any benefit increases
an amount that is not artificially inflated as the last day of the calendar quarter
resulting from those contribution
by plan mergers. Conditions regarding immediately preceding the date the
increases). A plan may withdraw the
events other than mergers are discussed plan’s initial application for SFA was
plan’s supplemented application and
in the preamble of the interim final rule filed; the plan’s participant census data
file a new supplemented application at
and examples illustrating the provisions required to be used in the plan’s initial
any time before the supplemented
are included in § 4262.4(f)(6). application for SFA under the interim
application is denied or approved. If
Calculating the Amount of SFA for PBGC denies a plan’s supplemented final rule; and the plan’s non-SFA
Plans That Applied for SFA Under the application, the plan may file a new interest rate and SFA interest rate
Interim Final Rule supplemented application. Any new determined under § 4262.4(e)(1) and (2)
supplemented application filed by the of the final rule. Any SFA paid to the
Pursuant to its authority under plan under the provisions of the final
section 4262(c) of ERISA, PBGC in the plan must address the reasons cited by
PBGC for the denial. Any SFA paid to rule will be adjusted as described in
final rule adds new § 4262.4(g) to § 4262.12.
provide guidance on the requirements the plan under the provisions of the
for SFA applications for plans that final rule will be adjusted as described PBGC Review of Plan Assumptions
applied for SFA under the interim final in § 4262.12, including to reflect the PBGC’s review of an application for
rule. prior receipt of SFA. SFA focuses on the reasonableness of
If a plan’s application for SFA was If a plan applied for SFA under the the plan’s demonstration regarding the
approved under the regulation as in interim final rule and the plan’s amount of SFA for the plan. Section
effect before August 8, 2022 (meaning application was not approved, 4262.5 sets forth how PBGC reviews
under the interim final rule), the plan withdrawn, or denied, and was pending, plan assumptions.
should look to the rules set forth under as of August 8, 2022, the plan should Section 4262 of ERISA generally looks
§ 4262.4(g)(1) for ‘‘approved look to the rules set forth under to plan assumptions previously selected
applications.’’ Those rules provide that § 4262.4(g)(2) for ‘‘pending by the plan actuary for determining
the plan may supplement its application applications.’’ They provide that the eligibility for and calculating the
after SFA is paid under the terms of the plan’s pending application may be amount of SFA. A mechanism is
interim final rule. When a plan files a withdrawn (as described in provided for a plan to propose changes
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supplemented application, the § 4262.11(d)) and a revised application to actuarial assumptions if it determines
amendments in this final rule to filed, or not withdrawn and determined that the use of one or more of its original
permissible investments in § 4262.14 under terms of the interim final rule. assumptions (other than the interest
and to the withdrawal liability Any revised application must use the rate) is unreasonable.
condition in § 4262.16(g)(2) become plan’s base data defined in Under section 4262 of ERISA,
applicable upon the date the § 4262.4(g)(5). Base data include the actuarial assumptions generally are
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40982 Federal Register / Vol. 87, No. 130 / Friday, July 8, 2022 / Rules and Regulations
derived from a plan’s certification of such assumptions are unreasonable,’’ determines that one or more original
plan status under section 305 of ERISA. PBGC disagrees that a lesser standard, assumptions are unreasonable and must
In general, PBGC believes that a plan’s such as clearly erroneous or clearly be changed, § 4262.5(c) provides that
actuarial assumptions adopted for the unreasonable, should be used by PBGC the plan’s application must describe
certification of plan status (and not for when reviewing a plan’s assumptions why the original assumption is no
entitlement to SFA) represent a neutral used to determine the amount of SFA longer reasonable, propose to use a
view of circumstances, unbiased by the for the plan. In addition, PBGC different assumption (the changed
prospect of receiving a substantial sum disagrees with the one commenter’s assumption), and demonstrate that the
of money. Accordingly, as provided in assertion that the passage of time, changed assumption is reasonable. If
the interim final rule, PBGC expects to subsequent events, or the different there is a change in assumptions, each
give less intensive scrutiny to ‘‘original’’ purpose of the measurement should not of the actuarial assumptions and
assumptions than to changed be considered by the plan’s actuary. As methods (other than the interest rate
assumptions. described later in this section of the assumptions) must be reasonable, and
Section 4262(e)(1) of ERISA requires preamble, the statute provides a the combination of actuarial
PBGC to accept actuarial assumptions mechanism for changing prior assumptions and methods (excluding
incorporated in a plan’s certification of assumptions that are no longer the interest rate assumptions) also must
plan status completed before 2021 for reasonable (excluding the interest rate be reasonable. Plans are required to
purposes of eligibility unless PBGC assumption). This indicates that the provide detailed information about any
determines that such assumptions are passage of time, subsequent events, and changed assumptions, and PBGC will
‘‘clearly erroneous.’’ For all other the purpose of the measurement should perform a less deferential analysis of
purposes (including determining the be considered by the plan’s actuary. If those assumptions than of the original
amount of SFA), the statute requires the plan’s actuary does not determine pre-2021 assumptions.
PBGC to accept the assumptions used that one or more of the pre-2021 Concurrent with the interim final
unless PBGC determines that they are assumptions are unreasonable for the rule, PBGC issued assumptions
unreasonable. purpose of determining the amount of guidance containing guidelines for
Several commenters recommended SFA, PBGC will defer to the plan’s use changes to certain assumptions that
that PBGC take a deferential approach of those assumptions unless PBGC finds plans may use for purposes of
when reviewing assumptions used by a the assumptions unreasonable. PBGC, determining eligibility for SFA and the
plan’s actuary in the most recent however, may request additional amount of SFA. Plans may, but are not
certification of plan status completed information from the plan to determine required to, use the guidelines. Plans
before 2021. These commenters argued whether a pre-2021 assumption is that do not use the guidelines may
that if a plan sponsor does not propose unreasonable. demonstrate that the change is
a change, PBGC should refrain from Each of the actuarial assumptions and reasonable by providing additional
challenging the plan’s assumptions methods used for the actuarial information beyond what would be
because the intent of the statute is to projections (excluding the interest rate required under the guidelines.
allow those assumptions to serve as assumptions) must be reasonable in Guidelines are available for contribution
default assumptions. They argue that accordance with generally accepted base units (CBUs), administrative
this would allow SFA applications, in actuarial principles and practices,25 expenses, mortality, contribution rates,
comparison to MPRA applications, to be taking into account the experience of and new entrant profiles, and can be
expeditiously reviewed by avoiding the the plan and reasonable expectations. found in the guidance issued on PBGC’s
level of scrutiny that was imposed when To be reasonable, an actuarial website at www.pbgc.gov/guidance. In
reviewing actuarial assumptions for assumption or method generally must, addition, for various reasons, a plan
MPRA applications. These commenters among other things, be appropriate for may have a gap in the assumption for
requested guidance from PBGC stating the purpose of the measurement, reflect projected CBUs and administrative
that the pre-2021 assumptions are the actuary’s professional judgment, expenses used in the prior certification
deemed acceptable. One commenter take into account current and historical of plan status such that the assumption
requested that PBGC accept the plan’s data that is relevant to selecting the cannot be used ‘‘as is’’ for determining
assumptions unless they are clearly assumption for the measurement date, SFA. To assist applicants and aid in the
erroneous or unreasonable. Another reflect the actuary’s estimate of future review of a plan’s CBU assumption and
suggested that PBGC not challenge pre- experience, and reflect the actuary’s administrative expense assumption,
2021 assumptions unless clearly observation of the estimates inherent in PBGC developed standard extensions
unreasonable. Yet another commenter market data (if any). In addition, an that plans can use to complete the
requested that PBGC clarify that pre- actuarial assumption or method must be assumption set for a plan that otherwise
2021 assumptions that were reasonable expected to have no significant bias (i.e., can use its original assumptions. With
for purposes of the pre-2021 it is not significantly overly optimistic respect to the § 4262.5(c)(1)(iii)
certification of plan status will not be or pessimistic). requirement to demonstrate that the
deemed unreasonable for purposes of The statute provides a mechanism for changed assumption is reasonable, it is
the SFA application because of the changing prior assumptions (other than sufficient to include a statement to that
passage of time, subsequent events, or the interest rate assumption) that are no effect in the application instead of a
the different purpose of measurement. longer reasonable. If a plan actuary detailed demonstration if the plan uses
PBGC agrees that, in comparison to a standard extensions described in the
plan’s changed assumptions, for the 25 Actuarial Standards of Practice (ASOPs) are
assumptions guidance.
reasons discussed earlier in the issued by the Actuarial Standards Board and are Two commenters suggested that PBGC
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available at http://
preamble, PBGC should take a more www.actuarialstandardsboard.org/standards-of- could permit MPRA plans to use
deferential approach in reviewing a practice. Certain ASOPs, including ASOPs Nos. 4, projected CBUs consistent with their
plan’s use of pre-2021 assumptions. 23, 27, 35, 41, and 56 may be relevant to the approved MPRA applications as a safe-
However, given the language in section actuary’s work related to special financial
assistance, including the assessment of the
harbor assumption. One of these
4262(e)(2)(B) of ERISA that a plan shall reasonableness of the actuary’s assumptions and commenters also suggested a safe harbor
use the pre-2021 assumptions ‘‘unless methods. for MPRA plans to use other actuarial
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Federal Register / Vol. 87, No. 130 / Friday, July 8, 2022 / Rules and Regulations 40983
assumptions from their approved MPRA assumption and on the acceptable plan’s SFA application. Section 4262.6
application. If an assumption used in a adoption of or update to a plan’s summarized the requirements for an
plan’s approved MPRA application is mortality improvement projection scale. application to be considered complete,
the same as an assumption used in the PBGC specified the information needed including: plan information; actuarial
plan’s last pre-2021 certification of plan to show that a plan’s assumed new and financial information (including the
status, and the plan’s actuary entrant profile and administrative amount of SFA requested); a completed
determines that the assumption is not expenses assumption are based on the checklist (per the SFA instructions on
unreasonable for the purpose of acceptable methodology as indicated by PBGC’s website at www.pbgc.gov); the
determining the amount of SFA, PBGC the guidance. For a plan that reflects signature of an authorized trustee who
will provide deference to the actuary’s significant plan experience between the is a current member of the board of
determination unless PBGC finds the participant census date and the trustees; a signed statement under
assumption unreasonable. If an application filing date, PBGC added that penalty of perjury; a copy of the
assumption used in a plan’s approved the plan should provide a rationale for executed plan amendment providing
MPRA application is not the same as an how it determined that the plan that, beginning with the SFA
assumption used in the plan’s last pre- experience was significant, and made measurement date, the plan must be
2021 certification of plan status, the other updates to the related example. administered in accordance with the
plan actuary may propose to change the PBGC added examples and other restrictions and conditions specified in
assumption to the assumption used in clarifications to acceptable assumption section 4262 of ERISA and this
the plan’s approved MPRA application changes. regulation; if the plan suspended
in accordance with § 4262.5(c). PBGC is PBGC also added guidelines on benefits under sections 305(e)(9) or
amending its assumptions guidance to projecting future receipt of employer 4245(a) of ERISA, a copy of the
provide that PBGC will generally accept withdrawal liability payments, noting proposed plan amendment to reinstate
a change in assumption to an that the projection should reflect the suspended benefits and pay make-up
assumption used in a plan’s approved actuary’s best estimate of future plan payments and a certification by the plan
MPRA application, including projected experience and that the plan’s actuary sponsor that the plan amendment will
CBUs, if the plan includes the should consider reflecting a reasonable be adopted timely; and any information
information required by § 4262.5(c) in allowance for amounts considered required by PBGC to clarify or verify the
the application and the demonstration uncollectible. PBGC added guidelines information in a filed application. If any
provided by the plan shows the for plans where all the assumptions of the information required under the
assumption is reasonable for the required to be used for projections in regulation and in the SFA instructions
purpose of determining the amount of the pre-2021 certification of plan status is missing from the filed application, the
SFA. were not identified. The assumptions application will not be considered
Several commenters requested that guidance also provides guidelines on complete.
PBGC’s guidance provide more acceptable changes for the exclusion of The SFA instructions (on PBGC’s
flexibility in contribution assumptions terminated vested participants over a website at www.pbgc.gov), including
or recommended specific changes, such certain age. Finally, PBGC added templates, supplement the regulation
as eliminating the requirement that a information about how applicants can and provide guidance to plan sponsors
change in CBU assumption be schedule an informal pre-application and practitioners on how to prepare and
adequately supported by historical data. conference with PBGC. file the required application
The commenters stated that historical PBGC considered the comments on information. Sections 4262.6 through
data is not necessarily predictive of CBU assumptions and, except for some 4262.8 and the instructions specify the
future changes. One commenter clarifying changes, did not adopt the minimum necessary plan, actuarial, and
explained that the historical data suggestion of commenters to eliminate financial information that PBGC
requirement defies economic trends in the guideline that a change in CBU requires to approve or deny an
many industries, is inconsistent with assumption be adequately supported by application for SFA and to verify the
the reasonableness standard in the historical data. Instead, PBGC included amount of SFA within the short 120-day
statute, and may contravene actuarial examples in the guidelines to illustrate review period provided under section
standards which require actuaries to how historical data and industry trends 4262(g) of ERISA.
consider factors that may affect future can be used to project future changes in PBGC in the final rule is amending
experience, such as economic CBUs under the guidelines. the information required to be filed as
conditions for the industry and the PBGC’s guidance on CBUs and other described in §§ 4262.6 through 4262.8 to
availability of alternative employment assumptions may not be reasonable for reflect the new methodology in § 4262.4
due to automation. Another commenter all plans and is not binding on plans. A for determining the amount of a plan’s
asked for guidance, or clarifications of plan should follow the assumptions SFA and making other clarifying
PBGC’s guidance, on various guidance only if it is reasonable for the changes.
assumptions, including mortality, new plan to do so. As explained earlier in Based on its experience reviewing
entrant assumptions, and employer the preamble, applicants may propose applications, in the final rule, PBGC is
withdrawals. changes to the plan’s assumptions by amending § 4262.6(a) to provide that, if
PBGC has updated its assumptions following § 4262.5(c), including information is not accurately completed
guidance to address some of the describing why the original assumption or not filed with the application, PBGC
comments received, provisions of this is no longer reasonable, disclosing the may, in its discretion, either require the
final rule, and to provide more clarity changed assumption, and demonstrating plan sponsor to file additional
and additional guidance based on information to correct the error or
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that the changed assumption is
experience in reviewing applications. In reasonable. omission or consider the application
addition to the change described earlier incomplete. If correction of any error or
in the preamble for plans with approved Information To Be Filed omission requires a change to the
MPRA applications, PBGC added Sections 4262.6 through 4262.8 of the amount of SFA requested, the
guidelines on acceptable changes to a interim final rule described the application will be considered
plan’s disabled life mortality information that must be included in a incomplete. This provision is intended
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40984 Federal Register / Vol. 87, No. 130 / Friday, July 8, 2022 / Rules and Regulations
to provide some flexibility in the disclosed. Except to the extent required the successor plan. The combined
application review process to enable by the Privacy Act, PBGC provides no information must reflect that, on the
some errors to be corrected without assurance of confidentiality in any date SFA is transferred to the plan,
plans having to file revised applications. information or documentation included PBGC will rescind the order that created
In addition, PBGC is modifying the in an application for SFA. the successor plan, and the plan sponsor
language of the required statement will remove plan provisions and
under penalty of perjury in § 4262.6(b) Application for Plans With a Partition
amendments that were required to be
to make the language more precise and Under section 4233 of ERISA, a plan adopted under the order.
is modifying the language of the may apply to PBGC for a partition to Another condition is that the
required amendments to the plan in fund a portion of the plan’s benefits to application must include a statement
§ 4262.6(e). In the final rule, clarifying avoid insolvency. Upon PBGC’s that the plan was partitioned and a copy
language, ‘‘notwithstanding anything to approval of an application for partition, of the provisions or amendments that
the contrary in this or in any other PBGC issues a partition order to the plan was required to adopt under
governing document’’ is added to provide: (1) for a transfer from the the partition order. A partitioned plan’s
§ 4262.6(e)(1) so that the required original plan to the plan created by the application must include all the
language for the amendment reads, partition order (the successor plan), the required information described in
‘‘Beginning with the SFA measurement minimum amount of benefit liabilities §§ 4262.6 through 4262.8 for
date selected by the plan in the plan’s necessary for the original plan to remain applications generally. However, if the
application for special financial solvent, and (2) financial assistance plan sponsor of a partitioned plan has
assistance, notwithstanding anything to from PBGC under section 4261 to pay already filed any of the required
the contrary in this or any other those benefits. The successor plan is but information with PBGC, the sponsor is
governing document, the plan shall be a creature of PBGC’s partition order, not required to include that information
administered in accordance with the terminated and insolvent from its again with its SFA application. Instead,
restrictions and conditions specified in inception. The original and successor the sponsor need only note on the
section 4262 of ERISA and 29 CFR part plans are required by section 4233(d)(2) checklist described under § 4262.6(a)
4262. This amendment is contingent to have the same plan sponsor and that the information was already filed.
upon approval by PBGC of the plan’s administrator. Partitioned plans also have benefit
application for special financial Section 4262(c)(3) of ERISA requires suspensions that must be reinstated if
assistance.’’ PBGC is also providing PBGC to provide an alternative the plan is approved for SFA. Under
model language for the benefit application for SFA that may be used for § 4262.15, a plan receiving SFA must
reinstatement amendments under a plan approved for a partition before reinstate benefits suspended under
§ 4262.6(e)(2) to assist filers in March 11, 2021. Section 4262.9 of section 305(e)(9) of ERISA and provide
complying with the amendment PBGC’s regulation describes this make-up payments to participants and
requirements. In addition, PBGC is application. beneficiaries to restore previously
amending § 4262.7(e)(2) to require that Section 4262.9 does not provide suspended benefits in accordance with
the certification by the plan sponsor that eligibility for SFA. As explained earlier guidance issued by the Treasury
the benefit reinstatement amendments in the preamble under the subheading Department and the IRS in Notice 2021–
will be timely adopted must be signed Eligible Multiemployer Plans, section 38, 2021–30 IRB 155. This requirement
either by all members of the plan’s 4262(b)(1) of ERISA lists four categories applies to both the original plan and the
board of trustees or by one or more of plans that are eligible for SFA, and successor plan created by a partition.
trustees duly authorized to sign the PBGC cannot extend eligibility for SFA Having the original and successor plans
certification on behalf of the entire through its regulation to a plan that is apply as one will ensure coordinated
board of trustees. not included in any of those categories. benefit reinstatements for all
As described in the Paperwork In the case of a partitioned plan, the participants in the partitioned plan.
Reduction Act section of the interim original and successor plans must each The filing of an application for a
final rule, the application instructions be separately eligible. Each must have partitioned plan falls under priority
and checklist were submitted to the been approved for a suspension of group 2 for purposes of § 4262.10(d)
Office of Management and Budget benefits under section 305(e)(9) of (explained in this preamble under the
(OMB) for review and approval under ERISA as of March 11, 2021, to be subheading Processing Applications),
the Paperwork Reduction Act. PBGC eligible for SFA under section consistent with other plans that are
received approval for this information 4262(b)(1)(B) of ERISA and eligible for SFA because they have
collection on an emergency basis for a § 4262.3(a)(2). To avoid any confusion implemented a suspension of benefits
period of 180 days, expiring on January about the eligibility of a partitioned under section 305(e)(9) of ERISA as of
31, 2022, under control number 1212– plan, PBGC is clarifying this March 11, 2021.
0074. Subsequently, OMB extended its requirement in § 4262.9(a) of the final Successor plans created in a partition
approval for the information collection rule. have also been receiving financial
for an additional 3 years, expiring on The plan sponsor of a partitioned plan assistance from PBGC with repayment
January 31, 2025. where the original and successor plans obligations under section 4261 of
With the final rule, PBGC is are each eligible to apply for SFA must ERISA. How financial assistance under
submitting this information collection, apply for SFA using the alternative section 4261 is repaid is prescribed
with the described modifications, to application, which contemplates under § 4262.12.
OMB and its decision will be available PBGC’s rescission of the partition order
at www.Reginfo.gov. as prescribed under § 4262.9(c) and Processing Applications
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Unless confidential under the Privacy other conditions particular to a Under section 4262(c) of ERISA,
Act, all information that is filed with partitioned plan as described under PBGC must issue regulations or
PBGC for an application for SFA may be § 4262.9(b). One of these conditions is guidance setting forth requirements for
made publicly available, at PBGC’s sole that the plan sponsor must file a single SFA applications. Applications are
discretion, on PBGC’s website at application for SFA, consisting of considered timely filed under section
www.pbgc.gov or otherwise publicly information about the original plan and 4262(g) only if they are filed in
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Federal Register / Vol. 87, No. 130 / Friday, July 8, 2022 / Rules and Regulations 40985
accordance with PBGC’s regulations. final rule. Most of these commenters earlier date as processing capacity
PBGC’s inherent authority under section focused on allowing more plans to permits, as updated on PBGC’s website
4002(b)(3) of ERISA allows PBGC to apply earlier during the 2-year priority- at www.pbgc.gov. As priority groups
adopt regulations relating to the conduct group period to speed up the provision open, PBGC will continue to accept
of its business and to carry out the of SFA to eligible plans. These applications from plans in earlier
purposes of the title IV insurance commenters wanted plans eligible to file priority groups. While the priority
program. Under section 4262(d) of in a later priority group to be given the mechanism may entail a relatively short
ERISA, PBGC also may limit the filing opportunity to file in an earlier priority deferral of an application for a given
of SFA applications to filings for plans group—e.g., allow plans projected to plan until its respective priority group
that are in one or more of four ‘‘priority’’ become insolvent within 1 year of filing opens, the amount of SFA ultimately
categories during a period limited to an application and designated to file in
awarded will reflect the amount
within the first 2 years after March 11, priority group 2 to file in priority group
2021. 1, or allow plans that implemented required to pay all benefits due
Section 4262.10 of the regulation sets benefit suspensions under MPRA and pursuant to the statute.
forth the system for processing also able to file in priority group 2 to file The final rule does not make changes
applications within 120 days, as in priority group 1. Some of these to the filing dates for plans in a priority
required by section 4262(g) of ERISA commenters explained that the plans in group under § 4262.10(d)(2), but using
and § 4262.11 of the regulation. The priority group 2 that are projected to its discretion under the regulation,
processing system will provide every become insolvent in 2022 should be PBGC has updated its website at
prospective submitter a fair opportunity able to apply earlier to avoid the www.pbgc.gov to allow a plan in priority
to file its application by December 31, complexity of preparing for insolvency group 2 that is expected to become
2025 (or December 31, 2026, for a or even becoming insolvent before insolvent within 1 year of the date the
revised or supplemented application). receiving SFA, and to avoid the plan’s application for SFA is filed, to
This electronic filing system is based on disruption this would cause plan file an application earlier. PBGC agrees
three mechanisms. The first mechanism participants. Commenters who are with comments that this would lessen
permits PBGC to accept applications in participants in MPRA plans (i.e., plans
a manner that, in PBGC’s estimation, the disruption for plans and
that implemented benefit suspensions)
allows for sufficient review and participants. In November 2021, the
described the reduction in their benefits
processing within 120 days of filing. as a life-altering loss. They asked that earliest date of filing for these plans was
The second mechanism is a priority their plans be able to apply in priority changed from January 1, 2022, to
system permitted by section 4262(d) of group 1 along with insolvent plans December 27, 2021, enabling these plans
ERISA. The third mechanism is a because the impact of benefit cuts on to prepare and file their applications
notification system on PBGC’s website plan participants is the same. earlier. PBGC will continue to monitor
to keep prospective applicants apprised Other commenters wanted PBGC to the flow of applications to consider
of when a filing window opens or closes move up the beginning date identified earlier filing dates as processing
and (if applicable) to what priority in the interim final rule for a plan in a capacity permits. PBGC will inform
groups filing is limited. This mechanism priority group to file—e.g., priority prospective applicants of any earlier
will enable applicants to know when group 6 plans should be permitted to dates through updates on its website at
the system is accepting applications file before priority group 5. www.pbgc.gov.
from plans in their priority group. The The filing dates provided in the
interim final rule are the latest dates Taking into account the previously
statutory authority and rationale behind
these mechanisms are fully explained in PBGC expects to begin accepting described change, the following table
the preamble to the interim final rule. applications from plans in each group. describes each priority group and the
PBGC received several comment A plan in a priority group may file an date that it is currently scheduled to
letters on this section of the interim application beginning on that date, or an open:
Priority group Description of priority group—date plans may apply for SFA 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 expected to be insolvent within 1 year of the date an Beginning on December 27, 2021.
application for SFA is filed.
......................... Plans that implemented a benefit suspension under ERISA Beginning on January 1, 2022.
section 305(e)(9) as of March 11, 2021.
3 ...................... Plans in critical and declining status that had 350,000 or more Beginning on April 1, 2022.
participants.
4 ...................... Plans projected to become insolvent before March 11, 2023 ... Beginning on July 1, 2022.
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).
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Other commenters suggested The final rule does not change the ERISA pending before the Treasury
expanding the priority categories to composition of priority groups as Department (and so had not
include other similar plans or to expand commenters suggested, such as by implemented a benefit suspension as of
the number of priority groups by including in priority group 2 plans that March 11, 2021) or plans that had
identifying plans for a priority group 7. had or still have a benefit suspension applied for a benefit suspension but had
application under section 305(e)(9) of their application withdrawn or denied.
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40986 Federal Register / Vol. 87, No. 130 / Friday, July 8, 2022 / Rules and Regulations
A plan in any of the four priority Another commenter argued that plans the plan’s SFA measurement date and
categories identified in section 4262(d) that do not meet the $1 billion threshold other base data aligned with that date,
of ERISA will have a fair opportunity to are likely plans that cover workers in may nonetheless be prevented from
file an application under § 4262.10(d)(2) lower wage industries, and that these filing on that date because the filing
of the regulation during the 2-year workers also are entitled to know when window has closed temporarily. If a
priority period ending on March 11, their plans may apply for SFA. temporary closure extends into the next
2023. As noted in the interim final rule, PBGC considered commenter requests calendar quarter, a plan’s application
PBGC’s objective is to accept and to define a new priority group 7. Section may have to be significantly revised to
process as many applications in the 4262.10(d)(2)(vii) of the interim final include a new SFA measurement date
highest priority group as possible before rule provides that PBGC may add and possibly new census data. The
opening the submission process to the additional priority groups based on commenter suggested that PBGC could
next priority group. Ultimately—and no other circumstances similar to those allow plans that were ready to file an
later than March 11, 2023—the described for priority groups 1 through application, but that were unable to do
submission process will be opened to all 6. While PBGC has not made changes to so because the filing window closed
eligible plans (whether or not in a § 4262.10(d)(2) to add additional temporarily, to submit a ‘‘notice of
statutory priority category) to ensure priority groups, PBGC will continue intent to file’’ that would lock in the
that every prospective applicant has a monitoring its application processing to plan’s SFA measurement date and other
fair opportunity to file its application determine whether additional priority base data. The suggested notice would
during the statutory period. groups should be added. Any additional allow the plan to apply on a different
Other commenters wanted more priority groups added and the date date when the filing window re-opened
certainty about which plans fall into the PBGC will begin accepting applications but with the same application.
final priority group 6 under the interim for such groups will be posted in PBGC considered the comment and,
final rule, or groups 6 and 7, and when guidance on PBGC’s website at to address the problem described by the
the plans could begin applying. www.pbgc.gov. commenter, has created in § 4262.10(g)
Commenters recommended that PBGC The final rule makes some clarifying of the final rule a simple process for
identify and post as quickly as possible changes in § 4262.10(d), including to ‘‘locking in’’ a plan’s SFA measurement
the names of the plans it determines to clarify that an application filed by a date and other base data, which is
be in priority group 6 to provide plan to which benefit liabilities were available for all plans that file after
certainty to plans expecting to apply in transferred (by merger or otherwise) March 11, 2023, and on or before
priority group 6. Under from a plan that filed an initial December 31, 2025. The process also is
§ 4262.10(d)(2)(vi), a plan is in priority application for SFA will be treated as a available for plans in priority groups 5,
group 6 if the plan is projected by PBGC revised application and not an initial 6, and any additional priority group
to have a present value of financial application. PBGC may add before March 11, 2023,
assistance payments under section 4261 Lock-in Application if PBGC temporarily closes the filing
of ERISA that exceeds $1 billion if SFA window when it is otherwise accepting
is not ordered. PBGC will list the plans Section 4262.10(d)(1) of the interim applications for plans in those priority
in priority group 6 on its website at final rule provides that SFA groups. A lock-in application is a pro
www.pbgc.gov well in advance of the applications are processed based on forma initial application submitted via
first date filings may be accepted, but capacity to allow for sufficient review email and containing the plan’s
not later than the earlier of November and processing by PBGC within the identifying information, priority group
15, 2022, or 30 days before opening the short period of time required by the information (if applicable), a statement
filing period for priority group 6. The statute. Once the number of applications of intent to lock in the plan’s base data,
date a plan in priority group 6 may file reaches that level, the filing window a certification signed by an authorized
an application will be posted at least 21 will temporarily close until PBGC has trustee, and other information as
days in advance of such filing date, capacity to process more applications. described in the lock-in application
which will be no later than February 11, An application will be considered filed instructions on PBGC’s website at
2023. on the date it is submitted electronically www.pbgc.gov. If the lock-in application
A commenter also recommended to PBGC if the application meets satisfies the requirements for a lock-in
including plans with unfunded vested applicable filing requirements, application, it will be considered filed
benefits (UVBs) over $1 billion in a including authorized signatures, and and immediately denied for
priority group 7, with UVBs determined can be accommodated in accordance incompleteness.
using current liability assumptions with the processing system. Otherwise, PBGC may learn, during its review of
reported in the plan’s last Form 5500 PBGC will not consider the application a plan’s revised application, that the
Schedule MB filed before 2021. The filed and will notify the applicant that plan is not eligible for SFA. In that
commenter suggested defining this the application must be filed in situation, the lock-in application will
group so that a plan with the accordance with the processing system not establish the plan’s base data. If the
expectation of being in priority group 6, and instructions on PBGC’s website. plan subsequently becomes eligible for
but not named to priority group 6, could PBGC maintains a dedicated web page SFA, the plan may file a revised
know that it could apply shortly for applications on its website at application to demonstrate that the plan
thereafter and not have to significantly www.pbgc.gov to inform prospective is eligible for SFA and establish the
revise its application. applicants about the current status of plan’s base data.
Commenters also reasoned that the filing window, as well as to provide
providing SFA to these large plans advance notice of when PBGC expects Emergency Filings
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earlier (by allowing them to apply to open or temporarily close the filing Section 4262.10(f) of the interim final
earlier) means the plans will have window. rule provides for an emergency filing
expended less of their assets to meet One commenter remarked that an process for priority applications from a
obligations, and therefore need less effect of the ‘‘metering system’’ is that plan that is insolvent or expected to be
SFA, which in turn may result in less a plan preparing its initial application insolvent under section 4245(a) of
cost to the SFA program overall. for submission on a particular date, with ERISA within 1 year of filing an
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Federal Register / Vol. 87, No. 130 / Friday, July 8, 2022 / Rules and Regulations 40987
application, or a plan that has information required to be filed); sponsor withdraws an application, and
implemented a suspension of benefits because an assumption is unreasonable, the plan sponsor submits a revised
under section 305(e)(9) of ERISA as of a proposed change in assumption is application, it must use the base data
March 11, 2021. Beginning with PBGC’s individually unreasonable, or the required to be used in its initial
acceptance of priority group 2 filings, proposed changed assumptions are application, but it may make other
PBGC is accepting emergency filings unreasonable in the aggregate; or changes. However, in the final rule,
from these plans during periods when because the plan is not an eligible PBGC clarifies that if the plan was not
PBGC would not otherwise accept such multiemployer plan. For example, eligible for SFA on the date the plan
applications because the filing window pending approval of an application, if filed its initial application, the plan’s
is closed. A filer submitting an PBGC determines that documentation base data will not be fixed. Instead, if
application under the emergency filing supporting a certification of critical and the plan is able to demonstrate
process must substantiate the claim of declining status is missing, or if the plan eligibility for SFA at a later date in a
emergency status and notify PBGC, in sponsor has not responded to a PBGC revised application, the revised
accordance with the SFA instructions request for information to clarify an application will establish the plan’s
on PBGC’s website at www.pbgc.gov, item in that documentation, PBGC’s base data.
before submission of the impending notice will identify the missing PBGC’s decision on an application for
application. information or documentation required SFA is a final agency action for
One commenter suggested that to complete the application. If PBGC purposes of judicial review under the
another option for advancing the date denies an application, the plan sponsor Administrative Procedure Act (5 U.S.C.
that a plan in priority group 2 may may submit a revised application. If the 701–706).
apply would be to allow emergency plan sponsor submits a revised Payment of Special Financial
filings beginning with PBGC’s application following a denial, the Assistance
acceptance of applications from plans in revised application must address the
priority group 1. PBGC has not made a reasons for denial stated in PBGC’s Section 4262(j) of ERISA provides that
change to the emergency filing process, notification. PBGC is not requiring a SFA is the amount required for an
but as discussed earlier, has advanced to plan sponsor to refile the entire eligible plan to pay all benefits due from
December 27, 2021, the earliest filing application. PBGC only needs the the date PBGC pays the SFA to the plan
date for a plan projected to be insolvent information that cures the reasons until the last day of the plan year ending
within 1 year of the date the plan’s specified in the denial notice. However, in 2051. However, because a plan
application is filed. Accordingly, the plan sponsor may address other sponsor does not know when SFA will
insolvent plans and any plan projected matters provided that the revised be paid at the time the sponsor prepares
to be insolvent within 1 year of the date application addresses the reasons for the an application, the SFA amount
the plan’s application is filed are also denial. supported by an application and
eligible to submit emergency The plan sponsor may withdraw an approved by PBGC will be the amount
applications beginning December 27, application (in writing and in appropriate as of a date in the past. The
2021. PBGC will continue to monitor accordance with the SFA instructions amount of SFA could be recomputed as
application processing and will on PBGC’s website at www.pbgc.gov) at of the date of payment, yet the result
continue to update its website to any time before PBGC denies or would still be an estimate and the
advance filing dates as capacity permits. approves the application. If an burden of recomputing the amount of
application is withdrawn or denied, the SFA would be significant. Instead,
PBGC Action on Applications § 4262.12 provides that PBGC will pay
plan sponsor may refile the application
Section 4262(g) of ERISA provides as a revised application. As explained a plan the amount demonstrated under
that PBGC can either approve or deny earlier in the preamble, under section the plan’s application, determined as of
an application for SFA and establishes 4262(f) of ERISA, and until the plan’s the SFA measurement date, plus interest
a 120-day review period during which application is approved, there is no on that amount for the time between the
PBGC must act or an application is limit to the number of times that a plan SFA measurement date and the date
deemed approved. PBGC is given sponsor may file a revised application PBGC sends payment (not the bank
authority to manage the application (after the application is withdrawn or settlement date).
review process by issuing regulations or denied) as long as the last revised The final rule clarifies the interest rate
guidance under section 4262(c) of application is filed by the statutory applied on the amount of SFA
ERISA setting forth requirements for deadline of December 31, 2026. demonstrated under the plan’s
SFA applications. Pursuant to that For any revised application, PBGC application from the time between the
authority, § 4262.11 provides requires that the base data remain the SFA measurement date and the date
requirements for plan applications that same as required to be used in the plan’s PBGC sends payment. For initial or
are denied by PBGC or withdrawn by a initial application to guard against revised applications filed on or after the
plan. multiple filings for purposes of effective date of the final rule, the
As described under § 4262.11, PBGC changing this data. In the final rule, interest rate applied is the SFA rate
must act on an application within 120 PBGC clarifies that the base data defined under § 4262.4(e)(2). For applications
days after the date an initial, revised, or in § 4262.11(c) for an eligible plan filed under the interim final rule where
supplemented application is properly includes the plan’s SFA measurement the plan has not filed an initial or
and timely filed. If PBGC approves an date, participant census data, non-SFA revised application on or after the
application, it will notify the plan interest rate assumption, and SFA effective date of the final rule and there
sponsor of the payment of SFA in interest rate assumption. Once PBGC has not been any previous payment of
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accordance with § 4262.12. has accepted an initial application for SFA, and where the plan’s application
If PBGC denies an application, it will processing, it is in the best interest of all is not supplemented, the interest rate
notify the plan sponsor in writing of the parties to avoid the duplicative work applied is the non-SFA rate under
reasons for the denial. An application and delays associated with changes to § 4262.4(e)(1).
may be denied because it is incomplete the base data. Accordingly, if the For a supplemented application,
(it does not accurately include the application is denied or the plan where the plan received a previous
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40988 Federal Register / Vol. 87, No. 130 / Friday, July 8, 2022 / Rules and Regulations
payment of SFA, the interest rate from other plan assets and may only be flexibility to pursue greater asset returns
applied is the SFA rate required under used to make benefit payments and pay and the opportunity to extend plan
§ 4262.4(e)(2) from the SFA plan expenses (but SFA may be used solvency on the other.
measurement date to the payment date before other plan assets are used for PBGC received many comments on
of the additional SFA. Interest is these purposes). In addition, SFA (and § 4262.14 of the interim final rule and
applied on the excess of the amount of earnings) must be invested by plans in in response to its specific request for
SFA determined under § 4262.4 of the investment grade bonds or other comment on the issue of appropriate
final rule as of the SFA measurement investments as permitted by PBGC in risk level. Commenters generally
date (demonstrated on the plan’s § 4262.14. These limitations on the use favored allowing plans to have more
supplemented application) over the SFA of SFA reflect the purpose of SFA. As flexibility in their options for investing
amount determined under § 4262.4 of provided for under section 4262(j)(1) of SFA funds. They stated that increased
the interim final rule as of the SFA ERISA and in § 4262.4, SFA is the flexibility in investment decisions
measurement date. amount required for the plan to pay all would not necessarily create an
Section 4262.12(g) otherwise remains benefits due during the SFA coverage excessive level of risk to plans and
unchanged in substance from the period taking into account all plan would enable plans to remain solvent
interim final rule by providing that resources and obligations. SFA should longer.
PBGC will pay SFA to a plan in a lump not be used in a manner that would Other commenters expressed the view
sum or substantially so 26 as soon as divert SFA funds to other purposes—for that the investment restrictions in the
practicable upon approval of the plan’s instance, reducing sources of plan interim final rule do not allow plans to
SFA application. As stated in the income, such as employer contributions invest SFA funds in a diversified
interim final rule, PBGC expects or withdrawal liability, or increasing portfolio. They stated that not allowing
payment to be made usually within 60 plan obligations, such as to pay for for diversification will increase overall
days, and no later than 90 days after the additional future increases in benefits risk to the plans. Commenters also
plan’s SFA application is approved or (that are not exempted under § 4262.16). stated that other investments, some low-
deemed approved (and in any event not risk, likely would yield higher returns
later than September 30, 2030). Payment Permissible Investments and allow plans to remain solvent
will be made in accordance with Section 4262(l) of ERISA requires that longer. These commenters suggested
payment instructions provided by the SFA received, and any earnings thereon, various types of fixed income that have
plan in its application. Payment will be may be used to make benefit payments higher yields.
considered made when, in accordance and pay plan expenses, and such SFA As to which investments PBGC
with the plan’s payment instructions, and earnings (‘‘SFA funds’’ or ‘‘amounts should permit, many commenters
PBGC no longer has ownership of the attributable to special financial suggested that PBGC allow plans to
amount being paid. Any adjustment for assistance’’) must be held separately invest SFA funds in a manner that
delay will be borne by PBGC only to the from other plan assets. Section 4262(l) targets a specific rate of return. Some
extent that it arises while PBGC has also requires that SFA funds be invested commenters recommended permitting
ownership of the funds. in investment grade bonds or other plans to target a rate of return close to
For a plan with an obligation to repay investments permitted by PBGC. Given an interest rate used to calculate the
financial assistance under section 4261 the statutory constraints and the amount of SFA—e.g., the interest rate
of ERISA, the process for that repayment likelihood that SFA funds will be paid limit under section 4262(e)(3) of ERISA
is described in § 4262.12(e). out before non-SFA funds, PBGC or approximately 5.3 percent based on
Unlike assistance under section 4261, believes that SFA funds should be pension funding segment rates in
section 4262(a)(2) of ERISA provides invested conservatively, in broad, liquid December 2021.
that payment of SFA is not a loan markets. Other commenters recommended that
subject to repayment. However, under While the allowance under section PBGC allow specific investment
§ 4262.12(g)(1), SFA is subject to 4262(l) for ‘‘other investments permitted vehicles and approaches. Suggestions
recalculation or adjustment to correct by the corporation’’ could provide some included the allowance for various
any clerical or arithmetic error. PBGC flexibility (and limited exposure to types of fixed income investments, real
will, and plans must, make payments as other assets), in the interim final rule estate and infrastructure, and risk
needed to reflect any such changes in a PBGC did not allow for investments transfer buy-in contracts offered by life
timely manner. SFA is also subject to with fundamentally different insurers.
debt collection if PBGC determines that characteristics than investment grade Some commenters suggested that
a payment for SFA to a plan exceeded bonds. Section 4262.14 of the interim PBGC set restrictions for plans
the amount to which the plan was final rule permitted SFA funds to be individually. They said that PBGC
entitled. Section 4262.12(g)(2) provides invested only in fixed income securities should consider the unique
the rules for payment of a debt owed to that are publicly traded, denominated in circumstances of each plan and vary the
the Federal Government. U.S. dollars, and that must be permissible investment options based
considered investment grade except for on the assumptions applicable to the
Restrictions on Special Financial
a 5 percent allowance for a plan to hold plan.
Assistance
investments that were considered Some commenters recommended that
Section 4262(l) of ERISA places investment grade at the time of purchase PBGC allow a percentage of SFA funds
restrictions on the use of SFA. These but are no longer of that credit quality. in investments other than fixed income.
restrictions are described in § 4262.13 of Recognizing that the interim final rule Suggestions ranged from 10 percent to
the regulation. SFA received, and any took a conservative approach for 50 percent. Other commenters
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earnings thereon, must be segregated permissible investments, PBGC recommended having no delineations
specifically requested comment from between SFA and non-SFA assets,
26 For example, if a plan’s SFA payment exceeds
the public on how to arrive at an meaning that SFA funds could be
the statutory limitation for a Federal wire of $10
billion, the plan will receive multiple federal wire
appropriate balance between invested without restriction and would
payments that will equal the approved lump sum predictability of returns and safety of not need to be segregated from non-SFA
amount. investments on the one hand, and the funds. One commenter suggested that
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Federal Register / Vol. 87, No. 130 / Friday, July 8, 2022 / Rules and Regulations 40989
removing all restrictions would fund distributions) and at least once in 230.144A (SEC Rule 144A under the
eliminate the incentive to assume added any rolling period of 12 consecutive Securities Act of 1933). However, the
risk in investing non-SFA funds. months. A purchase of RSA includes a final rule explicitly excludes such debt
Another commenter said the restrictions fair market value exchange of securities issued by a foreign issuer.27
are cumbersome and that, to develop an investments between a plan’s SFA and Permissible RSA also include high-yield
appropriate investment strategy for a non-SFA segregated accounts. Portfolio (‘‘junk’’) corporate bonds that were
plan, a fiduciary must consider all of the allocations also naturally get out of considered investment grade at the time
plan’s assets. balance due to cash flow and as prices of purchase by the SFA segregated
Finally, two commenters agreed with of investments fluctuate over time, so account for the IGFI portfolio but are no
the investment restrictions on SFA the percentage of SFA funds in RSA longer of that credit quality. This list of
funds in the interim final rule. They could at times be greater than 33 permissible RSA facilitates some
stated that allowing additional percent. The rule provides clear diversification and eliminates the
investment options would lead to an guidance to plans on when the potential for investment in aggressive or
excessive level of risk-taking for percentage allocation in RSA is exotic investments that would clearly be
taxpayer funds. determined, and that it does not mean, at odds with section 4262(l) of ERISA.
PBGC stated in the interim final rule for example, no greater than 33 percent PBGC considered suggestions for
that it was reluctant to allow for in RSA on each and every day. expanding permissible investments that
investment vehicles with fundamentally Requiring the 33 percent cap on RSA to are RSA to include real estate and
different characteristics than investment be met at purchase and at least one day infrastructure. Inclusion of these assets
grade bonds without public input. during any rolling 12-month period would allow for more diversified
Although public comments reflected reflects acceptable deviation from the portfolios of return-seeking SFA funds
both sides of this issue, the comments basic restriction. While there may be with significant return potential, but
largely suggested that the final rule some drift during a year above the 33 most plans will achieve this
should permit greater flexibility in percent, it would be very limited, and diversification through their non-SFA
investments with the objective of the burden of frequent rebalancing or assets. Also, the complexity of these
extending potential solvency. After inopportune forced sales of assets is investment categories and the lack of
considering the comments, and to minimized. A plan will be required to recognized passive index funds that
support projected plan solvency through attest in the plan’s annual statement of invest directly in real estate and
the plan year ending in 2051 as compliance (under § 4262.16(i)) that the infrastructure make these assets less
provided in section 4262(j)(1) of ERISA, plan has met the allocation restriction suitable as permissible investments.
PBGC is making changes to § 4262.14 to on RSA at purchase and at least once in Real estate investment trusts (REITs)
allow for a wider range of investments every rolling period of 12 consecutive that issue publicly traded equity are
for SFA assets. months beginning from the date the included within the RSA that are
As provided in § 4262.14(i), the plan receives SFA. allowed as permissible investments and
changes to permissible investments in The final rule describes permissible exposure to infrastructure is also
this final rule are applicable to a plan RSA to include equity securities limited available through permissible equity
that applies or has applied for SFA. to common stock that is denominated in investments.
However, for a plan that received SFA U.S. dollars and publicly traded PBGC also considered commenters’
under the terms of the interim final rule, (registered with the U.S. Securities and suggestions for expanding the types of
the changes to permissible investments Exchange Commission (SEC) under the fixed income allowable as permissible
under this final rule will not apply Securities Exchange Act of 1934); as IGFI to include various fixed income
unless and until the plan files a well as in ‘‘permissible fund vehicles’’ securities that have higher yields. In
supplemented application. Until that described in § 4262.14(g), which include general, investments that do not share
date, the provisions of § 4262.14 under mutual funds and exchange-traded the low risk and relatively high liquidity
the interim final rule apply to the plan. funds (ETFs) registered with the SEC characteristics of IGFI are not
The changes in the final rule permit under the Investment Company Act of considered appropriate to meet the 67
plans to invest a specified percentage— 1940 (including ETFs organized as unit percent floor for that type of investment.
up to 33 percent—of their SFA funds in investment trusts), and collective trusts Bonds that were rated investment grade
return-seeking assets (RSA) as described that operate under a statutory at the time of purchase must be
in § 4262.14(c) of the final rule. That exemption from registration. considered RSA if they no longer meet
leaves 67 percent or more of SFA funds Permissible fund vehicles abide by an the criteria for being considered
to be invested in investment grade fixed investment policy that limits investment investment grade. As noted earlier, the
income securities (IGFI). PBGC believes predominantly to publicly traded equity final rule also allows for bonds resold in
this ratio (67 percent IGFI to 33 percent securities (and short-term U.S. Treasury an offering pursuant to Rule 144A under
RSA) appropriately considers the need securities, cash or cash equivalents, and the Securities Act of 1933 to be
to protect SFA assets to pay projected investments in money market funds). considered permissible RSA as long as
benefits of the participants and The permissible RSA funds are intended they meet the investment grade
expenses of the plan. The 33 percent to include equity funds that track broad- criterion.
that may be invested in RSA as defined based U.S. indexes, such as the PBGC views investments such as
in the final rule will enable plans to Standard & Poor’s 500 Index (S&P 500). leveraged loans, collateralized loan
grow SFA funds and increase the Permissible RSA also includes certain obligations, convertible bonds, preferred
potential to pay benefits through 2051 debt instruments (e.g., bonds) that are stock, and private credit as not
while limiting the total risk exposure of excluded from the definition of fixed
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taxpayer-funded assistance. income securities under the final rule. 27 The term ‘‘foreign issuer’’ is as defined in 17
The final rule provides that the These include debt instruments that pay CFR 240.3b–4(b) (Rule 3b–4(b) under the Securities
permissible allocation in RSA of SFA a fixed amount or fixed rate of interest, Exchange Act of 1934), i.e., any issuer which is a
foreign government, a national of any foreign
funds is no more than 33 percent are denominated in U.S. dollars, are country or a corporation or other organization
measured each time RSA are purchased investment grade, and have been resold incorporated or organized under the laws of any
(other than through the reinvestment of in an offering pursuant to 17 CFR foreign country.
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40990 Federal Register / Vol. 87, No. 130 / Friday, July 8, 2022 / Rules and Regulations
appropriate to include as IGFI because all the benefits for all participants, as assets of the plan and invested
they tend to trade in relatively small, suggested by another commenter. consistent with the requirements in
illiquid markets that generally require The substance of the definition of § 4262.14. PBGC expects that if there is
active management. Collateralized loan investment grade with respect to fixed any investment policy or investment
obligations, collateralized mortgage income securities in the interim final management agreement governing such
obligations and other collateralized debt rule is unchanged in the final rule account, that it would be consistent
obligations are complex instruments except for removing the words ‘‘publicly with such investment requirements.
and are only permitted as RSA to the traded’’ which is evident in the final Custody and accounting of SFA funds
extent they pay a fixed rate of interest. rule requirement that fixed income should be clearly separated to properly
Convertible bonds may have significant securities are sold in an offering track and account for SFA funds.
liquidity risk. registered under the Securities Act of
1933. As described in the interim final Reinstatement of Benefits Previously
The final rule clarifies that Suspended
permissible IGFI securities considered rule preamble, investment grade means
to meet the 67 percent floor must be a securities for which the issuer (or Section 4262(k) of ERISA imposes two
bond or other debt instrument that pays obligor) has at least adequate capacity to conditions on a plan that receives SFA
a fixed amount or fixed rate of interest, meet the financial commitments under and had previously suspended benefits
denominated in U.S. dollars, sold in an the security for the projected life of the in accordance with section 305(e)(9) or
offering registered under the Securities asset or exposure. Adequate capacity 4245(a) of ERISA.28 A plan must
Act of 1933, and investment grade, and means that the risk of default by the reinstate any benefits that were
includes such securities held in issuer (or obligor) is low and the full suspended and must provide payments
permissible fund vehicles (defined in and timely repayment of principal and to certain participants or beneficiaries to
§ 4262.14(g)). These IGFI funds must interest on the security is expected. make up past amounts of benefits
These definitions are consistent with previously suspended.
abide by an investment policy that
other Federal agency regulations that As provided under section 4262(k) of
limits investment primarily to securities
refer to investment grade securities in ERISA, § 4262.15 of the interim final
that are denominated in U.S. dollars and rule requires plans to reinstate these
are investment grade. Permissible IGFI compliance with Section 939A of the
Dodd Frank Act of 2010. Further, the previously suspended benefits as of the
includes securities issued or guaranteed month in which SFA is paid, and to
by the U.S. government or its designated securities must be considered
investment grade by a fiduciary who is, provide make-up payments with respect
agencies, such as U.S. Savings Bonds, to previously suspended benefits to
Treasury Bonds, Treasury Bills, and or seeks the advice of, an experienced
investor. participants or beneficiaries in pay
GNMA (‘‘Ginnie Mae’’), and status as of the date that SFA is paid,
Like the interim final rule, the final
government-sponsored enterprise (GSE)- in accordance with guidance issued by
rule acknowledges that securities (IGFI
issued debt securities (e.g., by ‘‘Fannie the Secretary of the Treasury. Section
or RSA) held in permissible fund
Mae,’’ ‘‘Freddie Mac,’’ etc.), that are vehicles (ETFs, mutual funds, or 4262(k) and § 4262.15 give the plan
reported on line 1c(2) of the Form 5500 collective trusts), or directly through a sponsor flexibility to design payment of
Schedule H. It also includes municipal portfolio of individual securities, often make-up amounts as a single lump sum,
bonds defined under the Securities Act are supplemented by derivatives that with no interest, within 3 months of the
of 1933 that are investment grade. replicate exposure to physical bonds or payment date of SFA, or in equal
Dollar-denominated emerging market that implement hedging strategies to monthly installments over a period of 5
bonds that are rated as investment grade protect against downside risk. The final years, commencing within 3 months of
are viewed as meeting the definition of rule permits investment in vehicles the payment date, with no installment
IGFI. allowing for such strategies so long as payment adjusted for interest. PBGC
The final rule clarifies that cash and any derivative or leveraging strategy notes that IRS has advised that a late
cash equivalents required to be reported does not increase the risk of the make-up payment should be adjusted to
on the Form 5500 Schedule H are investments beyond the risk in a similar account for the delay, and that the
permissible investments within the 67 portfolio of physical securities (i.e., non- correction method described in section
percent floor. These are noninterest- derivative securities) with the same 6.02(4)(d) of Revenue Procedure 2021–
bearing cash on line 1a of Form 5500 market value. Further, any notional 30, 2021–31 IRB 172 (which sets forth
Schedule H (total noninterest-bearing derivative exposure on permissible the current version of the IRS Employee
cash which includes, among other investments that are held in separate Plans Compliance Resolution System
things, cash on hand or cash in a accounts (i.e., not through permissible (EPCRS)), with respect to correction of
noninterest-bearing checking account), fund vehicles), must be supported by a late distribution from a defined benefit
and interest-bearing cash equivalents on liquid assets that are cash or cash plan is a reasonable method for
line 1c(1) of Form 5500 Schedule H (all equivalents denominated in U.S. computing the adjustment.
assets that earn interest in a financial dollars. This will ensure that the plan or Several commenters expressed views
institution account such as interest- the investment manager will be able to on the payment of make-up amounts to
bearing checking accounts, passbook cover the derivative exposure with little participants and beneficiaries in pay
savings accounts, or in money market risk to SFA funds. This provision status. Some of those commenters
accounts). Also permissible are remains substantively unchanged from
investments in money market funds the interim final rule and applies to 28 Section 4262(k) of ERISA includes rules that
regulated pursuant to rule 2a-7 under investments in permissible IGFI and are parallel to section 432(k) of the Code. Under
the Investment Company Act of 1940. section 9704(d)(3) of ARP, the Secretary of the
RSA.
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Treasury has interpretive jurisdiction over the rules
PBGC determined not to include as Lastly, the final rule clarifies that the for determining the benefit reinstatement and make-
permissible investments insurance requirement in section 4262(l) of ERISA up payments that must be made by a multiemployer
contracts, such as risk transfer buy-in and § 4262.13 that SFA funds ‘‘shall be plan receiving SFA, for purposes of ERISA as well
as the Code. Under section 4262(k), the Secretary
contracts described by a commenter. segregated from other plan assets’’ of Labor, in coordination with the Secretary of the
There may be an inherent inequity with means that SFA funds must be held in Treasury, must ensure benefits are reinstated and
this type of investment unless it covers an account separate from the remaining previously suspended benefits are paid.
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Federal Register / Vol. 87, No. 130 / Friday, July 8, 2022 / Rules and Regulations 40991
preferred that make-up payments be reinstatement instructions, in an mergers, which are discussed under the
made in a lump sum, while others addendum to the SFA instructions, sections on Benefit Increases and
expressed concerns about the tax available on PBGC’s website at Transfers or Mergers.
implications of lump sums and www.pbgc.gov. PBGC received no
(a) Benefit Increases
suggested that retirees and beneficiaries comment on the requirement to provide
should be able to choose the form for notice and did not make changes to Section 4262(m) provides authority to
their make-up payments. In addition, § 4262.15(c) in the final rule. impose conditions relating to increases
some commenters expressed concern Section 4262(k) of ERISA states that in future accrual rates (prospective
that, if a participant who had received ‘‘the Secretary, in coordination with the benefit increases) and any retroactive
reduced benefits because of a Secretary of the Treasury, shall ensure benefit improvements (retrospective
suspension dies before the SFA is paid that an eligible multiemployer plan that benefit increases). Section 4262.16(b) of
to the plan, then the participant’s estate receives special financial assistance’’ the regulation imposes reasonable
or beneficiary would not receive make- reinstates suspended benefits and conditions on a plan that receives SFA
up payments for the benefits the provides make-up payments required by with respect to the types of benefits and
participant lost because of suspension. the statute. The Department of Labor benefit increases described in section
PBGC consulted with the IRS, which notes that it will need access to records, 4022A(b)(1) of ERISA, without regard to
pursuant to section 432(k) of the Code and, if requested, copies of records to the time the benefit or benefit increase
and section 4262(k) of ERISA provided ensure that plans receiving SFA has been in effect. These conditions are
guidance in Notice 2021–38 on the reinstate the suspended benefits of intended to prevent excessive increases
make-up payments for benefits participants and beneficiaries as in benefits that would result in a
previously suspended and the tax required by section 4262(k). Plan transfer of SFA to participants beyond
treatment of those payments. With fiduciaries have an obligation under the payment of benefits at the level they
respect to the form of payment, the IRS title I of ERISA to maintain complete had been promised as of the date of
advised PBGC that while section and accurate records, including enactment of section 4262, without
432(k)(2)(A)(ii) of the Code (which information the Department may need being overly restrictive. The condition
governs the repayment obligation) to ensure the timely reinstatement of does not apply to the required
expressly provides for the plan to suspended benefits and payment of reinstatement of benefits suspended
determine whether make-up payments make-up payments under section under section 305(e)(9) or 4245(a) of
are paid as a lump sum or in equal 4262(k) of ERISA. The Department is ERISA or any restoration of benefits
monthly installment payments over 5 considering issuing guidance to address under 26 CFR 1.432(e)(9)–1(e)(3).
years, there is no requirement that the the records and information that plans The condition in § 4262.16(b)(1)
same form of payment must be used for that receive SFA will need to maintain restricts retrospective benefit increases
all recipients. With respect to the and retain to comply with title I of (also referred to in this preamble as
payment of make-up payments to ERISA. retroactive benefit increases or
deceased participants, the IRS advised retroactive benefit improvements) by
Conditions for Special Financial providing that a benefit or benefit
PBGC that section 432(k)(2)(A)(ii) of the
Assistance increase must not be adopted during the
Code requires that make-up payments
be made to participants and To ensure that SFA is used for the SFA coverage period (defined in
beneficiaries who are in ‘‘pay status’’ on purpose of paying benefits and the § 4262.2) if it is in whole or in part
the effective date of the SFA. Because a expenses related to those benefit attributable to service accrued or other
participant who died before the SFA is payments, PBGC used its authority events occurring before the adoption
paid is not in pay status as of the under section 4262(m)(1) of ERISA, after date of the amendment. PBGC said in
effective date of the SFA, no make-up consulting with the Secretary of the the interim final rule that this condition
payments are made for reductions that Treasury, to impose reasonable is needed because retroactive increases
applied to that participant and, conditions on an eligible multiemployer in benefits harm the funded position of
accordingly, make-up payments are plan that receives SFA. These the plan without improving expected
limited to the total amount of benefits conditions are described in § 4262.16 of future plan income.
that would have been paid to the the regulation and relate to increases in Commenters recommended that PBGC
beneficiary in the absence of the future accrual rates and retroactive provide some flexibility for retroactive
suspension but that were not paid to the benefit improvements; allocation of plan benefit increases if they are paid for by
beneficiary because of the suspension. assets; reductions in employer additional contributions without
However, if a participant dies after the contribution rates; diversion of endangering the plan’s ability to pay all
SFA is paid to the plan but before all of contributions to, and allocation of benefits. Some commenters said that
the make-up payments are paid to the expenses to, other benefit plans; and PBGC was wrong in its assertion that
participant, the unpaid portion of the withdrawal liability. retroactive increases in benefits harm
make-up payments must be made to the Under certain circumstances, a plan the funded position of the plan, and that
participant’s beneficiary. sponsor may request approval from the prohibition is likely to be
Section 4262.15(c) of the interim final PBGC for an exception from the counterproductive and reduce the
rule requires the plan sponsor of a plan conditions relating to reductions in likelihood of plans achieving their long-
with benefits that were suspended employer contribution rates, transfers or term contribution assumptions. The
under section 305(e)(9) or 4245(a) of mergers, and settlement of withdrawal prospect of benefit restorations, they
ERISA to furnish a notice of liability. PBGC solicited public stated, could provide an incentive for
reinstatement to participants and comment on whether there are other active participants to remain in their
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beneficiaries whose benefits were circumstances relating to the conditions plans and to seek increased contribution
previously suspended and then described under § 4262.16 where PBGC rates. The commenters made various
reinstated in accordance with section should consider providing approval for suggestions, including permitting
4262(k) of ERISA. The requirements for exceptions. Commenters suggested retroactive increases if the financial
the notice, including content adding exceptions to conditions on condition of the plan improves,
requirements, are in the notice of retrospective benefit increases and permitting de minimis increases,
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40992 Federal Register / Vol. 87, No. 130 / Friday, July 8, 2022 / Rules and Regulations
allowing an alternative pension during the SFA coverage period unless plan approaches insolvency as a
arrangement for active workers, and the plan actuary certifies that employer sensible and prudent approach to
providing a procedure under which a contribution increases projected to be investing over a gradually shortening
plan may apply for an exception from sufficient to pay for the benefit increase time horizon. Nonetheless, PBGC
the condition restricting retrospective have been adopted or agreed to, wanted feedback from the public on
benefit increases. provided that these increased whether this condition is seen as
PBGC considered whether to permit contributions were not included in the preventing plans from achieving
retroactive benefit increases, similar to determination of SFA. This condition is reasonable investment objectives.
its condition on prospective benefit intended to guard against plans Accordingly, in the interim final rule,
increases, but remains concerned that implementing significant benefit PBGC requested responses, with
retroactive benefit increases are more increases that may accelerate plan supporting data, to the following
expensive and riskier than prospective insolvencies and hasten an inability to questions:
benefit increases. A plan amendment pay plan-level benefits. However, plans (1) Will the requirement to maintain
that increases benefits for prior service still have the flexibility to offer active 1 year (or until the date the plan is
has the effect of immediately increasing participants more attractive benefit projected to become insolvent, if earlier)
the plan’s liability. Its cost is amortized accruals when the plans are able to of benefit payments and administrative
over a future period of years and can afford them. expenses in investment grade fixed
significantly add to the employers’ One commenter requested income assets result in an allocation
financial obligation with respect to clarification of the conditions on benefit that is significantly different from the
funding the plan. In this situation, if the improvements stating that the interim allocation that the plan’s investment
plan experiences actuarial losses in the final rule implies that prospective policy (after receiving SFA) would
future, the plan’s funding costs could increases are possible during the SFA otherwise attain?
become unsustainable. In contrast, the coverage period while the plan is (2) What are the advantages and
cost of a prospective benefit increase, deemed to be in critical status. The disadvantages of PBGC not imposing
such as an increase in the benefit commenter stated that section any conditions under section 4262(m) of
accrual rate, generally is paid for in the 305(f)(1)(B) of ERISA includes a ERISA on asset allocation compared to
year the service is rendered and can be requirement that no benefit increase is the proposed condition requiring 1 year
reduced or eliminated for future years if permissible during a rehabilitation (or until the date the plan is projected
the plan’s funding costs become period unless the plan is on track to to become insolvent, if earlier) of benefit
excessive. emerge from critical status by the end of payments and administrative expenses
In consideration of the comments, the rehabilitation period, a date that in investment grade fixed income?
however, PBGC is adding may be decades earlier than the end of (3) Could an alternative condition, or
§ 4262.16(b)(3) to provide a process by the SFA coverage period. The modification of the condition under
which a plan may request a conditions on benefit increases § 4262.16(c), better achieve the objective
determination from PBGC for an provided under § 4262.16(b) are in of preventing excessive risk-taking by
exception from the condition relating to addition to the limitations under section plans while allowing plans to meet their
retrospective benefit increases if future 305(f)(1)(B) of ERISA (and investment objectives?
plan circumstances permit the plan to corresponding section 432(f)(1)(B) of the Several commenters offered answers
provide benefit increases without Code) applicable to plans in critical to these questions and provided other
endangering the plan’s ability to pay all status. PBGC is unable to opine on the comments about allocation of plan
benefits. This determination process requirements of section 305(f)(1)(B) of assets. Two commenters generally
will also apply to an exception from the ERISA as the funding rules are under agreed with the condition stating that it
condition relating to prospective benefit the Treasury Department’s interpretive would impact allocations only for a
increases (discussed below). Under the jurisdiction. brief period of time and would not make
new provision, beginning 10 years after a significant difference in the overall
the end of the plan year in which a plan (b) Allocation of Plan Assets investment allocation. Another
receives payment of SFA, the plan may Section 4262.16(c) of the regulation commenter recommended that PBGC
apply for an exception by demonstrating imposes a condition on a plan that base any restrictions on individual
to the satisfaction of PBGC that, taking receives SFA relating to the allocation of plans’ net cash flow positions taking
into account the value of any proposed plan assets. This condition requires that, contributions into account, rather than
benefit increase, the plan will avoid during the SFA coverage period, plan just benefit payments. PBGC considered
insolvency. PBGC considers the 10-year assets, including SFA, must be invested this comment but determined that
period necessary for the plan to in permissible investments as described factoring in contributions would
demonstrate that its actuarial in § 4262.14 sufficient to pay for at least introduce more administrative
assumptions for a favorable long-term 1 year (or until the date the plan is complexity. Other commenters
outlook, such as steadily solid projected to become insolvent, if earlier) disagreed with the condition stating that
projections of year-by-year contribution of projected benefit payments and it would cause plans to become
income, are being realized. Moreover, administrative expenses. Under insolvent earlier than they would
the agency believes that limiting the use § 4262.14 of the interim final rule, otherwise. After considering the
of SFA initially to the protection of permissible investments were limited to comments, PBGC decided to retain the
accrued benefits is essential to sound fixed income. condition in the final rule to prevent
fiscal stewardship. The final rule PBGC set the condition in § 4262.16(c) excessive risk taking. PBGC concluded
specifies the information that a plan is under the authority provided to it in that the condition is unlikely to have a
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required to file with its application for sections 4262(l) and 4262(m) of ERISA, significant impact on plans, except in
an exception. which PBGC interprets as intending to years when they are approaching
The condition in § 4262.16(b)(2) of the prevent excessive risk-taking by plans insolvency.
regulation restricts prospective benefit that receive SFA. PBGC views the Due to the expansion of permissible
increases by providing that a benefit or gradual increase in the proportion of investments under § 4262.14 of the final
benefit increase must not be adopted assets allocated to fixed income as a rule, as described earlier in the
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Federal Register / Vol. 87, No. 130 / Friday, July 8, 2022 / Rules and Regulations 40993
preamble under the subheading to review a request for approval of a example, consistent with the
Permissible Investments, PBGC has proposed contribution change, the final requirement in § 4262.16(e)(1)(iv), by
made conforming changes to rule does not make any changes to this the end of the 5-year period, the
§ 4262.16(c) to reflect that the condition condition. bargaining parties could negotiate,
is tied to fixed income. Accordingly, the Section 4262.16(e) of the regulation without the approval of PBGC, a new
final rule amends § 4262.16(c) to imposes reasonable conditions relating contribution rate of $100 per CBU with
provide that during the SFA coverage to allocation of contributions and an allocation of 30 percent to the
period, plan assets, including SFA, must expenses between a plan that received pension plan and 70 percent to the
be invested in permissible investments SFA and another employee benefit plan group health plan, which would
that are fixed income as described in and other practices. The condition reinstate the $30 contribution rate for
§ 4262.14(d) sufficient to pay for at least prohibits a decrease in the proportion of the pension plan. The final rule
1 year (or until the date the plan is income (contributions, investment specifies the information that a plan is
projected to become insolvent, if earlier) returns, etc.) or an increase in the required to file with its application for
of projected benefit payments and proportion of expenses allocated to a an exception.
administrative expenses. Additionally, plan that receives SFA. This prohibition Except with respect to a merged plan,
the investments used to meet this applies to written or oral agreements or discussed in the section on Transfers or
condition are also subject to the practices (other than a written Mergers, PBGC did not receive any
limitations on derivatives and leverage agreement in existence on March 11, comments on this condition and did not
described in § 4262.14(h). 2021, to the extent not subsequently make any other changes to this
amended or modified) under which condition in the final rule.
(c) Contribution Decreases and income or expenses are divided or to be
Allocating Contributions (d) Transfers or Mergers
divided between a plan that receives
Section 4262.16(d) imposes SFA and one or more other employee Section 4262.16(f) provides that
reasonable conditions on a plan that benefit plans. during the SFA coverage period, a plan
receives SFA relating to contribution The Department of Labor brought to must not engage in a transfer of assets
decreases to ensure that SFA is used for PBGC’s attention that there may be or liabilities (including a spinoff) or
the exclusive purpose of paying benefits circumstances arising after March 11, merger except with PBGC’s approval.
and reasonable administrative expenses 2021, beyond the control of the plan Notwithstanding anything to the
and is not effectively transferred to sponsor and the bargaining parties (e.g., contrary in PBGC’s regulation on
contributing employers through health benefit cost increases due to mergers and transfers between
decreased contribution obligations. legislative changes) that would justify a multiemployer plans (29 CFR part
During the SFA coverage period, the good faith reallocation of income or 4231), the plans involved in the
contributions required for each CBU expenses between employee benefit transaction must request approval from
must not be less than, and the definition plans. To address this narrow PBGC. A request for approval must
of the CBUs must not be different from, circumstance, PBGC is adding an contain information that would be
those set forth in collective bargaining exception to § 4262.16(e). Under the required to be submitted under
agreements or plan documents in effect new provision, beginning 5 years after § 4231.10 and the additional actuarial
on March 11, 2021 (including agreed to the end of the plan year in which a plan and financial information described in
contribution rate increases through the receives payment of SFA, a plan may § 4262.16(f)(2). PBGC will approve a
expiration date of the collective apply for an exception by demonstrating proposed transfer or merger if: (1) the
bargaining agreements). PBGC received to the satisfaction of PBGC that, taking transaction complies with section
one comment strongly supporting the into account the value of any proposed 4231(a)–(d) of ERISA, (2) the transfer or
condition on contribution decreases, reallocation, the plan that received SFA merger, or the larger transaction of
stating that employers must continue to will avoid insolvency and that the which the transfer or merger is a part,
pay for promised benefits under the reallocation is needed due to a does not unreasonably increase PBGC’s
terms that they have agreed to in their significant increase in health benefit risk of loss respecting any plan involved
collective bargaining agreements. costs due to a change in Federal law. in the transaction, and (3) the transfer or
Another commenter requested The reallocation would be required to merger is not reasonably expected to be
clarification of the exception to this be no more than a 10 percent reduction adverse to the overall interests of the
condition and the threshold for PBGC in the amount of the contribution rate participants and beneficiaries of any of
approval. The regulation provides an negotiated on or before March 11, 2021, the plans involved in the transaction.
exception to this condition where the going to the pension plan and would be An example of a larger transaction is
plan sponsor determines that the risk of required to be temporary (no more than where the trustees of a plan receiving
loss to plan participants and 5 years for a reallocation request relating SFA arrange a transfer of assets and
beneficiaries is lessened by the to any single change in Federal law and liabilities from the plan and amend the
reduction. PBGC clarifies in the final no more than 10 years cumulatively for plan to substantially or completely end
rule that the threshold for the all reallocation requests during the benefit accruals in connection with the
requirement that PBGC (in addition to plan’s SFA coverage period). For plan’s active participants beginning to
the plan sponsor) must determine that example, if the negotiated contribution accrue benefits under another existing
the changes lessen the risk of loss to rate was $60 per CBU, with 50 percent or newly formed plan. PBGC is unlikely
participants and beneficiaries is where ($30) allocated to the pension plan and to approve a transfer of assets and
the proposed reduction affects over $10 50 percent ($30) to the group health liabilities (that is not a merger) from a
million of annual contributions and plan, the pension contribution rate plan that receives SFA to another plan.
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over 10 percent of all employer could be reduced to $27 ($30 x 10 If a transfer of assets and liabilities (that
contributions. Except for this percent = $3) during the 5-year period. is not a merger) is approved, the
clarification in § 4262.16(d) and an This temporary reallocation would give application of the restrictions and
addition in paragraph (d)(2)(ix) that the bargaining parties time to negotiate conditions to the transferee plan will be
PBGC may request additional contributions for the health plan under determined as a condition of the
information that it determines it needs a collective bargaining agreement. For approval. Also, generally, PBGC will not
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40994 Federal Register / Vol. 87, No. 130 / Friday, July 8, 2022 / Rules and Regulations
approve a transfer from a single- of withdrawal liability under assets of the SFA plans pre-merger must
employer plan to a plan that receives § 4262.16(h). In addition, the merged be 25 percent or less of the total current
SFA, nor a merger of a single-employer plan will be required to demonstrate value of assets of the merged plan,
plan with a plan that receives SFA. continued compliance with the calculated using the current value of
Several commenters requested restrictions and conditions by filing an assets most recently required to be
additional guidance on how the plan annual statement of compliance under reported by the plans before the merger
that received SFA before the merger (the § 4262.16(i) through the last day of the on line 2a of Form 5500 Schedule MB.30
‘‘SFA plan’’) should be administered last plan year ending in 2051 and will Second, the total current liability of the
after the merger and whether the be subject to periodic compliance audits SFA plans pre-merger must be 25
restrictions and conditions that applied under § 4262.16(j). PBGC believes these percent or less of the total current
to the SFA plan also will apply to the are reasonable conditions for a plan that liability of the merged plan, calculated
merged plan. One commenter suggested receives SFA that should continue to using the current liability most recently
that the final rule should include a apply to the merged plan and will not required to be reported by the plans
mechanism for PBGC to waive create a significant impediment to plan before the merger on line 2b(4) column
restrictions and conditions on the mergers. (2) of Form 5500 Schedule MB. Third,
merger of an SFA plan into another plan PBGC agrees that some of the in the most recent certification of plan
and that such waivers could be conditions under § 4262.16 either status for the non-SFA plan, the plan
considered as part of PBGC’s review and should not apply or should be waived actuary must have certified that the plan
approval of mergers. for certain mergers so that the is not in endangered or critical status
In response to the commenters, PBGC conditions do not unduly impede (including critical and declining status)
is amending § 4262.16(f) to provide, as beneficial mergers. and is not projected to be in critical
part of the reasonable conditions After considering comments received, status within 5 years from the date of
relating to plan mergers, rules on the PBGC is clarifying in § 4262.16(f) that the plan’s request for approval, and the
restrictions and conditions that apply to the conditions relating to prospective plan must not be a plan described in
the merged plan, the conditions that do benefit increases under § 4262.16(b)(2), section 432(b)(5) of the Code. If any of
not apply to the merged plan, the allocation of plan assets under the plans involved in the merger engage
conditions that may be waived if certain § 4262.16(c), and allocating expenses in multiple transactions in any 1-year
criteria are met, and rules for the under § 4262.16(e) 29 will not continue period, the transactions will be
calculation of withdrawal liability. For to apply after the merger to the merged considered in the aggregate.
purposes of § 4262.16(f), a merged plan plan. A few commenters suggested that Some commenters suggested that if
means a plan that is the result of the a large plan could not operate efficiently PBGC retains certain conditions after
merger of two or more multiemployer if the condition with respect to the merger, the conditions should apply
plans. These rules on the applicable prospective benefit increases applied to participants in (and employers
restrictions and conditions apply even and every merged plan was required to contributing to) the SFA plan part of the
if, under the terms of the merger, the retain its own benefit design. Another merged plan only and not to all
plan that did not receive SFA is commenter explained that there would participants in (and employers
designated as the merged plan. be a reasonable expectation that two contributing to) the merged plan. PBGC
Under section 4262(l) of ERISA and participants under the same plan is adopting this suggestion for
§ 4262.13(b), SFA received by a plan working with the same or similar conditions relating to retrospective
and any earnings thereon must be contribution rates would have the same benefit increases under § 4262.16(b)(1),
segregated from other plan assets, may or similar benefit accrual for service contribution decreases under
be used by the plan only to make benefit after the merger. With respect to § 4262.16(d), allocating contributions
payments and pay administrative allocating expenses, a commenter stated and other income under § 4262.16(e),
expenses, and must be invested in that an SFA plan that has merged is not and withdrawal liability under
investment grade bonds or other legally separate from the merged plan § 4262.16(g). The condition relating to
permissible investments under for this purpose and should not be retrospective benefit increases, absent a
§ 4262.14. These statutory restrictions treated differently than any other waiver, will continue to apply to
on the use of SFA and earnings continue portion of the merged plan. participants in the SFA plan
to apply after the merger to the merged In addition, PBGC is amending immediately before the merger and not
plan. Consistent with that requirement, § 4262.16(f) in the final rule to provide to other participants after the merger in
the Treasury Department and the IRS that, as part of a request for approval of the merged plan. For the condition
have informed PBGC that the a merger between plans where one or relating to contribution decreases,
prohibition under section 432(k)(2)(D)(i) more of the plans are SFA plans and one absent a waiver, the condition will
of the Code on taking SFA assets into or more of the plans are non-SFA plans, apply only to the employers who had an
account in determining minimum PBGC will provide a waiver of the obligation to contribute to the SFA plan
required contributions under section conditions relating to retroactive benefit immediately before the merger. For the
431 of the Code continues to apply after increases under § 4262.16(b)(1), condition relating to allocating
the merger to the merged plan. contribution decreases under contributions and other income, absent
PBGC has determined that some of the § 4262.16(d), and allocating a waiver, the condition will apply to
regulatory conditions under § 4262.16 contributions and other income under contributions or income relative to the
will continue to apply, as conditions of § 4262.16(e) if three requirements are SFA plan before the date of the merger.
the merger, to the merged plan. If the met. First, the total current value of With respect to the conditions relating
merged plan engages in a future transfer
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to the calculation of withdrawal liability
or merger, the plan would be required 29 Section 4262.16(e) prohibits a decrease in the
under § 4262.16(g) (described in the
to obtain PBGC’s approval of the proportion of income (contributions, investment next section of the preamble), PBGC is
transaction under § 4262.16(f). The returns, etc.) or an increase in the proportion of
expenses allocated to a plan that receives SFA. limiting the conditions to the
merged plan also would be subject to Unless, waived, the prohibition on a decrease in the
the condition on withdrawal liability proportion of income will continue to apply to the 30 All line references in this section are to the
requiring approval of certain settlements merged plan. 2021 Form 5500 and schedules.
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Federal Register / Vol. 87, No. 130 / Friday, July 8, 2022 / Rules and Regulations 40995
determination of unfunded vested PBGC agrees with a comment that this other employers who were never
benefits that arose under the SFA plan approach avoids the use of SFA assets contributing employers to the SFA plan.
before the date of the merger for to reduce the withdrawal liability of a The following table summarizes the
purposes of allocating unfunded vested withdrawing employer without unduly application of the restrictions and
benefits under subpart D of part 4211 increasing the withdrawal liability of conditions in the event of a merger:
and determining withdrawal liability.
APPLICATION OF RESTRICTIONS AND CONDITIONS AFTER A MERGER
Does not apply to merged
Applies to merged plan Other
plan
• Restrictions • Prospective benefit in- • Retrospective benefit increase (§ 4262.16(b)(1)): plan may apply for a waiver,
(§ 4262.13(b)). crease (§ 4262.16(b)(2)). and, absent a waiver, continues to apply to participants in the SFA plan.
• Transfer or merger • Allocation of plan assets • Contribution decreases (§ 4262.16(d)): plan may apply for a waiver, and, absent a
(§ 4262.16(f)). (§ 4262.16(c)). waiver, continues to apply to employers who had an obligation to contribute to
• Withdrawal liability settle- • Allocating expenses the SFA plan.
ment (§ 4262.16(h)). (§ 4262.16(e)). • Allocating contributions and other income (§ 4262.16(e)): plan may apply for a
• Annual compliance state- waiver, and, absent a waiver, continues to apply to contributions or income rel-
ment (§ 4262.16(i)). ative to the SFA plan before the date of the merger.
• Audit (§ 4262.16(j)) .......... • Withdrawal liability calculation (§ 4262.16(g)): no waiver; conditions required to be
applied to determine unfunded vested benefits (UVBs) that arose under the SFA
plan before the date of the merger for purposes of allocating UVBs under subpart
D of part 4211 and determining withdrawal liability.
Commenters asked for clarification of share of the plan’s unfunded vested to avoid plans prolonging the
whether the merged plan’s certification benefits (the value of nonforfeitable application of the condition were to
of plan status will be affected by benefits that exceeds the value of plan require that SFA funds be used first and
merging with a plan that receives SFA. assets) as of the end of the plan year to eliminate the reference to earnings on
Under section 4262(m)(4) of ERISA, before the employer’s withdrawal, or as SFA. Other commenters agreed that
section 432(b)(7) of the Code, and otherwise provided under section 4211, requiring the use of the mass
§ 4262.17(c), an eligible multiemployer and (2) annual withdrawal liability withdrawal interest assumptions is a
plan that receives SFA is deemed to be payment and amortization period under reasonable condition and recommended
in critical status within the meaning of section 4219. that PBGC extend the requirement
section 305(b)(2) of ERISA until the last through 2051.
Interest Assumptions for Determining PBGC is retaining the ‘‘later of’’
day of the last plan year ending in 2051.
UVBs structure for the period to which the
The rules for critical status plans under
section 305 of ERISA are under the Under § 4262.16(g) of the interim final condition applies. However, in
jurisdiction of the Treasury Department. rule, for withdrawals that occur after the consideration of comments suggesting
Commenters also asked for plan year in which the plan receives the condition apply for a fixed period to
clarification of whether a merged plan SFA, the interest assumptions used in prevent plans from holding a de
would be able to apply for a suspension determining unfunded vested benefits minimis amount of SFA to prolong
of benefits under MPRA in the future. (UVBs) for purposes of determining application of the condition, PBGC is
Under section 432(k)(2)(E) of the Code, withdrawal liability must be the modifying the period so that it ends
section 4262(m)(6) of ERISA, and ‘‘Interest Rates Used To Value Benefits’’ after the later of 10 years or the
§ 4262.17(e) an eligible multiemployer in appendix B to 29 CFR part 4044. The projected life of the SFA assets.
plan that receives SFA is not eligible to interim final rule provided that the Specifically, the prescribed interest
apply for a new suspension of benefits prescribed interest assumptions must be assumptions must be used until the later
under section 305(e)(9) of ERISA. This used until the later of 10 years after the of: (1) 10 years after the end of the plan
statutory condition would apply to the end of the plan year in which the plan year in which the plan first receives
SFA plan. Eligibility of a merged plan receives payment of SFA or the last day payment of SFA, and (2) the last day of
to apply for a suspension of benefits is of the plan year in which the plan no the plan year by which the plan projects
under the jurisdiction of the Treasury longer holds SFA or any earnings that it will exhaust any SFA assets as
Department. thereon in a segregated account. The determined under § 4262.4(b) (under
minimum 10-year period is similar to which benefits and expenses are
(e) Withdrawal Liability the time period over which special assumed to be paid exclusively from
Under sections 4201 through 4225 of statutory withdrawal liability rules SFA assets until exhausted), extended
ERISA, when a contributing employer apply to plans that suspend benefits or by the number of years, if any, that the
withdraws from an underfunded are partitioned under MPRA. first plan year of payment is after the
multiemployer plan, the plan sponsor Several commenters recommended plan year that includes the SFA
assesses withdrawal liability against the changes related to the condition measurement date. For example, if a
employer. Withdrawal liability requiring plans to use the prescribed calendar year plan’s SFA measurement
represents a withdrawing employer’s interest assumptions. Two commenters date is in 2022, the plan receives
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proportionate share of the plan’s suggested that PBGC provide only a payment of SFA in 2023, and had
unfunded benefit obligations and is an fixed period for the requirement to use projected that it will exhaust SFA assets
important source of income for the plan. mass withdrawal interest assumptions in 2051, the exhaustion year for the plan
To assess withdrawal liability, the plan to eliminate a plan’s ability to prolong to use the prescribed interest
sponsor must determine the application of the condition by keeping assumptions would be 2052 (29 years +
withdrawing employer’s (1) allocable a small SFA balance. Other suggestions 1 year). Under this example, employers
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40996 Federal Register / Vol. 87, No. 130 / Friday, July 8, 2022 / Rules and Regulations
withdrawing before 2054 would have plan assets in calculating withdrawal Treasury, to ‘‘impose . . . reasonable
UVBs determined using the prescribed liability, either instead of or in addition conditions on an eligible multiemployer
interest rate under the final rule. to requiring the use of mass withdrawal plan that receives special financial
Eliminating a plan’s ability to prolong interest assumptions. One commenter assistance relating to . . . withdrawal
application of the condition requiring suggested that an administratively liability.’’ To ensure that SFA is not
use of mass withdrawal interest simple approach would be to require used to subsidize employer withdrawals
assumptions beyond the specified plans to exclude the remaining amount rather than to make benefit payments
period does not preclude the use of of SFA from each year’s determination and pay plan expenses, a condition
settlement rates thereafter to determine of UVBs. Another stated that the relating to the recognition of SFA as an
withdrawal liability, as otherwise condition under the interim final rule to asset in calculating UVBs is needed in
permitted by ERISA. use mass withdrawal interest addition to the condition prescribing the
In addition, the final rule clarifies that assumptions would not ensure for all interest assumptions to be used in
the beginning of the 10-year period is plans that SFA is preserved for payment valuing plan liabilities.
the last day of the plan year in which of benefits and expenses. The After consideration of comments and
the plan receives payment of SFA, commenter recommended that PBGC analysis of the effectiveness of the
renumbers § 4262.16(g) as impose three additional withdrawal interim final rule’s withdrawal liability
§ 4262.16(g)(1), and clarifies that the liability conditions: that SFA be condition, PBGC declined to adopt the
condition in § 4262.16(g)(1) for disregarded in calculating withdrawal approach of fully disregarding SFA that
determining the value of UVBs also liability, that conservative assumptions was discussed in the interim final rule
applies for determining the amortization be used for a 5-year period after SFA is and suggested by some commenters.
schedule under section 4219(c)(1)(A) of exhausted, and that, for a 15-year Instead, PBGC has concluded that a
ERISA. Section 4219(c)(1)(A)(ii) period, withdrawal liability be no less better approach to addressing
provides that ‘‘[t]he determination of the than it would have been as of the date commenters’ concerns would be to
amortization period described in clause a plan applied for SFA. Most of the phase in the recognition of SFA for
[4219(c)(1)(A)](i) shall be based on the commenters were concerned that not purposes of withdrawal liability in a
assumptions used for the most recent including a condition to exclude SFA manner that is a more accurate and
actuarial valuation for the plan.’’ What from plan assets for purposes of reasonable reflection of the period over
is meant by ‘‘the most recent actuarial calculating withdrawal liability will which SFA is likely to be spent down
valuation of the plan’’ for amortization incentivize employers to withdraw after by plans. Thus, under § 4262.16(g)(2) of
purposes is unclear. One reading would the plan receives SFA. the final rule, pursuant to PBGC’s
require that the amortization period be As discussed in the preamble of the authority under section 4262(m) of
determined using the interest rate used interim final rule, PBGC considered a ERISA, PBGC imposes an additional
for funding purposes, but that could condition requiring exclusion of SFA condition relating to withdrawal
have the odd result of, e.g., valuing from plan assets in calculating liability on a plan that receives SFA.
UVBs for withdrawal liability purposes withdrawal liability, but did not include This condition requires plans to
as of 2020 calculated in 2023 using the such a condition in the interim final recognize over time the amount of SFA
interest rate used for the 2022 valuation rule. However, PBGC has given further received by the plan for the purpose of
as the ‘‘most recent’’ assumption used consideration to the impact of SFA on determining the plan’s UVBs for
for the actuarial valuation. PBGC an employer’s incentive to withdraw calculating withdrawal liability.
believes that a better reading would based on commenters’ concerns about Section 4262.16(g)(2) provides the
require that the amortization period be the effectiveness of the prescribed- procedures for determining the amount
determined using the same assumptions interest-assumptions condition alone in of SFA that is phased in for withdrawal
that were used in the valuation of UVBs disincentivizing employer withdrawals liability purposes each year over the
for withdrawal liability purposes. after a plan’s receipt of SFA. Since projected life of the SFA assets
Providing in the final rule that the publication of the interim final rule, (determined as if SFA assets, i.e., SFA
interest assumption required to be used rising interest rates, and corresponding and earnings thereon, are exhausted
for withdrawal liability purposes in increases in the prescribed interest before other plan assets are used to pay
§ 4262.16(g)(1) is also to be used for assumptions, have further highlighted benefits and expenses). The applicable
amortization purposes, clarifies for plan the limitation of the effectiveness of the phase-in period is from the first plan
actuaries what interest rate to use in condition in the interim final rule to year in which the plan receives payment
determining the amortization period achieve its purpose. of SFA through the end of the plan year
when this condition applies. If a plan immediately recognizes the by which, according to the plan’s
The final rule also clarifies that a plan entire amount of SFA as a plan asset projections, it will exhaust any SFA
cannot use SFA as a receivable as of the upon receipt, the plan’s UVBs for assets. For a plan that received payment
end of the plan year before the plan year purposes of determining withdrawal of SFA under the terms of the interim
in which the plan receives SFA. liability—and thus employers final rule and files a supplemented
prospective withdrawal liability—will application, the first plan year of
Phased Recognition of SFA Assets likely decline. Section 4262(l) of ERISA, payment is the year in which it received
PBGC received a number of comment which Congress titled ‘‘Restrictions on SFA under the terms of the interim final
letters that discussed conditioning SFA the Use of Special Financial rule. Where a plan’s first plan year of
on a disregard of SFA in a plan’s Assistance,’’ and which sets forth such payment is not the plan year that
withdrawal liability calculations. While restrictions, requires that ‘‘[SFA] includes the plan’s SFA measurement
one comment letter expressed received under this section and any date, the exhaustion year is deferred by
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opposition to excluding any amount of earnings thereon may be used by an the number of years the first plan year
SFA from the calculation, other eligible multiemployer plan to make of payment is after the plan year that
commenters requested that PBGC benefit payments and pay plan includes the SFA measurement date.
exercise its authority under section expenses.’’ Section 4262(m)(1) also To calculate the amount of SFA assets
4262(m) of ERISA to impose a condition expressly grants PBGC authority, in excluded for each plan year during the
requiring plans to exclude SFA from consultation with the Secretary of the phase-in period, the plan must take the
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Federal Register / Vol. 87, No. 130 / Friday, July 8, 2022 / Rules and Regulations 40997
total amount of SFA paid to the plan effect of the condition will lessen over Settlement of Withdrawal Liability
and multiply that by a fraction, the time. An additional condition related to
numerator of which is the number of The phased recognition of SFA as a withdrawal liability is under
years remaining in the phase-in period plan asset is consistent with ERISA, the § 4262.16(h) and requires that any
as of the date that the UVBs are being Code, and actuarial practice. It is settlement of withdrawal liability
determined, and the denominator is the conceptually similar to the smoothed during the SFA coverage period must be
total number of years in the phase-in recognition of plan assets for purposes made only with PBGC approval if the
period. For a plan that receives payment of calculating a plan’s minimum present value of the liability settled is
of SFA under the interim final rule and funding requirements. The Treasury greater than $50 million (calculated as
receives a supplemental payment under regulation at 26 CFR 1.412(c)(2)–1(b) described under § 4262.16(h)(1)).
the final rule, the total amount (payment permits multiemployer plans to Approval ensures that any negotiated
under the interim final rule and ‘‘smooth’’ plan asset values when settlements of material size are in the
supplemental payment) will be determining minimum funding by best interests of the participants in the
included in the phased recognition of averaging the value of plan assets over plan and do not create an unreasonable
SFA assets in determining UVBs for up to five years rather than using the risk of loss to PBGC. One commenter
withdrawals occurring in plan years current fair market value of plan assets. stated that requiring approval of
after the plan year the supplemental It is also roughly comparable to the transactions over $50 million is a
payment is received by the plan. For gradual recognition of SFA in reasonable application of PBGC’s
withdrawals that occur after the date the determining minimum funding. Section oversight authority. PBGC did not make
supplemented application is filed and 432(k)(2)(D) of the Code requires that any changes to this provision in the
before the plan year after the plan year SFA be disregarded in determining final rule.
in which the supplemental payment is required contributions. IRS Notice
made, only the payment of SFA under 2021–38 provides that SFA is (f) Reporting and Audit
the interim final rule is included in the recognized in the plan’s funding In order to monitor compliance with
phased recognition of SFA assets. standard account over time, in that any the conditions imposed on plans that
As provided in § 4262.16(g)(2)(xv), benefit or plan expense paid from the receive SFA, the final rule requires
this condition is applicable to a plan in SFA account generates an actuarial gain under § 4262.16(i) that plan sponsors
determining withdrawal liability for that is amortized over 15 years. file with PBGC an annual statement of
withdrawals occurring after the plan In listening sessions with interested compliance with the terms and
year in which the plan receives payment parties before the issuance of the conditions of SFA for plan years
of SFA. However, for a plan that interim final rule, some interested through the last plan year ending in
received SFA under the terms of the parties representing employers argued 2051. Under the interim final rule, each
interim final rule, this condition will that PBGC does not have authority to annual statement of compliance was
not apply unless the plan files a require that SFA be disregarded for required to be filed with PBGC no later
supplemented application under the purposes of calculating withdrawal than 90 days after the end of the plan
final rule. If the plan files a liability and that, if Congress had year and in accordance with the
supplemented application, this intended for SFA to be disregarded, it statement of compliance instructions on
condition applies to the plan in would have expressly required that it be PBGC’s website at www.pbgc.gov.
determining withdrawal liability for disregarded. For example, they cited Except for questions related to mergers
withdrawals occurring on or after the provisions in MPRA for special discussed earlier, PBGC did not receive
date the plan files the supplemented withdrawal liability disregard rules in comments on the statement of
application. A plan may choose to file section 4233(d)(3) of ERISA regarding compliance.
a supplemented application if it has partitions and in section 305(g)(1) Under the final rule, PBGC clarifies
already received SFA. regarding benefit suspensions. PBGC that the first annual statement of
Three examples are included in does not agree that the absence of a compliance must be filed with PBGC no
§ 4262.16(g)(2) to illustrate the statutory requirement that SFA be later than 90 days after the end of the
procedures for the phased recognition of disregarded in determining withdrawal plan year in which a plan received
SFA assets. liability proves Congressional intent payment of SFA and in accordance with
Requiring phased recognition of SFA that SFA be immediately recognized in the statement of compliance
as a plan asset is a reasonable condition its entirety as a plan asset. Here, in instructions on PBGC’s website at
because SFA does not result from contrast to MPRA, Congress chose to www.pbgc.gov. However, based on
employer contributions, but is a transfer expressly delegate authority in section PBGC’s experience in processing
of taxpayer funds to eligible financially 4262(m) of ERISA to PBGC to impose applications, the final rule provides that
distressed plans for the purpose of reasonable conditions on a plan that a plan would defer reporting to the next
enabling these plans to pay benefits and receives SFA relating to withdrawal plan year if six months or fewer remain
expenses. That purpose is reflected in liability. This grant by Congress in its plan year after the month in which
sections 4262(j)(1) and 4262(l) of ERISA. expands PBGC’s authority beyond its the plan first received SFA. The first
Without the condition, the payment of existing authority under section statement of compliance in this case
SFA could instead result in indirect 4002(b)(3) and sections 4201 through must cover the period from the date the
transfers of SFA to withdrawing 4225 of ERISA to regulate withdrawal plan received payment of SFA through
employers from plans by reducing their liability and authorizes PBGC to provide the last day of the plan year following
withdrawal liability. For a majority of rules that define how SFA should be the plan year in which the plan received
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plans that receive SFA, all SFA will be treated in the calculation of withdrawal payment of SFA. The statement must be
recognized as a plan asset for liability. The final rule reflects the filed no later than 90 days after the end
withdrawal liability purposes within 10 authority Congress delegated to PBGC to of such plan year. For example, if a
years, and because additional SFA will oversee the SFA program and ensure calendar year plan received payment of
be incorporated into the determination that SFA is preserved for the payment SFA on November 15, 2023, the plan’s
of withdrawal liability each year, the of benefits and expenses. first statement of compliance would be
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40998 Federal Register / Vol. 87, No. 130 / Friday, July 8, 2022 / Rules and Regulations
due by March 31, 2025, covering the participants and beneficiaries under for issuing rules, applying for
period from November 15, 2023, section 305(e)(9). assistance, and processing applications,
through December 31, 2024. This would Finally, § 4262.17(g) includes a particularly for prioritized plans,
be less administratively burdensome to severability provision that provides that expressed a clear urgency to get
the plan and provide a more meaningful if any of the provisions of this final rule appropriate assistance to eligible plans
statement of compliance after receipt of are found to be invalid or stayed as quickly as possible.
SFA. pending further agency action, the In light of the compressed timeline,
As described in the interim final rule, remaining portions of the rule would PBGC issued an interim final rule
PBGC may conduct periodic audits of remain operative. Although PBGC without prior notice and comment. The
plans that have received SFA to review received no comments that directly Administrative Procedure Act provides
compliance with the terms and addressed severability, in the final rule, at 5 U.S.C. 553(b) that notice and
conditions of the SFA program. PBGC makes a non-substantive comment requirements do not apply
clarifying change to delete the phrase when an agency, for good cause, finds
Other Provisions that they are impracticable,
‘‘and will not affect the remainder
Section 4262 of ERISA contains other thereof’’ from the provision in the unnecessary, or contrary to the public
provisions that apply to SFA and plans interim final rule. PBGC does not intend interest. An exception is also provided
receiving SFA. These provisions are the severability provision to be read to at 5 U.S.C. 553(d)(3) to the requirement
enumerated under § 4262.17 of the suggest that provisions of the regulation of a 30-day delay before the effective
regulation: are only severable if the remainder of date of a rule ‘‘for good cause found and
• SFA is not capped by the guarantee the rule is not affected by the severed published with the rule.’’ Section 9704
under section 4022A of ERISA. provision. To the contrary, PBGC of the American Rescue Plan (ARP) Act
• A plan receiving SFA is required to intends the regulation to operate either of 2021 set up a ‘‘Special Financial
continue to pay premiums due under with or without the severed provision. Assistance Program for Financially
section 4007 of ERISA for participants The severability clause applies in the Troubled Multiemployer Plans.’’ PBGC
and beneficiaries in the plan. same way whether a provision is promulgated an interim final rule
• A plan that receives SFA is deemed effective on publication, with a request
invalidated ‘‘facially’’ or ‘‘as applied.’’
to be in critical status within the for public comment, to allow for
The modified severability clause reads
meaning of section 305(b)(2) of ERISA immediate implementation of this
as follows: ‘‘If any provision in this part
until the last plan year ending in 2051. program and because of the need to get
• A plan that receives SFA and is held to be invalid or unenforceable by
its terms, or as applied to any person or financial assistance to eligible plans as
subsequently becomes insolvent under quickly as possible. Any delay in the
section 4245 of ERISA will be subject to circumstance, or stayed pending further
agency action, the provision will be effective date of the interim final rule
the rules and guarantee for insolvent would have been contrary to the public
plans in effect when the plan becomes construed so as to continue to give the
maximum effect to the provision interest. See the ‘‘Compliance With
insolvent. Rulemaking Guidelines’’ section of the
• A plan that receives SFA is not permitted by law, unless such holding
will be one of utter invalidity or July 12, 2021, interim final rule for the
eligible to apply for a suspension of applicability of the requirements of 5
benefits under section 305(e)(9) of unenforceability, in which event the
provision will be severable from this U.S.C. 553.
ERISA. In this final rule, after consideration
Section 4262.17 also provides that a part and the remaining provisions given
of the comments received, PBGC is
plan that receives SFA and meets the effect without regard to the severed
adopting changes to provisions of the
eligibility requirements for partition of provision.’’
PBGC received no comments on interim final rule on the methodology to
the plan under section 4233(b) of ERISA determine the amount of a plan’s SFA,
may apply for partition under section § 4262.17 and made no changes in the
final rule except, as described, to permissible investments of SFA funds,
4233. One of those requirements, in and the application of conditions on a
section 4233(b)(2), provides that a § 4262.17(g).
plan that receives SFA. As discussed
multiemployer plan is eligible for Compliance With Rulemaking earlier in the preamble, PBGC in the
partition if ‘‘the corporation determines, Guidelines interim final rule considered fully
after consultation with the Participant disregarding SFA for withdrawal
and Plan Sponsor Advocate . . ., that Administrative Procedure Act
liability purposes, and explained why it
the plan sponsor has taken (or is taking As described in the interim final rule, did not adopt that alternative. Interested
concurrently with an application for under new section 4262(c) of ERISA, persons submitted comments on that
partition) all reasonable measures to PBGC was required to issue regulations issue, and PBGC is now adopting a
avoid insolvency, including the or guidance setting forth the condition requiring a phased
maximum benefit suspensions under requirements for eligible plans to apply recognition of SFA in a plan’s
section 305(e)(9), if applicable[.]’’ for special financial assistance (SFA) determination of withdrawal liability in
Section 4262(m)(6) provides that a plan within 120 days of the date of § 4262.16(g)(2) in response to those
that receives SFA is not eligible to apply enactment of ARP (March 11, 2021). comments. The withdrawal liability
for a subsequent suspension of benefits Congress authorized PBGC to prioritize condition adopted is consistent with
under MPRA. Therefore, for a plan that the filing of applications for eligible PBGC’s statutory authority to impose
receives SFA, a suspension of benefits plans with the greatest need, during the reasonable conditions on plans that
under section 305(e)(9) is not first two years after March 11, 2021, and receive SFA under section 4262(m) of
‘‘applicable’’ within the meaning of PBGC provided for such a process. ERISA. It is also more effective, along
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section 4233(b)(2) and is not a Moreover, PBGC must review with the other conditions, for achieving
reasonable measure available to the applications within only 120 days of the intended purpose of that statutory
plan. Accordingly, PBGC will not reject filing and plans must apply by the authority—to help enable plans that
a partition application from a plan that statutory cutoff date of December 31, receive SFA to pay benefits due through
received SFA solely because the plan 2025 (December 31, 2026, for revised 2051 and to preclude or disincentivize
did not suspend the benefits of applications). The compressed timeline plans and employers from taking actions
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Federal Register / Vol. 87, No. 130 / Friday, July 8, 2022 / Rules and Regulations 40999
that have the potential to accelerate plan not want to unduly delay providing multiemployer pension plans from a
insolvencies. financial assistance to plans. fund established by ARP for SFA
PBGC is also providing for a comment purposes and credited with transfers
period of 30 days, solely on this Regulatory Impact Analysis
from the general fund of the Treasury
withdrawal liability condition in (1) Relevant Executive Orders for Department.31
§ 4262.16(g)(2), because it is an area of Regulatory Impact Analysis In the Regulatory Impact Analysis of
complexity that may benefit from Under Executive Order (E.O.) 12866, the interim final rule, PBGC provided
additional public comment. This will OMB reviews any regulation determined estimates of the transfer amounts of the
provide an opportunity for additional to be a ‘‘significant regulatory action.’’ SFA program using the Multiemployer-
public comment on the condition, and Pension Insurance Modeling System
Section 3(f) of E.O. 12866 defines a
will allow PBGC to assess the (ME–PIMS), PBGC’s stochastic modeling
‘‘significant regulatory action’’ as an
effectiveness of this withdrawal liability tool. The aggregate SFA was estimated
action that is likely to result in a rule
condition, consider adjustments or to be approximately $94 billion in
that: (1) has an annual effect on the
changes, and determine whether more assistance payments paid to more than
economy of $100 million or more, or
clarification is needed regarding the 200 plans and $150 million to PBGC to
adversely affects in a material way a
condition or the mechanics of administer the SFA program. PBGC
sector of the economy, productivity,
implementation. To the extent PBGC further estimated that plans that
competition, jobs, the environment,
determines that adjustments or changes received financial assistance from PBGC
public health or safety, or State, local or
to this withdrawal liability condition under section 4261 of ERISA in the form
are appropriate and authorized, or that tribal governments or communities (also of loans will repay PBGC in aggregate
further clarification is needed, PBGC referred to as economically significant); approximately $200 million.
may revise the condition accordingly. (2) creates serious inconsistency or Following consideration of comments
PBGC is making this rule effective on otherwise interferes with an action on the interim final rule’s methodology
August 8, 2022. taken or planned by another agency; (3) for determining the amount of SFA, this
materially alters the budgetary impacts final rule makes changes to the
Congressional Review Act of entitlement grants, user fees, or loan regulation that impact that
Pursuant to Subtitle E of the Small programs, or the rights and obligations methodology. As a result, the aggregate
Business Regulatory Enforcement of recipients thereof; or (4) raises novel SFA paid out under the program is
Fairness Act of 1996 (also known as the legal or policy issues arising out of legal expected to differ from the $94 billion
Congressional Review Act or CRA) (5 mandates, the President’s priorities, or estimated under the interim final rule.
U.S.C. 801 et seq.), the Office of the principles set forth in the E.O. Additionally, since publication of the
Management and Budget (OMB) has OMB has determined that this final interim final rule PBGC has made
designated this final rule as a ‘‘major rule is economically significant under updates to the ME–PIMS stochastic
rule,’’ as defined by 5 U.S.C. 804(2)(a), section 3(f)(1) and has therefore model, including incorporating more
which is a rule likely to result in an reviewed this rule under E.O. 12866. recent plan and economic data. PBGC
annual effect on the economy of $100 E.O. 13563 supplements and reaffirms now estimates that if the final rule had
million or more. Section 808(2) of the the principles, structures, and not included any changes to the
CRA provides that, notwithstanding the definitions governing contemporary provisions of the interim final rule, the
effective date of a major rule defined regulatory review that were established aggregate SFA would have been $76.7
under section 801, any rule which an in E.O. 12866, emphasizing the billion. The decrease of $17.3 billion is
agency for good cause finds that notice importance of quantifying both costs primarily attributed to incorporating
and public procedure thereon are and benefits, reducing costs, more recent plan data, which reflects
impracticable, unnecessary, or contrary harmonizing rules, and promoting subsequent asset returns that were more
to the public interest, shall take effect at flexibility. It directs agencies to assess favorable than expected in the prior
such time as the Federal agency the costs and benefits of available estimate.32 In general, an increase in the
promulgating the rule determines. This regulatory alternatives and, if regulation initial value of existing plan assets
good cause justification supports waiver is necessary, to select regulatory reduces the calculated amount of SFA.
of the 60-day delayed effective date for approaches that maximize net benefits Under the final rule, when reflecting the
major rules under the CRA. (including potential economic, changes to the determination of the
Because of the urgent need for the environmental, and public health and amount of SFA, the aggregate SFA is
SFA program and to get appropriate safety effects, distributive impacts, and expected to be approximately $82.3
financial assistance to eligible plans equity). billion. The expected cost to administer
quickly, PBGC has determined that this PBGC has provided an assessment of the SFA program remains unchanged
final rule must take effect August 8, the potential benefits, costs, and from the $150 million estimate under
2022. This effective date allows eligible transfers associated with the final rule. the interim final rule, and total loan
plans to apply for and receive SFA repayments under section 4261 of
under the terms of the final rule without (2) Introduction and Need for
Regulation ERISA are estimated to be $385 million
unnecessary delay. Plans that already (an increase of $185 million compared
applied for, or received, SFA before the As discussed earlier in the preamble, to the previous estimate). The estimate
effective date of the final rule will be PBGC published an interim final rule of aggregate SFA under the program
able to apply for any greater amount of adding to its regulations a new part continues to be subject to significant
SFA under the final rule. Plans that 4262 to implement the requirements uncertainty, and the actual aggregate
have not yet applied will be able to under section 9704 of the American
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submit applications using the Rescue Plan (ARP) Act of 2021, ‘‘Special 31 Specifically, section 9704 of ARP establishes an
methodology provided under the final Financial Assistance Program for eighth fund under section 4005 of ERISA.
32 The latest version of the ME–PIMS model
rule. Under the circumstances, PBGC Financially Troubled Multiemployer
reflects asset return information through December
has determined that public interest is Plans.’’ It is through this program that 31, 2021. Actual SFA amounts will depend on plan
best served by making this final rule PBGC is providing special financial asset performance through an application’s SFA
effective on August 8, 2022. PBGC does assistance (SFA) to eligible measurement date.
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41000 Federal Register / Vol. 87, No. 130 / Friday, July 8, 2022 / Rules and Regulations
SFA will depend on plan experience rule are more effective at achieving the as plans that are insolvent or nearly
prior to applying for SFA, particularly intended purpose of not enabling plans insolvent at the time of application for
for asset returns. As such, the estimate that receive SFA to take actions that SFA.
is highly sensitive to the date of have the potential to accelerate plan Allowing plans to invest a portion of
estimation. While the current estimate insolvencies, which would bring about SFA in return-seeking assets increases
of SFA is based on investment returns participant benefit cuts and increased expected investment returns, but also
through the end of 2021, capital market future claims on PBGC’s multiemployer increases the risk of loss. Under adverse
experience in early 2022 was insurance program. market scenarios, plans could incur
characterized by equity losses and rising losses in their SFA assets that would
(3) Regulatory Action accelerate the future date of plan
interest rates. As a result, plans are
likely to have incurred asset losses, and PBGC considered the public insolvency. The outcome may be
it is expected that SFA amounts for comments received in response to its particularly adverse if there is a severe,
many plans will increase from the interim final rule. The regulatory protracted market downturn shortly
current estimates. However, a rise in the changes made in the final rule reflect after plans receive SFA. The increased
SFA and non-SFA interest rates may feedback provided in these comments investment risk due to the allowance of
cause SFA amounts for many plans to and align with key objectives described return-seeking investments in SFA
decrease from the current estimates. in the interim final rule: (1) to transfer assets may be mitigated by the longer-
Future experience is uncertain and to a plan the amount required under term investment horizon for total plan
further changes to capital markets and section 4262 of ERISA as soon as assets following receipt of SFA.
interest rates prior to the time many practicable; (2) to prioritize the
applications of plans in imminent need Determination of the Amount of SFA:
plans submit their SFA applications Use of a Separate Interest Rate Applied
will impact the final payment amounts. of financial support and where
participants’ suspended benefits are to for the Projection of SFA Assets
Based on PBGC’s stochastic modeling, a
range of projected outcomes spans from be restored; (3) to establish an efficient The final rule amends § 4262.4 to
$74.3 billion at the 15th percentile to system for processing applications; (4) include a separate interest rate
$90.8 billion at the 85th percentile.33 stewardship of taxpayer-funded assumption applicable for the projected
The final rule also makes changes to appropriations for SFA; (5) maintaining SFA assets in the calculation used to
permissible investments under the security of pension benefits (current determine a plan’s SFA amount. The
§ 4262.14. Section 4262(l) of ERISA accrued benefits and future accruals) of SFA interest rate is a more appropriate
provides PBGC with specific regulatory participants in plans that receive SFA; assumed rate of return for SFA assets
authority to permit plans to invest SFA and (6) preservation of the solvency of that reflects the investment restrictions
assets in investments other than the PBGC multiemployer insurance for these assets under § 4262.14,
investment grade bonds. The interim program. A detailed description of the including allowing plans to invest up to
final rule did not permit a wide range rationale for each regulatory change 33 percent of the segregated SFA assets
of investments for SFA assets, and made is included earlier in the preamble in return-seeking assets. The SFA
PBGC sought public feedback on to this final rule, including applicable interest rate also comports with the
whether to permit investment of SFA public comments. statutory requirements that the amount
assets in investment vehicles with A summary of the regulatory changes of SFA be the amount projected for
different characteristics from investment under the final rule and related plans to pay all benefits due through
grade bonds. The investment portfolio economic considerations for each 2051. The deterministic projection used
of SFA assets can have a significant change are described as follows. to determine the amount of SFA under
impact on a plan’s future solvency § 4262.4 was also changed to assume
Expansion of SFA Permissible
projections, particularly for plans with a that the SFA assets would be spent
Investments down by the plan before non-SFA plan
high proportion of SFA assets relative to
non-SFA plan assets. The SFA asset The final rule amends § 4262.14 to assets are used. Although the final rule
allocation also impacts a plan’s allow plans to invest up to 33 percent does not require SFA assets to be used
investment risk exposure. Use of the of SFA assets in return-seeking assets, before other plan assets to pay benefits
regulatory authority under section e.g., U.S. equities. Comments on the and expenses, this assumption in the
4262(l) to expand permissible interim final rule were received in 2021 final rule reflects plans’ expected
investments strikes a balance between at a time when high quality fixed behavior to minimize the impact of
the risk and potential reward of income provided yields below two investment restrictions on SFA assets
allowing plans to use taxpayer-funded percent. While fixed income yields have and applies even if a plan does not
SFA assets to purchase return-seeking risen significantly in early 2022, prices follow that behavior.
investments. on U.S. equities have dropped at the Use of a separate, lower interest rate
Section 4262(m) of ERISA provides same time (which would increase their in the deterministic projection increases
PBGC with regulatory authority (in potential for higher future returns after the amount of SFA. For plans with a
consultation with the Secretary of the the markets level off), thereby low proportion of SFA assets to non-
Treasury) to impose reasonable maintaining the expected advantage of SFA plan assets, the increase is minor
conditions on eligible multiemployer allowing some investment in return- because the SFA assets will not earn
plans that receive SFA (see Conditions seeking assets. As a result, SFA assets significant returns before they are
for special financial assistance earlier in generally are expected to achieve higher projected to be spent down within a few
the preamble). The final rule includes investment returns than under the years. For plans with a large proportion
provisions of the interim final rule and of SFA assets to non-SFA plan assets,
jspears on DSK121TN23PROD with RULES3
certain changes to the regulatory
conditions in the interim final rule, thus better enable plans to project to pay such as plans that are insolvent or
based on consideration of public benefits through 2051. The impact of nearly insolvent at the time of
comments. The conditions in the final this change on plans’ projected future application for SFA, the increase in the
solvency is greater for plans that are final SFA amount attributable to the
33 Actual experience could deviate outside this expected to have a large proportion of separate lower interest rate is more
projected range. SFA assets to non-SFA plan assets, such significant.
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Federal Register / Vol. 87, No. 130 / Friday, July 8, 2022 / Rules and Regulations 41001
Determination of the Amount of SFA: Conditions Relating to Allocation of the latter date to the last day of the plan
Calculation Methodology for Plans With Contributions and Other Income year in which the plan projects that it
an Approved MPRA Benefit Suspension The final rule amends § 4262.16(e) to will exhaust any SFA assets (extended
as of March 11, 2021 add a process by which a plan may by the number of years, if any, that the
request a determination from PBGC for first plan year of payment is after the
The final rule amends § 4262.4 to plan year that includes the SFA
specify a revised methodology for the a limited exception from the condition
prohibiting a decrease in the proportion measurement date).
calculation of SFA for plans with an The final rule under § 4262.16(g)(2)
approved suspension of benefits under of contributions allocated to a plan that
adds a condition relating to withdrawal
MPRA as of March 11, 2021. This receives SFA if future plan
liability for a plan that receives SFA.
change provides that the amount of SFA circumstances permit the reallocation of
This condition requires plans to
is the greatest of: (1) the amount of SFA contributions without endangering the
recognize over time the amount of SFA
calculated for a plan that is not a MPRA plan’s ability to pay all benefits. Under received by the plan for the purpose of
plan; (2) the lowest amount of SFA that the new provision, beginning 5 years determining the plan’s UVBs for
is sufficient to ensure that the plan will after the end of the plan year in which calculating withdrawal liability. The
project rising assets at the end of the a plan receives payment of SFA, the amount of SFA is phased in for
2051 plan year; and (3) an amount of plan may apply for an exception by withdrawal liability purposes each year
SFA equal to the present value of demonstrating to the satisfaction of over the projected life of SFA assets
reinstated benefits (accounting for both PBGC, taking into account the proposed (determined as if SFA assets and
make-up payments needed, as well as reallocation of contributions, that the earnings thereon are exhausted before
payments of the reinstated portion of plan will avoid insolvency and that the other plan assets are used to pay
benefits through 2051, and any reallocation is needed due to a benefits and expenses).
restoration of benefits under 26 CFR significant increase in health benefit As stated in the Regulatory Impact
1.432(e)(9)–1(e)(3)). These additional costs due to a change in Federal law. Analysis of the interim final rule,
SFA calculations in (2) and (3), set forth The reallocation would be required to conditions on withdrawal liability are
in the final rule, accord with be no more than a 10 percent reduction intended to prevent SFA payments from
requirements and considerations that in the amount of the contribution rate leading to significant decreases in
are unique to MPRA plans. negotiated on or before March 11, 2021, withdrawal liability assessments that
going to the pension plan and would be would incentivize employers to
The calculation will increase the
required to be temporary (no more than withdraw from these plans. The purpose
amount of SFA for plans that had an
5 years for a reallocation request relating of SFA is to help plans pay for benefits
approved suspension of benefits under
to any single change in Federal law and and plan expenses and not to indirectly
MPRA as of March 11, 2021, and
no more than 10 years cumulatively for subsidize employers and encourage
thereby increase the total amount of
all reallocation requests during the them to exit these plans. As discussed
SFA distributed under the program.
plan’s SFA coverage period). in the interim final rule, PBGC
There are 18 plans expected to benefit
This provision is intended to provide considered a condition requiring
from this change in the final rule.
plan sponsors with very limited exclusion of SFA from plan assets in
Conditions Relating to Benefit flexibility to reallocate contributions calculating withdrawal liability, but did
Improvements temporarily to use for unexpected not include such a condition in the
changes in Federal law. This temporary interim final rule. However, PBGC has
The final rule amends § 4262.16(b) to reallocation would give the bargaining given further consideration to the
add a process by which a plan may parties time to negotiate contributions impact of SFA on incentives to
request a determination from PBGC for for the health plan under a collective withdraw based on commenters’
an exception from the conditions bargaining agreement. Because plans concerns about the effectiveness of the
prohibiting prospective and will have to demonstrate to PBGC that prescribed-interest-assumptions
retrospective benefit increases if future any proposed reallocation of condition alone in disincentivizing
plan circumstances permit the benefit contributions will not lead to projected employer withdrawals after a plan’s
increases without endangering the plan insolvency and because the receipt of SFA. Since publication of the
plan’s ability to pay all benefits. Under reallocation will be temporary, PBGC interim final rule, rising interest rates,
the new provision, beginning 10 years expects there to be no impact on and corresponding increases in the
after the end of the plan year in which projected future financial assistance prescribed interest assumptions, have
a plan receives payment of SFA, the under section 4261 of ERISA. further highlighted the limitation of the
plan may apply for an exception by effectiveness of the condition in the
demonstrating to the satisfaction of Condition Related to Withdrawal
Liability interim final rule to achieve its purpose.
PBGC, taking into account the proposed To ensure that SFA is not used for a
benefit increase, that the plan will avoid The final rule amends § 4262.16(g) to purpose other than to make benefit
insolvency. modify the period of time for which a payments and pay plan expenses, a
This provision is intended to provide plan must use the interest assumptions condition relating to the phased
plans with very limited flexibility to in appendix B to 29 CFR part 4044 of recognition of SFA assets for purposes
improve benefits in the future while PBGC’s regulations in determining the of calculating withdrawal liability is
preventing certain benefit increases that UVBs of the plan under section 4213(c) needed in addition to the interest rate
could imperil a plan’s ability to remain of ERISA for purposes of determining an condition on the measurement of
solvent in the future. Because plans will employer’s withdrawal liability. Under
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liabilities.
have to demonstrate to PBGC that any § 4262.16(g) of the interim final rule, the
proposed benefit increases will not lead interest assumptions in appendix B to Conditions Applicable to Merged Plans
to a projected date of insolvency, PBGC part 4044 are applicable until the later The final rule amends § 4262.16(f) to
expects there to be little to no impact on of 10 years and the last day of the plan provide that the conditions relating to
projected future financial assistance year in which the plan no longer holds prospective benefit increases under
under section 4261 of ERISA. any SFA assets. The final rule revises § 4262.16(b)(2), allocation of plan assets
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41002 Federal Register / Vol. 87, No. 130 / Friday, July 8, 2022 / Rules and Regulations
under § 4262.16(c), and allocating § 4262.16(g) will not be waived. Those statute from creating an impediment to
expenses under § 4262.16(e) will not conditions, however, are limited to the the consideration of a merger that would
apply after the merger to the merged determination of UVBs that arose under otherwise be beneficial to the plan and
plan. In addition, as part of a request for the SFA plan before the date of the plan participants. The extent to which
approval of a merger between plans merger for purposes of allocating UVBs the final rule does not create an
where one or more plans are SFA plans, under subpart D of part 4211 and impediment to mergers is uncertain, but
PBGC will provide a waiver of the determining withdrawal liability for PBGC expects these clarifications on
conditions on retroactive benefit employers that participated in the SFA conditions applicable to merged plans
increases and contribution decreases in plan. Finally, the restrictions on SFA in to have no material impact on projected
§ 4262.16(b)(1) and (d) if prescribed § 4262.13(b), conditions in § 4262.16(f) future financial assistance under section
(merger or transfer), § 4262.16(h) 4261 of ERISA.
requirements are met. If the
(withdrawal liability settlement),
requirements for a waiver are not met, § 4262.16(i) (statement of compliance), (4) Estimated Impact of Regulatory
the final rule provides that these two and § 4262.16(j) (audit) continue to Action
conditions will apply, as applicable, to apply to the merged plan.
participants in, or employers that have The clarifications in the final rule on The following table summarizes the
an obligation to contribute to, the SFA the application of conditions after a estimated transfers and costs expected
plan immediately before the merger. merger are intended to prevent the as a result of implementation of the SFA
The withdrawal liability conditions in conditions that are not required by program.
PV amount PV amount 2027–2051
2021 2022 2023 2024 2025 2026
(3% rate) (7% rate) (total) 34
Annual Transfer Amounts
Total transfer $86.16 billion $77.14 billion $1.26 billion $43.68 billion $23.03 billion $13.32 billion $8.89 billion $3.33 billion $0.47 billion.
amounts based
on Interim Final
Rule (total nomi-
nal value of
$93.98 billion).
Change based on (15.91) billion (14.28) billion (1.26) billion (7.13) billion .. (4.19) billion .. (2.42) billion .. (1.61) billion (0.60) billion (0.08) billion.
updated model
data (plan & eco-
nomic data)
(total nominal
value of $17.30
billion).
Change based on 5.17 billion .... 4.63 billion .... 0.00 billion .. 2.71 billion .... 1.38 billion .... 0.80 billion .... 0.53 billion .. 0.19 billion .. 0.03 billion.
updated provi-
sions of Final
Rule (total nomi-
nal value of
$5.64 billion).
Total transfer 75.42 billion .. 67.49 billion .. 0.00 billion .. 39.26 billion .. 20.22 billion .. 11.70 billion .. 7.81 billion .. 2.92 billion .. 0.42 billion.
amounts based
on Final Rule
(total nominal
value of $82.32
billion).
Annual Cost Amounts
Anticipated PBGC 129.57 million 108.41 million 20.50 million 17.50 million 15.75 million 15.00 million 14.75 million 14.00 million 52.50 million.
administrative
expenses (total
nominal value of
$150 million).
SFA applications ... 8,693,400 ...... 7,781,400 ...... 922,500 ...... 3,075,000 ...... 2,152,500 ...... 1,998,800 ...... 1,260,800 ... 78,800 ........ 0.
Lock-in applica- 54,800 ........... 48,400 ........... 0 ................. 0 .................... 43,750 ........... 16,625 ........... 0 ................. 0 ................. 0.
tions.
Benefit reinstate- 68,900 ........... 63,800 ........... 0 ................. 73,100 ........... 0 .................... 0 .................... 0 ................. 0 ................. 0.
ment participant
notices.
Annual compliance 12,473,400 .... 7,211,100 ...... 0 ................. 76,500 ........... 275,400 ......... 456,500 ......... 622,200 ...... 726,800 ...... 18,168,750.
filings.
Condition exemp- 354,000 ......... 209,900 ......... 0 ................. 0 .................... 19,600 ........... 19,600 ........... 19,600 ........ 19,600 ........ 489,250.
tion filings.
Total cost 151.21 million 123.72 million 21.42 million 20.72 million 18.24 million 17.49 million 16.65 million 14.83 million 71.16 million.
amounts.
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34 SFA payments to plans are expected to be $416 million in 2030. Additional PBGC expenses are compliance filings are expected to be $726,800 per
million in 2027 and $0 thereafter. PBGC expected to be incurred from 2031 through 2051 but year from 2027 through 2051. The costs relating to
administrative expenses are expected to be $14 would not be funded through general condition exemption filings are expected to be
million per year from 2027 through 2029 and $10.5 appropriations. The costs relating to annual $19,600 per year from 2027 through 2051.
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Federal Register / Vol. 87, No. 130 / Friday, July 8, 2022 / Rules and Regulations 41003
Change to the Estimated Amount of SFA one-time application to PBGC is mergers between healthier ‘‘green zone’’
In support of the development of the $30,750, the estimated average cost to plans and plans that receive SFA, there
final rule, PBGC conducted modeling of prepare the lock-in application is $875, may be a decrease in projected future
the impact of changes to the calculation and the estimated average cost to financial assistance under section 4261
procedures for SFA under § 4262.4 and prepare the annual statement of of ERISA. The actual impact will
changes to permissible investments compliance is $2,550. PBGC estimates depend on plan behavior and future
under § 4262.14. These provisions that over the next 3 years (2022–2024) experience, particularly future
directly impact both the total estimated it will receive annually an average of 78 investment returns. Overall, PBGC does
cost of the SFA program as well as the applications for SFA at an aggregate not expect a material impact as a result
projected solvency of plans after receipt average annual cost of $2,398,500, 23 of the changes made in the final rule to
of SFA. The modeling is subject to lock-in applications at an aggregate the conditions.
significant limitations, including average annual cost of $20,125, and 106
annual statements of compliance at an (5) Regulatory Alternatives Considered
limited available data, uncertainty
regarding the number of plans aggregate average annual cost of Expansion of SFA Permissible
ultimately eligible to apply, uncertainty $270,300. Investments
In addition, certain plan sponsors that
regarding future asset returns, and other PBGC considered the implications of
receive SFA are subject to participant
factors. However, despite the future making no change to permissible
disclosure and reporting requirements.
uncertainty, the modeling shows that investments under § 4262.14 in the final
A plan sponsor of a plan with benefits
under the final rule, eligible plans are rule. In one alternative, if the regulation
that were suspended under section
significantly more likely to meet the for permissible investments and for the
305(e)(9) or 4245(a) of ERISA must issue
statutory direction in section 4262(j)(1) applicable interest rate (§ 4262.4) both
a notice of reinstatement to participants
of ERISA to project to be able to pay remained unchanged from the interim
and beneficiaries whose benefits were
benefits due through plan year 2051, previously suspended and then final rule, many plans would not be
without incurring excessive investment reinstated. The estimated average cost projected to pay all benefits due through
risk exposure. The cost estimates in the (dollar equivalent of the in-house hour 2051. Because of the investment
table above also reflect general updates burden + contractor costs) to prepare the restrictions, it would be unlikely that
made to PBGC’s ME–PIMS model to notice of reinstatement is $2,150. PBGC the SFA portion of assets would achieve
reflect more recent plan and economic estimates that over the next 3 years a rate of return as high as the interest
data. These updates decreased the total (2022–2024) an average of 11.33 plans rate used to determine SFA. This issue,
nominal SFA estimate by $17.3 billion, annually (34 total plans) will issue the described in many public comment
primarily due to the incorporation of notice of reinstatement to an average of letters, is more pronounced for plans
more recent plan asset return 3,050 participants and beneficiaries at with a large proportion of SFA assets to
information that was more favorable an aggregate average annual cost of existing plan assets, such as plans that
than expected.35 $24,367. are insolvent or nearly insolvent at the
Filing and Issuance Requirements A plan sponsor that receives SFA also time of application for SFA.
is required to administer the plan in In another alternative, if no change
As discussed in this final rule, to accordance with conditions prescribed were made to expand permissible
request SFA for a multiemployer plan, by PBGC in § 4262.16. A plan sponsor investments but the final rule allowed
a plan sponsor must, under section 4262 may request approval from PBGC for an for a separate interest rate based
of ERISA and part 4262, file an exception under certain circumstances exclusively on the expected return of
application with PBGC. The for conditions relating to benefit investment grade bonds to be applied to
applications for SFA must include increases, reductions in contributions, the SFA portion of plan assets, plans
information about the plan, plan transfers or mergers, and settlement of would receive higher SFA payments
documentation, and actuarial withdrawal liability, prospective and enabling them to pay all benefits due
information. The information is retrospective benefit increases through 2051 on a projected basis.
necessary for PBGC to verify a plan’s beginning 10 years after the date a plan However, this alternative would require
eligibility for SFA, amount of requested receives SFA, and allocation of using a lower interest rate for SFA assets
SFA, and if applicable, inclusion in a contributions beginning 5 years after the under § 4262.4 than provided in the
priority group. Also, under the final date a plan receives SFA. PBGC expects final rule, which would further increase
rule, a plan sponsor may, but is not these determination requests to be the aggregate cost of the SFA program.
required to, file a lock-in application as infrequent. PBGC estimates that it will PBGC projects that this alternative could
a plan’s initial application. The lock-in receive an average of 2.2 requests per have increased the total amount of SFA
application contains basic information year in 2023 and 2024 at a cost of by a range of approximately $5 billion
about the plan and a statement of intent $19,570 per year (averaged over 2022– to $10 billion over the interim final rule.
to lock-in base data. In addition, under 2024 = $13,047). PBGC also considered the
part 4262, a plan that receives SFA is The total average annual cost for the implications of an even less restrictive
required to file a compliance notice information collection is $2,724,614 definition of permissible investments
with PBGC once every year through the ($2,398,500 + $18,400 + $270,300 + than under the final rule, including an
plan year ending in 2051. As discussed $24,367 + $13,047). option to allow plans to invest all (not
further in the Paperwork Reduction Act just a portion) of SFA funds in return-
section, the estimated average cost Conditions for Plans That Receive SFA seeking assets and/or in other
(dollar equivalent of the in-house hour As discussed above, the changes made investments not included in the final
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burden + contractor costs) to prepare the to § 4262.16 in the final rule are not rule’s definition of permissible
expected to have a significant impact on investments. Although an average
35 The latest version of the ME–PIMS model
future plan solvency experience. To the projection scenario shows favorable
reflects asset return information through December
31, 2021. Actual SFA amounts will depend on plan
extent that the provisions in § 4262.16(f) outcomes that could allow plans to
asset performance through an application’s SFA setting forth which conditions continue realize even greater investment returns
measurement date. to apply to a merged plan encourage to support being sufficiently funded to
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41004 Federal Register / Vol. 87, No. 130 / Friday, July 8, 2022 / Rules and Regulations
be able to pay plan benefits through standard these plans met in order to be prescribed-interest-assumptions
2051, and in fact, effectively extending approved for MPRA benefit condition alone in disincentivizing
plan solvencies beyond 2051, there is an suspensions—by reinstating the benefits employer withdrawals after a plan
overall increase in investment risk that suspended under MPRA might now be receives SFA. Since publication of the
adverse market conditions could put expected to run out of money in 2051. interim final rule, rising interest rates,
plans in greater jeopardy of becoming In this case, plans would have to and corresponding increases in the
insolvent well before the last day of the consider the varying interests of its prescribed interest assumptions, have
2051 plan year and undermine their participants (i.e., the positive impact of further highlighted the limits to the
potential to pay all benefits due through benefit reinstatements for participants effectiveness of the condition in the
2051. The final rule is more protective receiving benefits in the near-term interim final rule to achieve its purpose.
of the taxpayer assets used to fund SFA versus the negative impact of potential PBGC seeks to ensure that SFA is not
and PBGC’s title IV insurance program insolvency to participants receiving used other than for its intended purpose
and also protects plans from exposure to benefits in the long-term) in deciding of paying plan benefits and
excessive investment risk and potential whether to apply for SFA. The administrative expenses.
losses that may be difficult to recover. calculation procedures for MPRA plans PBGC considered an alternative
under § 4262.4 under the final rule condition under which the reduction in
Determination of the Amount of SFA: plan assets taken into account for
enable these plans to retain a strong
Use of a Separate Interest Rate Applied purposes of determining UVBs under
projected funded position through 2051.
for the Projection of SFA Assets PBGC considered a variation of the section 4213(c) of ERISA is the
PBGC considered making no changes SFA calculation such that plan assets projected amount of SFA determined
to the SFA calculation under § 4262.4 of must be projected to increase during under § 4262.4(b), but without any
the interim final rule related to interest each of the final 5 years of the SFA ratable decrease in the years following
rate assumptions. Although this would coverage period. This variation would receipt of SFA. This alternative would
have had a less significant impact on the be consistent with the required period also have prevented a sharp decrease in
transfer cost of the SFA program, for which available resources must be withdrawal liability in the year
PBGC’s modeling shows that under the projected to increase in an application following the year of receipt of SFA, but
interim final rule, the vast majority of for a proposed MPRA benefit would result in a sharp decrease in
plans, including many plans with a suspension. While this approach would withdrawal liability in the year
large proportion of SFA assets to help to further improve the expected following the year the condition no
existing plan assets, would not be future funded position for these plans, longer applies. In place of that
projected to be able to pay benefits due PBGC estimated that it could increase condition, PBGC has added a condition
through plan year 2051 as set forth in the total transfer cost of the SFA requiring phased recognition of SFA as
section 4262(j)(1) of ERISA. Further, program by an additional $0.5 billion. a plan asset for withdrawal liability
though PBGC found that loosening the purposes. It is conceptually similar to
investment restrictions for SFA assets Conditions Related to Benefit
the smoothed recognition of plan assets
under § 4262.14 would provide some Improvements and Allocation of
for purposes of calculating a plan’s
assistance in this respect, this would Contributions and Other Income
minimum funding requirements and is
introduce greater overall investment risk PBGC considered making no changes roughly comparable to the gradual
for SFA and could undermine the to the conditions related to benefit recognition of SFA in determining
ability of plans to remain solvent improvements under § 4262.16(b) and minimum funding. For a majority of
through the end of plan year 2051 allocation of contributions and other plans that receive SFA, all SFA will be
should particularly adverse market income under § 4262.16(e). However, recognized as a plan asset for
conditions occur. PBGC recognizes that some plans may withdrawal liability purposes within 10
enjoy favorable experience after years, and because an additional portion
Determination of SFA: Calculation
receiving SFA and outperform the of the SFA will be reflected in the
Methodology for Plans With Approved
projected experience in the determination of withdrawal liability
MPRA Benefit Suspensions as of March
deterministic projection included in the each year, the effect of the condition
11, 2021
SFA application. Some plans may will lessen over time. PBGC determined
PBGC considered making no changes achieve a relatively strong financial that a phased recognition of SFA for
to the SFA calculation under § 4262.4 of position and be projected to remain withdrawal liability purposes is a
the interim final rule for plans with solvent well beyond 2051. Under reasonable condition in addition to the
approved suspensions of benefits under limited circumstances, it may be condition prescribing the interest
MPRA as of March 11, 2021. Although beneficial to plan participants to assumptions to be used in valuing
this would have kept the transfer cost of provide some plan sponsors with liabilities.
the SFA program unchanged, it would limited flexibility to improve benefits or
have allowed for a potential dilemma Conditions on Merged Plans
to reallocate contributions temporarily
for these plans. Some commenters to another plan while not jeopardizing PBGC considered requiring all
raised a concern that some plans with the security of future benefit promises restrictions and conditions to apply to a
approved benefit suspensions under under the pension plan. merged plan for the conditions related
MPRA would receive less in SFA under to mergers under § 4262.16(f), in
the provisions of the interim final rule Conditions Related to Withdrawal response to questions in public
than would be necessary for the plan to Liability comment letters, whether or which
pay for future benefit reinstatements PBGC considered making no changes conditions would continue to apply to
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(including those payable after the year to the withdrawal liability condition a merged plan. Requiring a merged plan
2051). Under the interim final rule, the under § 4262.16(g). However, PBGC has to comply with all § 4262.16 conditions
plan’s projected insolvency would be given further consideration to the would ensure that the plan does not
accelerated by choosing to receive SFA. impact of SFA on incentives to subsequently take any actions that may
A plan that is projected to avoid withdraw based on commenters’ jeopardize the SFA received by one or
insolvency indefinitely—which is the concerns about the effectiveness of the more of the plans involved in the
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Federal Register / Vol. 87, No. 130 / Friday, July 8, 2022 / Rules and Regulations 41005
merger and therefore, the merged plan’s $2,340,000 (78 × $30,000) and 780 (78 and retrospective benefit increases until
future solvency. However, this could × 10) hours. at least 2032 and no requests for
discourage plans from entering into An annual average of 23 plan determinations concerning reallocation
transactions that would be beneficial to sponsors are expected to file lock-in of contributions until at least 2027. The
the plan and plan participants, such as applications as initial applications for annual average for all requests for 2022–
a small plan that received SFA merging SFA (0 in 2022, 50 in 2023, and 19 in 2024 is 1.47 requests per year. PBGC
with a large ‘‘green zone’’ plan. PBGC 2024). PBGC needs the information in needs the information requested to
believes that mergers can often be an the lock-in application to ensure that a make a determination on the proposed
effective tool to lower costs and plan sponsor intends to lock-in the transaction, withdrawal liability
streamline plan administration and does plan’s data. PBGC estimates that each settlement, contribution decrease, or
not want to inadvertently discourage application requires $800 in contractor benefit increase. PBGC estimates an
transactions that are in the best interest cost and 1 hour of in-house fund time. average annual hour burden (employer
of plan participants. Thus, the lock-in application imposes and fund office hours) and average
estimated annual burdens of $18,400 (23 annual cost burden (contractor costs)
Regulatory Flexibility Act
× $800) and 23 (23 × 1) hours. per request of:
Because PBGC is not publishing a PBGC estimates that an annual • 1.6 hours (8 hours × .2) and $5,000
general notice of proposed rulemaking average of 106 plan sponsors will file ($25,000 × .2) for a proposed
under 5 U.S.C. 553(b), the regulatory Annual Statements of Compliance (30 in contribution change;
flexibility analysis requirements of the 2022, 108 in 2023, and 179 in 2024). • 4 hours and $12,000 for a proposed
Regulatory Flexibility Act do not apply. PBGC needs the information in this transfer or merger; and
See 5 U.S.C. 601(2). statement to ensure that a plan is • 2 hours and $2,000 for a proposed
compliant with the conditions imposed settlement of withdrawal liability.
Paperwork Reduction Act
upon its receiving SFA. PBGC estimates PBGC estimates that, beginning in
With the final rule, PBGC is that each annual statement of 2023, for 2.2 determination requests, the
submitting changes to the collection of compliance requires $2,400 in aggregated average annual hour burden
information, previously approved under contractor cost and 2 hours of in-house will be 7.6 hours (1.6+4+2 employer and
control number 1212–0074, to the Office fund time. The annual statement of fund office hours) and the aggregated
of Management and Budget (OMB) for compliance imposes estimated annual average annual cost burden will be
review and approval under the burdens of $254,400 (106 × $2,400) and $19,000 ($5,000 + $12,000 + $2,000 in
Paperwork Reduction Act. OMB’s 212 (106 × 2) hours. contractor costs). For 2022–2024, PBGC
decision regarding this information An average of 11.33 plans per year (34 estimates an average annual hour
collection request will be available at plans in 2022, 0 in 2023, and 0 in 2024) burden of 5.07 hours ((7.6+7.6)/3) and
www.Reginfo.gov. Changes to the will be required to send notices to an average annual cost burden of
collection of information include participants with suspended benefits. $12,667 (($19,000 + $19,000)/3).
changes to the application for SFA, This notice is intended to ensure The estimated aggregate average
annual statement of compliance, and participants understand the calculation annual hour burden for 2022–2024 for
determination requests. A new lock-in and dates of their reinstated benefits the information collection in part 4262
application form with corresponding and, if applicable, make-up payments. is 1,042.73 hours (780 +23+ 212 + 22.66
instructions is added. An agency may PBGC estimates that the burden for each + 5.07), which means a cost equivalent
not conduct or sponsor, and a person is plan to prepare required notices is of $78,205 assuming a blended hourly
not required to respond to, a collection $2,000 in contractor cost and 2 hours of rate of $75 for employer and fund office
of information unless it displays a in-house fund time. Thus, these notices administrative, clerical, and supervisory
currently valid OMB control number. impose estimated annual burdens of time. The estimated aggregate average
PBGC estimates that in the next 3 $22,667 (11.33 × $2,000) and 22.66 annual cost burden for 2022–2024 for
years an annual average of 78 (11.33 × 2) hours. the information collection in part 4262
applications for SFA (initial and Also, PBGC estimates that in 2023 and is $2,648,134 ($2,340,000 + $18,400 +
revised) will be filed (100 in 2022, 70 2024, PBGC will receive an average of $254,400 + $22,667 + $12,667), which
in 2023, and 65 in 2024). PBGC needs 2.2 requests per year for determinations means approximately 6,620 contract
the information in the application to concerning a transfer of assets or hours assuming an average hourly rate
review a plan’s eligibility for SFA, liabilities (including a spinoff) or merger of $400 for work done by outside
priority group status, and amount of (1 per year); a withdrawal liability actuaries and attorneys. The actual hour
requested SFA, and to make payment of settlement greater than $50 million (1 burden and cost burden per plan will
SFA. PBGC estimates that each per year); a contribution decrease (.2 (1 vary depending on plan size and other
application requires $30,000 in every 5 years)); (0 requests in 2022, 2.2 factors.
contractor cost and 10 hours of in-house requests in 2023, and 2.2 requests in The estimated average annual burden
fund time. Thus, the application 2024). There will be no requests for figures for 2022–2024 are shown in the
imposes estimated annual burdens of determinations concerning prospective following table.
Average # of Hour burden Hour burden—
Information collection Cost burden
respondents (hours) equivalent cost
Applications for SFA ........................................................................................ 78 780 $58,500 $2,340,000
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Lock-in application ........................................................................................... 23 23 1,725 18,400
Annual compliance statement ......................................................................... 106 212 15,900 254,400
Notice of reinstatement .................................................................................... 11(11.33) 22.66 1,700 22,667
Requests for determination ............................................................................. 1(1.47) 5.07 380 12,667
Totals: ....................................................................................................... 219 1,042.73 78,205 2,648,134
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41006 Federal Register / Vol. 87, No. 130 / Friday, July 8, 2022 / Rules and Regulations
Plan sponsors of multiemployer plans ERISA and sections 6058(a) and 6059(b) participants and beneficiaries receiving
applying for SFA are required to file an of the Code. payment and terminated vested
application with PBGC with the Merged plan means merged plan as participants) required to be entered on
required information under part 4262. defined in § 4231.2 of this chapter. such Form 5500 Schedule MB was less
For payment of SFA, they are required Merger means merger as defined in than 2 to 3.
to include with an application for SFA, § 4231.2 of this chapter. (4) Insolvent plans. The plan became
common form SF 3881, ACH Vendor/ SFA coverage period means the insolvent for purposes of section 418E
Miscellaneous Payment Enrollment, period beginning on the plan’s SFA of the Code after December 16, 2014,
OMB control no. 1530–0069. measurement date and ending on the and has remained insolvent and has not
last day of the last plan year ending in terminated under section 4041A of
List of Subjects in 29 CFR Part 4262 2051. ERISA as of March 11, 2021.
Employee benefit plans, Pension SFA measurement date for a plan (b) Specified year. For purposes of
insurance, Pensions, Reporting and other than a plan described in this section, the term specified year
recordkeeping requirements. § 4262.4(g) means the last day of the means a plan year specified by the plan
■ For the reasons given above, PBGC
third calendar month immediately sponsor beginning in 2020, 2021, or
adopts as final the portion of the interim preceding the date the plan’s initial 2022. The specified years for paragraphs
final rule adding 29 CFR part 4262, application for special financial (a)(3)(i) through (iii) of this section need
which was published at 86 FR 36598 on assistance was filed. not be the same.
Special financial assistance or SFA (c) Additional rules for critical status
July 12, 2021, and further amends 29
means special financial assistance from plans—(1) Elected status. Election of
CFR part 4262 by revising the part to
PBGC under section 4262 of ERISA. critical status under section 305(b)(4) of
read as follows:
Transfer and transfer of assets or ERISA does not satisfy the requirement
PART 4262—SPECIAL FINANCIAL liabilities means transfer and transfer of for the certification of critical status by
ASSISTANCE BY PBGC assets or liabilities as defined in the plan’s actuary under paragraph
§ 4231.2 of this chapter. (a)(3)(i) of this section.
Sec. (2) Percentage. The percentage
4262.1 Purpose. § 4262.3 Eligibility for special financial calculated as—
4262.2 Definitions. assistance. (i) The current value of net assets as
4262.3 Eligibility for special financial (a) In general. Subject to all the of the first day of the plan year that was
assistance. provisions of this section, a required to be entered on the Form 5500
4262.4 Amount of special financial multiemployer plan is eligible for
assistance.
Schedule MB that was required to be
special financial assistance in any of the filed for a specified year; plus
4262.5 PBGC review of plan assumptions.
4262.6 Information to be filed.
following cases: (ii) The current value of withdrawal
4262.7 Plan information. (1) Critical and declining status plans. liability due to be received by the plan
4262.8 Actuarial and financial information. The plan is in critical and declining on an accrual basis, reflecting a
4262.9 Application for a plan with a status within the meaning of section reasonable allowance for amounts
partition. 305(b)(6) of ERISA for the specified considered uncollectible, as of the first
4262.10 Processing applications. year; or day of the plan year for the specified
4262.11 PBGC action on applications. (2) Plans with a suspension of year in paragraph (c)(2)(i) of this section
4262.12 Payment of special financial benefits. A suspension of benefits has (if not already included in the current
assistance. been approved with respect to the plan
4262.13 Restrictions on special financial
value of net assets in paragraph
under section 305(e)(9) of ERISA as of (c)(2)(i)); divided by
assistance.
4262.14 Permissible investments of special March 11, 2021; or (iii) The current liability attributable
financial assistance. (3) Critical status plans. The plan: to all benefits as of the first day of the
4262.15 Reinstatement of benefits (i) Is certified to be in critical status plan year required to be entered on the
previously suspended. within the meaning of section 305(b)(2) Form 5500 Schedule MB specified in
4262.16 Conditions for special financial of ERISA for a specified year; and paragraph (c)(2)(i) of this section.
assistance. (ii) The percentage calculated under (d) Actuarial assumptions.
4262.17 Other provisions. paragraph (c)(2) of this section was less Determinations of eligibility under
Authority: 29 U.S.C. 1302(b)(3), 1432. than 40 percent; and paragraph (a)(1) or (3) of this section
(iii) The ratio of the total number of must be made in accordance with the
§ 4262.1 Purpose. active participants at the end of the plan provisions in this paragraph (d).
The purpose of this part is to year required to be entered on the Form (1) Certifications completed before
prescribe rules governing applications 5500 that was required to be filed for a January 1, 2021. For certifications of
for special financial assistance under specified year to the sum of inactive plan status completed before January 1,
section 4262 of ERISA and related participants (retired or separated 2021, PBGC will accept assumptions
requirements. participants receiving benefits, other incorporated in the determination of
retired or separated participants entitled whether a plan is in critical status or
§ 4262.2 Definitions. to future benefits, and deceased critical and declining status as
The following terms are defined in participants whose beneficiaries are described in section 305(b) of ERISA
§ 4001.2 of this chapter: Code, receiving or are entitled to receive unless such assumptions are clearly
controlled group, ERISA, fair market benefits) required to be entered on such erroneous.
value, IRS, multiemployer plan, PBGC, Form 5500 was less than 2 to 3; or, the (2) Certifications completed after
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plan, and plan sponsor. In addition, for ratio of the total number of active December 31, 2020. For certifications of
purposes of this part: participants at the beginning of the plan plan status completed after December
Form 5500 means the Annual Return/ year required to be entered on Form 31, 2020, the determination of whether
Report of Employee Benefit Plan 5500 Schedule MB that was required to a plan is in critical status or critical and
required to be filed for employee benefit be filed for a specified year to the sum declining status for purposes of
plans under sections 104 and 4065 of of inactive participants (retired eligibility for special financial
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Federal Register / Vol. 87, No. 130 / Friday, July 8, 2022 / Rules and Regulations 41007
assistance must be made using the means a plan that is eligible for special benefits under 26 CFR 1.432(e)(9)–
assumptions that the plan used in its financial assistance under § 4262.3(a)(2). 1(e)(3), assuming such reinstated
most recently completed certification of (b) Projected SFA assets. The amount benefits are paid beginning as of the
plan status before January 1, 2021, of projected SFA assets for a plan is SFA measurement date and excluding
unless such assumptions (excluding the determined by projecting special any benefit increases resulting from
plan’s interest rate assumption) are financial assistance forward annually contribution increases agreed to on or
unreasonable. until the projected SFA assets are after July 9, 2021, as demonstrated by
(3) Changes in assumptions. If a plan exhausted, using the following annual the execution of a document described
determines that use of the assumptions cash flows: in paragraph (c)(3) of this section;
under paragraph (d)(2) of this section is (1) Benefits paid and expected to be (2) Administrative expenses paid and
unreasonable, the plan’s application paid by the plan during the SFA expected to be paid by the plan during
may include a proposed change in the coverage period, including any the SFA coverage period after the
assumptions (excluding the plan’s reinstatement of benefits attributable to projected SFA assets described in
interest rate assumption), as described the elimination of reductions in a paragraph (b) of this section are fully
in § 4262.5. participant’s or beneficiary’s benefit due exhausted, excluding the amount owed
to a suspension of benefits under to PBGC under section 4261 of ERISA
§ 4262.4 Amount of special financial sections 305(e)(9) or 4245(a) of ERISA as (which is added to the amount of
assistance. required under § 4262.15(a)(1), payment special financial assistance in § 4262.12
(a) In general—(1) Plans other than of previously suspended benefits under determined as of the date special
MPRA plans. Subject to paragraph (f) of § 4262.15(a)(2), and any restoration of financial assistance is paid);
this section and to the adjustment for benefits under 26 CFR 1.432(e)(9)– (3) Employer contributions paid and
the date of payment as described in 1(e)(3), assuming such reinstated expected to be paid to the plan during
§ 4262.12, the amount of special benefits are paid beginning as of the the SFA coverage period, excluding
financial assistance for a plan that is not SFA measurement date and excluding contribution rate increases agreed to on
a MPRA plan is the lowest whole dollar any benefit increases resulting from or after July 9, 2021, as demonstrated by
amount (not less than $0) for which, as contribution increases agreed to on or the execution of a document increasing
of the last day of each plan year during after July 9, 2021, as demonstrated by a plan’s contribution rate. The
the SFA coverage period, projected SFA the execution of a document described document referred to in this paragraph
assets and projected non-SFA assets are in paragraph (c)(3) of this section; (c)(3) is either—
both greater than or equal to zero. (2) Administrative expenses paid and (i) A collective bargaining agreement
(2) MPRA plans. Subject to paragraph expected to be paid by the plan during not rejected by the plan; or
(f) of this section and to the adjustment the SFA coverage period, excluding the (ii) A document reallocating
for the date of payment as described in amount owed to PBGC under section contribution rates;
§ 4262.12, the amount of special 4261 of ERISA (which is added to the (4) Withdrawal liability payments
financial assistance for a MPRA plan is amount of special financial assistance in made and expected to be made to the
the greatest of the amount determined § 4262.12 determined as of the date plan during the SFA coverage period
under paragraph (a)(1) of this section, special financial assistance is paid); and taking into account a reasonable
the amount determined under paragraph (3) Investment returns expected to be allowance for amounts considered
(a)(2)(i) of this section, and the amount earned by amounts attributable to uncollectible;
determined under paragraph (a)(2)(ii) of special financial assistance calculated (5) Other payments made and
this section. using the SFA interest rate described in expected to be made to the plan
(i) The amount determined under this paragraph (e)(2) of this section, (excluding the amount of financial
paragraph (a)(2)(i) is the lowest whole excluding investment returns for the assistance under section 4261 of ERISA
dollar amount (not less than $0) for plan year in which the sum of annual and special financial assistance to be
which, as of the last day of each plan projected benefit payments and received by the plan) during the SFA
year during the SFA coverage period, administrative expenses for the year coverage period; and
projected SFA assets and projected non- exceeds the beginning-of-year projected (6) Investment returns expected to be
SFA assets are both greater than or equal SFA assets. earned by assets not attributable to
to zero, and, as of the last day of the (c) Projected non-SFA assets. The special financial assistance calculated
SFA coverage period, the sum of amount of projected non-SFA assets for using the non-SFA interest rate
projected SFA assets and projected non- a plan is determined by projecting the described in paragraph (e)(1) of this
SFA assets is greater than the amount of fair market value of plan assets on the section.
such sum as of the last day of the SFA measurement date forward (d) Deterministic basis. The
immediately preceding plan year. annually, using the following annual projections in paragraphs (b) and (c) of
(ii) The amount determined under cash flows: this section must be performed on a
this paragraph (a)(2)(ii) is the present (1) Benefits paid and expected to be deterministic basis using assumptions
value of benefits paid and expected to paid by the plan during the SFA as described in paragraph (e) of this
be paid by the plan during the SFA coverage period after the projected SFA section. For a plan other than a plan
coverage period attributable to the assets described in paragraph (b) of this described in § 4262.4(g), the projections
reinstatement of benefits under section are fully exhausted, including must be based on the participant census
§ 4262.15(a)(1), payment of previously any reinstatement of benefits data used to prepare the plan’s actuarial
suspended benefits under attributable to the elimination of valuation report, either—
§ 4262.15(a)(2), and any restoration of reductions in a participant’s or
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(1) For the plan year in which occurs
benefits under 26 CFR 1.432(e)(9)– beneficiary’s benefit due to a suspension the plan’s SFA measurement date; or
1(e)(3), calculated using the SFA of benefits under sections 305(e)(9) or (2) If there is no such report for that
interest rate under paragraph (e)(2) of 4245(a) of ERISA as required under plan year, for the preceding plan year.
this section. § 4262.15(a)(1), payment of previously (e) Actuarial assumptions. The
(3) MPRA plan definition. For suspended benefits under amount of special financial assistance
purposes of this section, MPRA plan § 4262.15(a)(2), and any restoration of must be determined in accordance with
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41008 Federal Register / Vol. 87, No. 130 / Friday, July 8, 2022 / Rules and Regulations
generally accepted actuarial principles beginning on July 9, 2021, and ending then the amount of special financial
and practices and the provisions in this on the SFA measurement date is limited assistance is deemed to be $0 (zero).
paragraph (e). to the amount of special financial (6) Examples. The following examples
(1) The non-SFA interest rate is the assistance that would have applied to illustrate the provisions of paragraph (f)
lesser of the rate in paragraph (e)(1)(i) or the plan on the SFA measurement date of this section.
(ii) of this section. if the events had not occurred, as (i) Example 1. Plan A applies for
(i) The interest rate in this paragraph determined in a reasonable manner. special financial assistance. If the
(e)(1)(i) is the interest rate used for (ii) The special financial assistance of limitation in paragraph (f)(1)(i) of this
funding standard account purposes as a plan that experiences a merger event section did not apply, Plan A would be
projected in the plan’s most recently during the period described in entitled to special financial assistance in
completed certification of plan status paragraph (f)(1)(i) of this section is the amount of $20X. Before the SFA
before January 1, 2021. limited to the sum of the amounts of measurement date, but on or after July
(ii) The interest rate in this paragraph special financial assistance that would 9, 2021, Plan A transferred a portion of
(e)(1)(ii) is the interest rate that is 200 have applied to the plans involved in its assets and liabilities to Plan B. If the
basis points higher than the rate the merger on the SFA measurement transfer had not occurred, Plan A
specified in section 303(h)(2)(C)(iii) of date if the merger had not occurred, as would, as of the SFA measurement date,
ERISA (disregarding modifications determined in a reasonable manner. If be entitled to special financial
made under section 303(h)(2)(C)(iv)) for any of the plans involved in the merger assistance in the amount of $40X.
the month in which such rate is the also experiences one or more of the Although an event described in
lowest among the 4 calendar months events described in paragraph (f)(2), (3), paragraph (f)(2) of this section occurred
ending with the month in which the or (4) of this section during the period with respect to Plan A, Plan A’s special
plan’s initial application for special described in paragraph (f)(1)(i) of this financial assistance is unaffected by the
financial assistance is filed, taking into section, the amount of special financial limitation in paragraph (f)(1)(i) of this
account only rates that have been issued assistance for that plan on the SFA section and is $20X. Plan B also applies
by the IRS as of the day that is the day measurement date, determined as if the for special financial assistance. If the
before the date the plan’s initial merger had not occurred, must be limitation in paragraph (f)(1)(i) of this
application is filed. determined in accordance with section did not apply, Plan B would be
(2) The SFA interest rate is the lesser paragraph (f)(1)(i) of this section. entitled to special financial assistance in
of the rate in paragraph (e)(2)(i) or (ii) the amount of $30X. If the transfer from
(2) Transfers. The event described in
of this section. Plan A had not occurred, Plan B would,
this paragraph (f)(2) is a transfer of
(i) The interest rate in this paragraph as of the SFA measurement date, be
assets or liabilities (including a spinoff).
(e)(2)(i) is the interest rate in paragraph ineligible for special financial
(e)(1)(i) of this section. (3) Benefit increases. The event assistance. As a result of the event
(ii) The interest rate in this paragraph described in this paragraph (f)(3) is the described in paragraph (f)(2) of this
(e)(2)(ii) is the interest rate that is 67 execution of a plan amendment section, the limitation in paragraph
basis points higher than the average of increasing accrued or projected benefits (f)(1)(i) of this section reduces Plan B’s
the rates specified in section under a plan, other than a restoration of special financial assistance from $30X
303(h)(2)(C)(i), (ii), and (iii) of ERISA suspended benefits that satisfies the to $0.
(disregarding modifications made under requirements of 26 CFR 1.432(e)(9)– (ii) Example 2. Plan C applies for
section 303(h)(2)(C)(iv)) for the month 1(e)(3). special financial assistance. If the
in which such average is the lowest (4) Contribution reductions. The event limitation in paragraph (f)(1)(ii) of this
among the 4 calendar months ending described in this paragraph (f)(4) is the section did not apply, Plan C would be
with the month in which the plan’s execution of a document reducing a entitled to special financial assistance in
initial application for special financial plan’s contribution rate (including any the amount of $40X. Before the SFA
assistance is filed, taking into account reduction in benefit accruals adopted measurement date, but on or after July
only rates that have been issued by the simultaneously or arising from a pre- 9, 2021, Plans A and B were merged into
IRS as of the day that is the day before existing linkage between benefit existing Plan C. If the mergers had not
the date the plan’s initial application is accruals and contributions), but only if occurred, Plan A would not be eligible
filed. the plan does not demonstrate (in for special financial assistance, and Plan
(3) The actuarial assumptions (other accordance with the special financial B and Plan C would be entitled,
than the interest rate assumptions under assistance instructions on PBGC’s respectively, to $10X and $5X of special
paragraphs (e)(1) and (2) of this section) website at www.pbgc.gov) that the risk financial assistance as of the SFA
are those used for the plan’s most of loss to participants and beneficiaries measurement date. As a result of the
recently completed certification of plan is reduced (disregarding special merger event described in paragraph
status before January 1, 2021, unless financial assistance) by execution of the (f)(1)(ii) of this section, the limitation in
such assumptions are unreasonable. document. The document referred to in paragraph (f)(1)(ii) of this section
(4) If a plan determines that use of the this paragraph (f)(4) is either— reduces Plan C’s special financial
actuarial assumptions under paragraph (i) A collective bargaining agreement assistance from $40X to $15X.
(e)(3) of this section is unreasonable, the not rejected by the plan; or (iii) Example 3. Plan A applies for
plan’s application may include a (ii) A document reallocating special financial assistance. If the
proposed change in the assumptions contribution rates. limitation in paragraph (f)(1)(i) of this
(excluding the interest rate assumptions (5) Effect of pre-event ineligibility. In section did not apply, Plan A would be
under paragraphs (e)(1) and (2) of this determining the amount of special entitled to special financial assistance in
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section), 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
events described in paragraph (f)(2), (3), for special financial assistance under occurred, Plan A would, as of the SFA
or (4) of this section during the period § 4262.3 in the absence of the event, measurement date, be ineligible for
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Federal Register / Vol. 87, No. 130 / Friday, July 8, 2022 / Rules and Regulations 41009
special financial assistance. As a result (i) Withdraw the plan’s application in (7) No supplement or withdrawal. If
of the event described in paragraph accordance with § 4262.11(d) and file a special financial assistance has not been
(f)(3) of this section, applying the revised application as described in paid to or for the plan under the terms
limitation in paragraph (f)(1)(i) of this paragraph (g)(5) of this section; or of this part as in effect before August 8,
section and in accordance with (ii) Not withdraw the plan’s 2022, and the plan has not filed a
paragraph (f)(5) of this section, Plan A application and have the application supplemented application as described
is treated as being entitled to special reviewed under the terms of this part as in paragraphs (g)(6) and (8) of this
financial assistance of $0. in effect before August 8, 2022 as section, or withdrawn the plan’s
(iv) Example 4. Plan A applies for described in paragraph (g)(7) of this application in accordance with
special financial assistance. If the section. § 4262.11(d), the application will be
limitation in paragraph (f)(1)(i) of this (3) Withdrawn application. If the
reviewed under the terms of this part as
section did not apply, Plan A would be plan’s application for special financial
assistance was not pending as of August in effect before August 8, 2022. The
entitled to special financial assistance in
8, 2022, because the application was amount of special financial assistance
the amount of $10X. Before the SFA
measurement date, but on or after July withdrawn, the plan may file a revised for the plan will be determined under
9, 2021, Plan A’s contribution rate was application as described in paragraph the terms of this part as in effect before
reduced. Plan A’s benefit formula states (g)(5) of this section. August 8, 2022 and be subject to
that the monthly benefit accrual for a (4) Denied application. If the plan’s adjustment as described in § 4262.12(b).
participant for a plan year is 2.0 percent application for special financial (i) A plan that receives special
of the contributions paid on behalf of assistance was not pending as of August financial assistance as described under
the participant for that plan year. Since 8, 2022, because the application was this paragraph (g)(7) may subsequently
there is a pre-existing linkage between denied, the plan may file a revised file a supplemented application in
benefit accruals and contributions, the application as described in paragraph accordance with paragraphs (g)(6) and
event described in paragraph (f)(4) of (g)(5) of this section. Any revised (8) of this section.
this section includes both the reduction application must address the reasons
cited by PBGC for the denial. (ii) If the plan’s application is denied,
in benefit accruals and the reduction in
(5) Revised application. Any revised the plan may file a revised application
the contribution rate. If the contribution
application for special financial as described in paragraph (g)(5) of this
rate reduction and the reduction in
benefit accruals had not occurred, Plan assistance filed by a plan under this section.
A would, as of the SFA measurement paragraph (g) is processed in the same (8) Supplemented application special
date, be entitled to special financial way as an initial application, and must rules. (i) Except as provided in this
assistance of $8X. Plan A does not demonstrate eligibility and the amount paragraph (g)(8), the rules in §§ 4262.10
provide a demonstration that the risk of of the plan’s special financial assistance and 4262.11(a) and (b) and (f) and (g) for
loss to participants and beneficiaries is determined under the provisions of this a revised application apply to a
reduced (disregarding special financial part as in effect on August 8, 2022, supplemented application.
assistance) due to the reduction in subject to adjustment as described in (ii) A supplemented application must
contribution rate and the reduction in § 4262.12(a), and use the following base
not change the plan’s SFA measurement
benefit accruals. As a result of the data:
(i) The plan’s SFA measurement date date, fair market value of assets, or
events described in paragraph (f)(4) of participant census data, or include a
this section, the limitation in paragraph determined as the last day of the
calendar quarter immediately preceding proposed change in assumptions, except
(f)(1)(i) of this section reduces Plan A’s
the date the plan’s initial application for to propose a change to the plan’s
special financial assistance from $10X
special financial assistance was filed; employer contribution assumption to
to $8X.
(g) Filers under the interim provisions (ii) The plan’s participant census data exclude contribution rate increases
of this part. If a plan’s application for determined under this part as in effect agreed to on or after July 9, 2021, as
special financial assistance under the before August 8, 2022; and permitted under paragraph (c)(3) of this
terms of this part as in effect before (iii) The plan’s non-SFA interest rate section (in which case, the plan must
August 8, 2022 was filed before that and SFA interest rate as determined exclude any benefit increases resulting
date, the plan may choose to proceed in under paragraphs (e)(1) and (2) of this from such contribution increases as
accordance with paragraph (g)(1), (2), section. required under paragraphs (b)(1) and
(3), or (4) of this section (whichever (6) Supplemented application. Any (c)(1) of this section).
applies). supplemented application filed by a (iii) A supplemented application may
(1) Approved application. If the plan’s plan under this paragraph (g) must be be withdrawn and resubmitted at any
application for special financial filed in accordance with paragraph time before PBGC denies or approves
assistance was approved as of August 8, (g)(8) of this section and must be limited the supplemented application. Any
2022, the plan may— to the changes and information withdrawal of a plan’s supplemented
(i) Supplement the plan’s application specified in the supplemented special
application must be by written notice to
as described in paragraphs (g)(6) and (8) financial assistance instructions on
PBGC submitted by any person
of this section after special financial PBGC’s website at www.pbgc.gov, about
authorized to submit an application for
assistance is paid to or for the plan the determination of the amount of
the plan and in accordance with the
under the terms of this part as in effect special financial assistance under this
supplemented special financial
before August 8, 2022; or part as of August 8, 2022 (including the
interest rates in paragraph (e) of this assistance instructions on PBGC’s
(ii) Not supplement the plan’s
jspears on DSK121TN23PROD with RULES3
section), and the filer must agree to be website at www.pbgc.gov.
application.
(2) Pending application. If the plan’s bound by the provisions of this part (iv) If PBGC denies a plan’s
application for special financial governing such a determination, in supplemented application, any new
assistance was not approved, which case, special financial assistance supplemented application filed by the
withdrawn, or denied, and was pending, is subject to adjustment as described in plan must address the reasons cited by
as of August 8, 2022, the plan may— § 4262.12(c). PBGC for the denial.
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41010 Federal Register / Vol. 87, No. 130 / Friday, July 8, 2022 / Rules and Regulations
§ 4262.5 PBGC review of plan (2) PBGC will provide guidelines for assistance under this part must include
assumptions. changed assumptions on PBGC’s a certification by the plan’s enrolled
(a) In general. (1) As set forth in website at www.pbgc.gov. actuary.
§ 4262.3(d)(1), PBGC will accept the (d) Clarifying and additional
assumptions used by a plan to § 4262.6 Information to be filed. information. PBGC may require a plan
determine eligibility for special (a) In general. An application for sponsor to file additional information,
financial assistance under § 4262.3(d)(1) special financial assistance must including information to clarify or
unless PBGC determines that such include the information specified in this verify information provided in the
assumptions are clearly erroneous. section and §§ 4262.7 (plan information) plan’s application. The plan sponsor
(2) PBGC will accept the assumptions and 4262.8 (actuarial and financial must promptly file any such
used by a plan to determine eligibility information); a copy of the executed information with PBGC upon request.
for special financial assistance under plan amendment required under (e) Duty to amend plan and notify
§ 4262.3(d)(2) or to determine the paragraph (e)(1) of this section; a copy PBGC. The plan sponsor of a plan
amount of special financial assistance of the proposed plan amendment applying for special financial assistance
under § 4262.4(e)(3) unless PBGC required under paragraph (e)(2) of this must—
determines that an assumption is section; and a completed checklist and (1) Amend the plan to include the
unreasonable. other information as described in the following special financial assistance
(3) PBGC will accept a plan’s changes special financial assistance instructions provision effective through the end of
in assumptions under paragraph (c) of on PBGC’s website at www.pbgc.gov. If the last plan year ending in 2051:
this section except to the extent that any of the information required for an ‘‘Beginning with the SFA measurement
PBGC determines that an assumption is application for special financial date selected by the plan in the plan’s
individually unreasonable, or the assistance under this part is not application for special financial
proposed changed assumptions are accurately completed or not filed with assistance, notwithstanding anything to
unreasonable in the aggregate. the application, PBGC may require the the contrary in this or any other
(b) Reasonableness of assumptions. plan sponsor to file additional governing document, the plan shall be
(1) Each of the actuarial assumptions information described under paragraph administered in accordance with the
and methods used for the actuarial (d) of this section or PBGC may consider restrictions and conditions specified in
projections (excluding the interest rate the application incomplete. If the section 4262 of ERISA and 29 CFR part
assumptions under § 4262.4(e)(1) and correction of an error or omission 4262. This amendment is contingent
(2)) must be reasonable in accordance requires a change to the amount of upon approval by PBGC of the plan’s
with generally accepted actuarial special financial assistance requested, application for special financial
principles and practices, taking into the application will be considered assistance.’’
account the experience of the plan and incomplete. (2) If the plan suspended benefits
reasonable expectations. The actuary’s (b) Required trustee signature. An under section 305(e)(9) or 4245(a) of
selection of assumptions about future application for special financial ERISA, amend the plan to include
covered employment and contribution assistance must— provisions substantially similar to the
levels (including contribution base units (1) Be signed and dated by an following to, in accordance with
and contribution rates) may be based on authorized trustee, who is a current guidance issued by the Secretary of the
information provided by the plan member of the board of trustees and Treasury under section 432(k) of the
sponsor, which must act in good faith in who is authorized to sign on behalf of Code, {I} reinstate benefits, as required
providing the information. the board of trustees, or by another by § 4262.15(a)(1), and {II} make
(2) If a plan has a change in authorized representative of the plan payments of previously suspended
assumptions under paragraph (c) of this sponsor, with such signature benefits, as required by § 4262.15(a)(2):
section, each of the actuarial accompanied by the printed name and ‘‘Effective as of the first month in which
assumptions and methods (other than title of the signer; and special financial assistance is paid to
the interest rate assumptions under (2) Include the following statements the plan, the plan shall reinstate all
§ 4262.4(e)(1) and (2)) must be signed by an authorized trustee who is benefits that were suspended under
reasonable and the combination of those a current member of the board of section 305(e)(9) or 4245(a) of ERISA.
actuarial assumptions and methods trustees, with such signature The plan shall pay each participant and
(excluding the interest rate assumptions accompanied by the printed name and beneficiary that is in pay status as of the
under § 4262.4(e)(1) and (2)) must also title of the signer: ‘‘Under penalty of date special financial assistance is paid
be reasonable. perjury under the laws of the United to the plan the aggregate amount of the
(c) Changes in assumptions. If a plan States of America, I declare that I am an participant’s or beneficiary’s benefits
determines that use of an assumption authorized trustee who is a current that were not paid because of the
described in § 4262.3(d)(2) or member of the board of trustees of the suspension, with no actuarial
§ 4262.4(e)(3) is unreasonable, the plan’s [insert plan name] and that I have adjustment or interest. Such payment
application may include a proposed examined this application, including shall be made [choose whichever
change in the assumptions (excluding accompanying documents, and, to the applies: ‘in a lump sum no later than 3
the plan’s interest rate assumptions best of my knowledge and belief, the months after the date the special
under § 4262.4(e)(1) and (2)). application contains all the relevant financial assistance is paid to the plan,
(1) The application for special facts relating to the application; all irrespective of whether the participant
financial assistance must— statements of fact contained in the or beneficiary dies after the date special
application are true, correct, and not financial assistance is paid’ or ‘in equal
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(i) Describe why the original
assumption is no longer reasonable; misleading because of omission of any monthly installments over a period of 5
(ii) Propose to use a different material fact; and all accompanying years, commencing no later than 3
assumption (the changed assumption); documents are what they purport to be.’’ months after the date the special
and (c) Actuarial calculations. All financial assistance is paid to the plan,
(iii) Demonstrate that the changed calculations that are required in an with all installments to be paid
assumption is reasonable. application for special financial irrespective of whether the participant
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Federal Register / Vol. 87, No. 130 / Friday, July 8, 2022 / Rules and Regulations 41011
or beneficiary survives to the end of the or is listed on PBGC’s website at (6) Most recent rehabilitation plan (or
5-year period’].’’ www.pbgc.gov as a plan in priority funding improvement plan, if
(3) During any time in which an group 6, as defined under applicable), including all subsequent
application is pending approval by § 4262.10(d)(2)(vi). amendments and updates, and the
PBGC, the plan sponsor must promptly (d) Plans with a suspension of percentage of total contributions
notify PBGC in writing as soon as the benefits. If a plan previously suspended received under each schedule of the
plan sponsor becomes aware that any benefits under section 305(e)(9) or rehabilitation plan for the most recent
material fact or representation contained 4245(a) of ERISA, its application must plan year available. If the most recent
in or relating to the application, or in include a description of how the plan rehabilitation plan does not include
any supporting documents, is no longer will reinstate the benefits that were historical documentation of
accurate, or that any material fact or previously suspended and a proposed rehabilitation plan changes (if any) that
representation was omitted from the schedule showing aggregate amount and occurred in calendar year 2020 and
application or supporting documents. timing of payments (in accordance with later, these details must be provided in
(f) Disclosure of information. Unless § 4262.15) to participants and a clearly identified supplemental
confidential under the Privacy Act, all beneficiaries under the plan. The document.
information that is filed with PBGC for proposed schedule should be prepared (7) Most recent Form 5500 and all
an application for special financial assuming the effective date for schedules and attachments (including
assistance under this part may be made reinstatement is the SFA measurement the audited financial statement).
publicly available, at PBGC’s sole date and that payments for previously (8) Plan actuary’s certification of plan
discretion, on PBGC’s website at suspended benefits described in status required under section 305(b)(3)
www.pbgc.gov or otherwise publicly § 4262.15(a)(2) are paid or commence on of ERISA completed for the 2018 plan
disclosed. Except to the extent required the SFA measurement date. If the plan year and each subsequent annual
by the Privacy Act, PBGC provides no restored benefits under 26 CFR certification of plan status completed
assurance of confidentiality in any 1.432(e)(9)–1(e)(3) before the SFA before the date the plan’s initial
information or documentation included measurement date, the proposed application was filed, with
in an application for special financial schedule should reflect the amount and documentation supporting each
assistance. timing of payments of restored benefits certification, which must include the
and the effect of the restoration on the projections and information required in
§ 4262.7 Plan information.
benefits remaining to be reinstated. the special financial assistance
(a) Basic information. An application instructions on PBGC’s website at
(e) Plan documentation. An
for special financial assistance must www.pbgc.gov.
application must include all of the
include all of the following information (9) Most recent statement for each of
following plan documentation:
with respect to the plan and amount of the plan’s cash and investment
(1) Most recent plan document or
special financial assistance requested: accounts.
(1) Name of the plan, Employer restatement of the plan document and
all subsequent amendments adopted (if (10) Most recent plan financial
Identification Number (EIN), and three- statement (audited, or unaudited if
digit Plan Number (PN). any), including a copy of the executed
plan amendment required under audited is not available).
(2) Name of the individual filing the (11) Bank account and other
application and role of the individual § 4262.6(e)(1).
(2) If the plan suspended benefits information necessary for electronic
with respect to the plan. payment of funds.
(3) Name, address, email, and under section 305(e)(9) or 4245(a) of
(12) All written policies and
telephone number of the plan sponsor ERISA, a copy of the proposed plan
procedures governing withdrawal
and the plan sponsor’s authorized amendment(s) required under
liability determination, assessment,
representatives, if any. § 4262.6(e)(2) and a certification by the
collection, settlement, and payment.
(4) The total amount of special plan sponsor that the plan
financial assistance requested under amendment(s) will be timely adopted. § 4262.8 Actuarial and financial
§ 4262.4(a)(1) or (2). Such certification must be signed either information.
(b) Eligibility. An application must by all members of the plan’s board of (a) Required information. An
identify the eligibility requirements in trustees or by one or more trustees duly application for special financial
§ 4262.3 that the plan satisfies to be authorized to sign the certification on assistance must include all of the
eligible for special financial assistance. behalf of the entire board and to commit following actuarial and financial
An application for a plan that is eligible the board to timely adopting the information:
under section 4262(b)(1)(C) of ERISA amendment after the plan’s application (1) For each plan year from the 2018
must include a demonstration to for special financial assistance is plan year until the most recent plan year
support that the plan meets the approved, with each signature for which the Form 5500 is required to
eligibility requirements. accompanied by the printed name and be filed by the date the plan’s initial
(c) Priority group identification. An title of the signer. application for special financial
application must identify any priority (3) Most recent trust agreement or assistance is filed, the projection of
group under § 4262.10(d)(2) that the restatement of the trust agreement and expected benefit payments as required
plan is in. An application must include all subsequent adopted amendments (if to be attached to the Form 5500
a demonstration to support the plan’s any). Schedule MB if the response to the
inclusion in a priority group, unless the (4) Most recent IRS determination question at line 8b(1) of the Form 5500
plan is insolvent under section 4245(a) letter. Schedule MB is ‘‘Yes’’.
jspears on DSK121TN23PROD with RULES3
of ERISA, has implemented a (5) Actuarial valuation reports (2) For a plan that has 10,000 or more
suspension of benefits under section completed for the 2018 plan year and participants required to be entered on
305(e)(9) of ERISA as of March 11, 2021, each subsequent actuarial valuation line 6f of the plan’s most recently filed
is in critical and declining status (as report completed before the date the Form 5500 (as of the date the plan’s
defined in section 305(b)(6) of ERISA) plan’s initial application for special initial application for special financial
and had 350,000 or more participants, financial assistance is filed. assistance is filed), a listing of the 15
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41012 Federal Register / Vol. 87, No. 130 / Friday, July 8, 2022 / Rules and Regulations
largest contributing employers and the (ii) For each plan year in the SFA beginning-of-year projected SFA assets)
contribution amounts for each such coverage period: The projected amount and the projected fair market value of
contributing employer for the most of contributions, projected withdrawal SFA assets at the end of each plan year.
recently completed plan year (before the liability payments reflecting a (6) For MPRA plans, the amount of
date the plan’s initial application for reasonable allowance for amounts special financial assistance calculated
special financial assistance is filed). considered uncollectible, and other under § 4262.4(a)(2)(i) and information
(3) Historical plan financial payments expected to be made to the used to determine such amount, based
information for the 2010 plan year plan. on a deterministic projection, including
through the plan year immediately (iii) For each plan year in the SFA all of the following information—
preceding the date the plan’s initial coverage period: Payments described in (i) Special financial assistance
application was filed that separately § 4262.4(b)(1) attributable to the calculated under § 4262.4(a)(2)(i)
identifies: Total contributions; total reinstatement of benefits under determined as a lump sum as of the SFA
contribution base units; average § 4262.15 that were previously measurement date.
contribution rates; number of active suspended through the SFA (ii) All items identified in paragraphs
participants at the beginning of each measurement date. (a)(5)(ii) through (viii) of this section
plan year; and other sources of non- (iv) For each plan year in the SFA that support the amount described in
investment income, including, if coverage period: Benefit payments paragraph (a)(6)(i) of this section.
applicable, withdrawal liability described in § 4262.4(b)(1) (including (7) For MPRA plans, if the amount
payments collected, contributions from any benefits restored under 26 CFR calculated under § 4262.4(a)(2)(ii) is the
reciprocity agreements, and other 1.432(e)(9)–1(e)(3) and excluding the greatest amount calculated under
sources of contributions or income not previously suspended benefits § 4262.4(a)(2), the amount of special
already identified. described in paragraph (a)(5)(iii) of this financial assistance calculated under
section), separately for current retirees § 4262.4(a)(2)(ii) and information used
(4) Information used to determine the
and beneficiaries in pay status, current to determine the amount under
amount of the requested special
terminated participants not yet in pay § 4262.4(a)(2)(ii), based on a
financial assistance, including all of the
status, current active participants, and deterministic projection, including all of
following information—
new entrants; and total benefit the following information—
(i) Non-SFA interest rate required (i) Special financial assistance
payments paid and expected to be paid
under § 4262.4(e)(1), including calculated under§ 4262.4(a)(2)(ii)
from projected SFA assets separately
supporting details on how it was determined as a lump sum as of the SFA
from total benefit payments paid and
determined, and SFA interest rate measurement date.
expected to be paid from non-SFA
required under § 4262.4(e)(2), including (ii) For each plan year in the SFA
assets after the projected SFA assets are
supporting details on how it was fully exhausted. coverage period: Benefit payments
determined. (v) For each plan year in the SFA described in § 4262.4(b)(1) (excluding
(ii) Fair market value of plan assets coverage period: Administrative the previously suspended benefits
determined as of the SFA measurement expenses paid and expected to be paid described in paragraph (a)(5)(iii) of this
date; a certification from the plan (excluding the amount owed PBGC section), separately for current retirees
sponsor with respect to the accuracy of under section 4261 of ERISA), and beneficiaries in pay status, current
this amount, including information that separately for PBGC premiums and all terminated participants not yet in pay
substantiates the asset value and any other administrative expenses; and total status, current active participants, and
projections to the SFA measurement administrative expenses paid and new entrants; and total benefit
date (including details and supporting expected to be paid from projected SFA payments paid or expected to be paid.
rationale); and a reconciliation of the assets separately from total For each participant group except new
fair market value of plan assets from the administrative expenses paid and entrants: benefit payments after
date of the most recent audited plan expected to be paid from non-SFA reinstatement (excluding the previously
financial statement to the SFA assets after the projected SFA assets are suspended benefits described in
measurement date showing fully exhausted. paragraph (a)(5)(iii) of this section), the
contributions, withdrawal liability (vi) For each plan year in the SFA reduced benefit payments under the
payments, benefit payments, coverage period: The projected total approved benefit suspension, and the
administrative expenses, and participant count at the beginning of the difference due to the reinstatement of
investment income. year. benefits.
(iii) For the calculation method used (vii) For each plan year in the SFA (iii) The present value, as of the SFA
to determine the requested amount of coverage period: The projected measurement date using the SFA
special financial assistance, the plan investment income earned by assets not interest rate required under
year in which the sum of annual attributable to special financial § 4262.4(e)(2), of the amounts described
projected benefit payments and assistance based on the interest rate in paragraph (a)(5)(iii) of this section.
administrative expenses for the year required under § 4262.4(e)(1) and the (iv) The present value, as of the SFA
exceeds the beginning-of-year projected projected fair market value of non-SFA measurement date using the SFA
SFA assets. assets at the end of each plan year. interest rate required under
(5) The amount of special financial (viii) For each plan year in the SFA § 4262.4(e)(2), of the difference in
assistance calculated under coverage period: The projected benefit amounts due to the
§ 4262.4(a)(1) and information used to investment income earned by amounts reinstatement of benefits, as described
determine such amount, based on a attributable to special financial in paragraph (a)(7)(ii) of this section.
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deterministic projection, including all of assistance based on the interest rate (8) Projected contributions and
the following information— required under § 4262.4(e)(2) (excluding withdrawal liability payments,
(i) Special financial assistance investment returns for the plan year in reflecting a reasonable allowance for
calculated under § 4262.4(a)(1) which the sum of the annual projected amounts considered uncollectible, used
determined as a lump sum as of the SFA benefit payments and administrative to calculate the requested special
measurement date. expenses for the year exceeds the financial assistance amount in § 4262.4,
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including total contributions, status last completed before January 1, (b)(2)(iii) of this section, the plan
contribution base units, average 2021 (excluding the plan’s non-SFA and sponsor is not required to file that
contribution rate(s), reciprocal SFA interest rates, which must be the information with its application for
contributions (if applicable), additional same as the interest rates required under special financial assistance. For any
contributions from the rehabilitation § 4262.4(e)(1) and (2)). For purposes of such information not filed with the
plan, and any other contributions, and this paragraph (b)(2), certain changes in application, the plan sponsor must note
number of active participants at the assumptions as described in the special on the checklist described under
beginning of each plan year. For financial assistance instructions on § 4262.6(a) when the information was
withdrawal liability, separate PBGC’s website at www.pbgc.gov should filed.
projections for withdrawn employers be reflected in the Baseline projection. (c) Rescission of partition order.
and for future assumed withdrawals. (3) In accordance with the special Effective when special financial
(9) A description of the development financial assistance instructions on assistance is paid under § 4262.12, and
of the assumed future contributions PBGC’s website at www.pbgc.gov, a in a manner consistent with the
(including assumed contribution rates) reconciliation of the change in the application procedure determined
and future withdrawal liability requested special financial assistance under paragraph (b) of this section—
payments described in paragraph (a)(8) due to each changed assumption from (1) PBGC will rescind the partition
of this section. the Baseline to the requested special order; and
(10) For a plan that has 350,000 or financial assistance amount in § 4262.4, (2) The plan sponsor must amend the
more participants reported on line 6f of showing, for each assumption change plan to remove any provisions or
its most recently filed Form 5500 (as of from the Baseline, a deterministic amendments that were required to be
the date the plan’s initial application for projection calculated in the same adopted under the partition order.
special financial assistance is filed), the manner as the requested amount in
participant census data utilized by the § 4262.10 Processing applications.
§ 4262.4.
plan actuary in developing the cash (c) Information required for certain (a) In general. Any application for
flow projections included in the events. An application for a plan with special financial assistance for an
application. respect to which an event described in eligible multiemployer plan must be
(11) Documentation of a death audit § 4262.4(f) occurs on or after July 9, filed by the plan sponsor in accordance
to identify deceased participants that 2021, must include the applicable with the provisions of this part and the
was completed no earlier than 1 year information related to the event special financial assistance instructions
before the plan’s SFA measurement specified in special financial assistance on PBGC’s website at www.pbgc.gov.
date, including identification of the instructions on PBGC’s website at (b) Method of filing. An application
service provider conducting the audit www.pbgc.gov. filed with PBGC under this part must be
and a copy of the results of the audit (d) Information required for changed made electronically in accordance with
provided to the plan administrator by assumptions in supplemented the rules in part 4000 of this chapter.
the service provider. applications. Any supplemented The time period for filing an application
(b) Information required for changed under this part must be computed under
application filed for a plan described in
assumptions in initial and revised the rules in subpart D of part 4000 of
§ 4262.4(g) must include the
applications. An application for a plan this chapter.
information specified in the
that proposes to change any assumption (c) Where to file. (1) An application
supplemented special financial
used in the plan’s most recently filed with PBGC under this part must be
assistance instructions on PBGC’s
completed certification of plan status filed as described in § 4000.4 of this
website at www.pbgc.gov.
before January 1, 2021, must include all chapter.
of the following information: § 4262.9 Application for a plan with a (2) Section 432(k)(1)(D) of the Code
(1) A table identifying which partition. requires an application in a priority
assumptions used in demonstrating the (a) In general. This section applies to group under paragraph (d)(2) of this
plan’s eligibility for special financial a plan partitioned under section 4233 of section to be submitted to the Secretary
assistance or in calculating the amount ERISA that is eligible for special of the Treasury. If the requirement in
of special financial assistance differ financial assistance under § 4262.3(a)(2). the preceding sentence applies to an
from those assumptions used in the A partitioned plan is in priority group application, PBGC will transmit the
plan’s most recently completed 2 for purposes of § 4262.10(d)(2). application to the Department of the
certification of plan status before (b) Filing requirements. A plan Treasury on behalf of the plan.
January 1, 2021, and detailed narrative sponsor of a partitioned plan filing an (d) When to file. Any initial
explanations (with supporting rationale application for special financial application for special financial
and information) as described in the assistance must— assistance must be filed by December
special financial assistance instructions (1) File one application for the 31, 2025, and any revised application or
on PBGC’s website at www.pbgc.gov as original plan and the successor plan. supplemented application must be filed
to why any assumption used in the (2) Include in the application— by December 31, 2026. Any application
certification is no longer reasonable and (i) A statement that the plan was other than a plan’s initial application or
why the changed assumption is partitioned under section 4233 of a supplemented application is a revised
reasonable. ERISA; application regardless of whether it
(2) Deterministic cash flow projection (ii) A copy of the plan document and differs from the initial application or
(‘‘Baseline’’) in accordance with the other executed amendments required supplemented application.
special financial assistance instructions under paragraph (c)(2) of this section; (1) Processing system. To
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on PBGC’s website at www.pbgc.gov that and accommodate expeditious processing of
shows the amount of special financial (iii) The information required in many special financial assistance
assistance that would be determined if §§ 4262.6 through 4262.8. applications in a limited time period:
all underlying assumptions used in the (3) If a plan sponsor has already filed (i) The number of applications
projection were the same as those used with PBGC any of the required accepted for filing will be limited in
in the actuarial certification of plan information described in paragraph such manner that, in PBGC’s estimation,
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41014 Federal Register / Vol. 87, No. 130 / Friday, July 8, 2022 / Rules and Regulations
each application can be processed earlier date specified on PBGC’s website (1) It is an application for a plan that
within 120 days. at www.pbgc.gov. either—
(ii) Plans specified in paragraph (d)(2) (v) Priority group 5. A plan is in (i) Is insolvent or expected to be
of this section will be given priority to priority group 5 if the plan is projected insolvent under section 4245 of ERISA
file an application before plans not to become insolvent under section 4245 within 1 year of the date the plan’s
specified in paragraph (d)(2) of this of ERISA by March 11, 2026. The date application was filed; or
section. Plans not specified in paragraph a plan in priority group 5 may file an (ii) Has suspended benefits under
(d)(2) of this section may not file an application will be specified on PBGC’s section 305(e)(9) of ERISA as of March
application before March 11, 2023. website at www.pbgc.gov at least 21 11, 2021; and
(iii) Notices on PBGC’s website at days in advance of such date, and such (2) The filer notifies PBGC before
www.pbgc.gov will apprise potential date will be no later than February 11, submitting the application that the
filers of the current priority group(s) for 2023. application qualifies as an emergency
which applications are being accepted (vi) Priority group 6. A plan is in filing under this paragraph (f) in
and whether PBGC is accepting priority group 6 if the plan is projected accordance with instructions on PBGC’s
applications for filing as well as other by PBGC to have a present value of website at www.pbgc.gov.
information about priority groups and financial assistance payments under (g) Lock-in applications. (1) A lock-in
filing. section 4261 of ERISA that exceeds application described in this paragraph
(2) Priority groups. Until not later $1,000,000,000 if special financial (g), clearly and prominently identified
than March 11, 2023, the plan sponsor assistance is not ordered. PBGC will list as such, may be filed for a plan as its
of an eligible multiemployer plan will the plans in priority group 6 on its initial application (thus establishing the
be given priority to file an application website at www.pbgc.gov. The date a plan’s base data as provided under
if the plan is in one of the priority plan in priority group 6 may file an § 4262.11(c)).
groups in paragraphs (d)(2)(i) through application will be specified on PBGC’s (2) A lock-in application must—
(vii) of this section, listed in order of website at www.pbgc.gov at least 21 (i) Except as provided in paragraph
higher priority group to lower priority days in advance of such date, and such (g)(2)(ii) of this section, be filed after
group. A plan may not file an date will be no later than February 11, March 11, 2023, and on or before
application earlier than the beginning 2023. December 31, 2025; or
date specified for the plan’s priority (vii) Additional priority groups. PBGC (ii) Be filed by a plan described in
group. When applications for plans in a may add additional priority groups paragraphs (d)(2)(v) through (vii) of this
priority group are accepted for filing, based on other circumstances similar to section in accordance with the
PBGC will continue to accept those described for the groups listed in processing system described in
applications for plans in a higher paragraphs (d)(2)(i) through (vi) of this paragraphs (d)(1)(ii) and (iii) and (d)(2)
priority group, subject to paragraph section. If added, additional priority of this section at a time when PBGC is
(d)(1) of this section. groups and the date PBGC will begin not accepting applications for filing
(i) Priority group 1. A plan is in accepting applications for such under paragraph (d)(1)(i) of this section.
additional priority groups will be posted (3) The lock-in application must—
priority group 1 if the plan is insolvent
(i) Provide the information in
or is projected to become insolvent in guidance on PBGC’s website at
§ 4262.7(a)(1) through (3) and in the
under section 4245 of ERISA by March www.pbgc.gov.
instructions for lock-in applications on
11, 2022. A plan in priority group 1 may (e) Filing date. An application will be
PBGC’s website at www.pbgc.gov;
file an application beginning on July 9, considered filed on the date it is (ii) Be signed in accordance with
2021. submitted to PBGC if it is signed in § 4262.6(b); and
(ii) Priority group 2. A plan is in accordance with § 4262.6(b) and meets (iii) Be filed in accordance with
priority group 2 if the plan has the applicable requirements in paragraphs (a) through (c) of this section
implemented a suspension of benefits paragraph (d) of this section, including and the instructions for lock-in
under section 305(e)(9) of ERISA as of that it can be accommodated in applications on PBGC’s website at
March 11, 2021; or the plan is expected accordance with the processing system www.pbgc.gov.
to be insolvent under section 4245 of described in paragraph (d)(1) of this (4) A lock-in application for a plan
ERISA within 1 year of the date the section or the emergency filing process that satisfies the requirements of this
plan’s application was filed. A plan in described in paragraph (f) of this paragraph (g) is considered filed as the
priority group 2 may file an application section. Otherwise, the application will plan’s initial application and denied for
beginning on January 1, 2022, or such not be considered filed and PBGC will incompleteness under § 4262.11(a)(2)(i).
earlier date specified on PBGC’s website notify the applicant that the application (h) Informal consultation. Nothing in
at www.pbgc.gov. was not properly filed, and that the this section prohibits a plan sponsor
(iii) Priority group 3. A plan is in application must be filed in accordance from contacting PBGC informally to
priority group 3 if the plan is in critical with the processing system and discuss a potential application for
and declining status (as defined in instructions on PBGC’s website at special financial assistance.
section 305(b)(6) of ERISA) and has www.pbgc.gov. References in this part to
350,000 or more participants. A plan in a plan’s initial application are to the § 4262.11 PBGC action on applications.
priority group 3 may file an application plan’s first application that is (a) In general. Within 120 days after
beginning on April 1, 2022, or such considered filed. the date an initial, revised, or
earlier date specified on PBGC’s website (f) Emergency filing. Beginning when supplemented application for special
at www.pbgc.gov. PBGC accepts applications in priority financial assistance is properly and
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(iv) Priority group 4. A plan is in group 2 described in paragraph (d)(2)(ii) timely filed, PBGC will—
priority group 4 if the plan is projected of this section, and notwithstanding the (1) Approve the application and
to become insolvent under section 4245 processing system described in notify the plan sponsor of the payment
of ERISA by March 11, 2023. A plan in paragraph (d)(1) of this section, an of special financial assistance in
priority group 4 may file an application application may be accepted for filing accordance with § 4262.12; or
beginning on July 1, 2022, or such if— (2) Deny the application because—
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Federal Register / Vol. 87, No. 130 / Friday, July 8, 2022 / Rules and Regulations 41015
(i) The application is incomplete, and (e) Denied applications. If PBGC (1) The amount required as
notify the plan sponsor of the missing denies a plan’s application, an demonstrated by the plan sponsor on
information; or application submitted for a plan after the application for such special
(ii) An assumption is unreasonable, a the denial is a revised application. Any financial assistance, determined under
proposed change in assumption is revised application must address the § 4262.4 (under the terms of this part as
individually unreasonable, or the reasons cited by PBGC for the denial. in effect before August 8, 2022) as of the
proposed changed assumptions are (f) Revised applications. A plan’s SFA measurement date; plus
unreasonable in the aggregate, and revised application is processed in the (2) Interest on the amount in
notify the plan sponsor of the reasons same way as an initial application and paragraph (b)(1) of this section from the
for the determination; or must comply with the requirements in SFA measurement date to the SFA
(iii) The plan is not an eligible this part for an initial application except payment date at a rate equal to the
multiemployer plan, and notify the plan that it must use the base data required interest rate required under
sponsor of the reasons the plan fails to in paragraph (c) of this section for the § 4262.4(e)(1); plus
be eligible for special financial initial application. (3) The amount owed to PBGC under
assistance; or (g) Final agency action. PBGC’s section 4261 of ERISA determined as of
(3) Fail to act on the application, in decision on an application for special the SFA payment date; minus
which case the application is deemed (4) Financial assistance payments
financial assistance under this section is
approved, and notify the plan sponsor under section 4261 of ERISA received
a final agency action under § 4003.22(b)
by the plan between the SFA
of the payment of special financial of this chapter for purposes of judicial
measurement date and the SFA payment
assistance in accordance with § 4262.12. review under the Administrative
date, with interest on each such
(b) Incomplete application. PBGC will Procedure Act (5 U.S.C. 701 et seq.).
financial assistance payment from the
consider an application incomplete
§ 4262.12 Payment of special financial date thereof to the SFA payment date
under paragraph (a)(2)(i) of this section
assistance. calculated at a rate equal to the interest
unless the application accurately
(a) Amount of special financial rate required under § 4262.4(e)(1).
includes the information required to be (c) Amount of additional special
filed under this part and the special assistance under this part. The amount
of special financial assistance to be paid financial assistance under
financial assistance instructions on supplemented application. The amount
PBGC’s website at www.pbgc.gov, by PBGC to or for a plan for which
either an initial or a revised application of additional special financial assistance
including any additional information to be paid by PBGC to or for a plan
that PBGC requires under § 4262.6(d). for special financial assistance is filed
on or after August 8, 2022, will be the where the plan has received a prior
(c) Application base data. For an payment of special financial assistance
eligible plan other than a plan described total of—
(1) The amount required as under the terms of this part as in effect
in § 4262.4(g)— before August 8, 2022 will be the total
(1) A plan’s base data are— demonstrated by the plan sponsor on
the application for such special of—
(i) The plan’s SFA measurement date (1) The amount required as
as defined under § 4262.2; financial assistance, determined under
demonstrated by the plan sponsor on
(ii) The plan’s participant census data § 4262.4 as of the SFA measurement
the application for such special
as required to be used under § 4262.4(d); date; plus
financial assistance (including any
and (2) Interest on the amount in supplemented application filed after the
(iii) The plan’s non-SFA interest rate paragraph (a)(1) of this section from the prior payment of special financial
and SFA interest rate as determined SFA measurement date to the SFA assistance), determined under § 4262.4
under § 4262.4(e)(1) and (2). payment date at a rate equal to the as of the SFA measurement date; minus
(2) A plan’s base data are fixed by the interest rate required under (2) The amount required as
date the eligible plan’s initial § 4262.4(e)(2); plus demonstrated by the plan sponsor on
application for special financial (3) The amount owed to PBGC under the application for such special
assistance is filed and must be used for section 4261 of ERISA determined as of financial assistance, determined under
any revised application for the plan. If the SFA payment date; minus § 4262.4 (under the terms of this part as
the plan was not eligible for special (4) Financial assistance payments in effect before August 8, 2022) as of the
financial assistance on such date, the under section 4261 of ERISA received SFA measurement date; plus
plan’s base data will be fixed by the date by the plan between the SFA (3) Interest on the excess of the
the plan files a revised application and measurement date and the SFA payment amount in paragraph (c)(1) of this
demonstrates eligibility for special date, with interest on each such section over the amount in paragraph
financial assistance. financial assistance payment from the (c)(2) of this section from the SFA
(d) Withdrawn applications. (1) A date thereof to the SFA payment date measurement date to the payment date
plan’s application for special financial calculated at a rate equal to the interest of the additional special financial
assistance may be withdrawn at any rate required under § 4262.4(e)(2). assistance at a rate equal to the interest
time before PBGC denies or approves (b) Amount of special financial rate required under § 4262.4(e)(2).
the application. assistance under the interim provisions (d) Payment instructions. The plan
(2) Any withdrawal of a plan’s of this part. The amount of special must include in its application payment
application must be by written notice to financial assistance to be paid by PBGC instructions in accordance with the
PBGC submitted by any person to or for a plan for which neither an special financial assistance instructions
authorized to submit an application for initial nor a revised application for on PBGC’s website at www.pbgc.gov.
jspears on DSK121TN23PROD with RULES3
the plan and in accordance with the special financial assistance is filed on or PBGC may request additional
special financial assistance instructions after August 8, 2022 and there has not information from the plan related to
on PBGC’s website at www.pbgc.gov. been any previous payment of special PBGC’s payment of special financial
(3) An application submitted for a financial assistance, and where a plan’s assistance. Payment will be considered
plan after the withdrawal of an application has not been supplemented, made by PBGC when, in accordance
application is a revised application. will be the total of— with the payment instructions in the
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41016 Federal Register / Vol. 87, No. 130 / Friday, July 8, 2022 / Rules and Regulations
application, PBGC no longer has § 4262.13 Restrictions on special financial investment predominantly to equity
ownership of the amount being paid. assistance. securities registered under section 12(b)
Any adjustment for delay will be borne (a) In general. A plan that receives of the Securities Exchange Act of 1934,
by PBGC only to the extent that it arises special financial assistance must be U.S. Treasury securities with less than
while PBGC has ownership of the funds. administered in accordance with the one year to maturity date, cash and cash
(e) Repayment of traditional financial restrictions in this section and in equivalents described in paragraph
assistance. If a plan described in § 4262.14. (d)(5) of this section, and money market
paragraph (a) or (b) of this section has (b) Restrictions and use of SFA. funds described in paragraph (d)(6) of
an obligation to repay financial Special financial assistance received, this section.
assistance under section 4261 of ERISA, and any earnings thereon— (3) A debt security that has been
PBGC will— (1) May be used by the plan only to resold in an offering pursuant to 17 CFR
(1) Issue a written demand for make benefit payments and pay 230.144A (Rule 144A under the
repayment of financial assistance when administrative expenses; Securities Act of 1933), is investment
the application is approved; and (2) Must be segregated from other plan grade as described under paragraph (f)
(2) Deduct the amount of financial assets as described in § 4262.14(a); of this section, and has not been issued
assistance, including interest, that the (3) May be used before other plan by a foreign issuer as defined under 17
plan owes PBGC from the special assets are used to make benefit CFR 240.3b–4(b).
financial assistance before payment to payments and pay administrative (4) A debt instrument, as described
the plan. expenses; and under paragraph (d) of this section, that
(f) Date of payment of special (4) Must be invested in investment is no longer investment grade if it was
financial assistance. (1) Special grade bonds or other investments as investment grade as described under
financial assistance issued by PBGC will permitted by PBGC in § 4262.14. paragraph (f) of this section when
be paid as soon as practicable upon purchased by the plan for the portion of
§ 4262.14 Permissible investments of
approval of the plan’s special financial special financial assistance.
special financial assistance invested in
assistance application but not later than investment grade fixed income
(a) A plan that receives special securities.
the earlier of— financial assistance must segregate
(i) Ninety days after a plan’s special (d) For purposes of this section,
special financial assistance assets and investments in investment grade fixed
financial assistance application is earnings thereon (‘‘amounts attributable
approved by PBGC or deemed approved income securities and cash are
to special financial assistance’’) in an investments in—
under § 4262.11(a)(3); or account that is separate from the plan’s
(ii) September 30, 2030. (1) A bond or other debt security that
non-special financial assistance assets pays a fixed amount or fixed rate of
(2) References in this section to the and that is invested consistent with the interest, is denominated in U.S. dollars,
SFA payment date are to the date PBGC investment requirements of this section. sold in an offering registered under the
sends payment of special financial (b) Permissible investments for Securities Act of 1933, and is
assistance, not the bank settlement date. amounts attributable to special financial investment grade as described under
(g) Manner of payment. The payment assistance are— paragraph (f) of this section.
of special financial assistance to a plan (1) Investments in return-seeking (2) Shares held in a permissible fund
will be made by PBGC in a lump sum assets as described under paragraph (c) vehicle described under paragraph (g) of
or substantially so and is not a loan of this section, not to exceed 33 percent this section that abides by an
subject to repayment obligations. of amounts attributable to special investment policy that restricts
Notwithstanding the preceding financial assistance measured using fair investment predominantly to securities
sentence, the following payment market value as of— described in this paragraph (d) that are
obligations apply: (i) Each day the plan purchases denominated in U.S. dollars and are
(1) Special financial assistance is return-seeking assets, other than investment grade as defined under
subject to recalculation or adjustment to through the automatic re-purchase of paragraph (f) of this section.
correct a clerical or arithmetic error. capital gains and reinvestment of (3) Securities issued, guaranteed or
PBGC will, and plans must, make dividends; and sponsored by the U.S. Government or its
payments as needed to reflect any such (ii) At least one day during every designated agencies as required to be
recalculation or adjustment in a timely rolling period of 12 consecutive months entered as government securities on the
manner. beginning from the date the plan Form 5500 Schedule H.
(2) If PBGC determines that a payment receives special financial assistance. (4) Municipal securities defined in
for special financial assistance to a plan (2) Investments in investment grade section 3(a)(29) of the Securities
exceeded the amount to which the plan fixed income securities and cash as Exchange Act of 1934 that are
was entitled, any excess payment described in paragraph (d) of this investment grade as defined under
constitutes a debt to the Federal section for all other amounts paragraph (f) of this section.
Government. If not paid within 90 attributable to special financial (5) Noninterest-bearing cash and
calendar days after demand, PBGC may assistance. interest-bearing cash equivalents as
reduce the debt by any action permitted (c) For purposes of this section, required to be entered on the Form 5500
by Federal statute. Except where investments in return-seeking assets are Schedule H.
otherwise provided by statutes or investments in— (6) Money market funds regulated
regulations, PBGC will charge interest (1) Common stock that is pursuant to 17 CFR 270.2a–7 (Rule 2a–
and other amounts permitted on an denominated in U.S. dollars and 7 under the Investment Company Act of
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overdue debt in accordance with the registered under section 12(b) of the 1940).
Federal Claims Collection Standards (31 Securities Exchange Act of 1934. (e) Fixed income securities described
CFR parts 900 through 999). The date (2) Shares held in a permissible fund under paragraph (d) of this section must
from which interest is computed is not vehicle described in paragraph (g) of be considered investment grade (as
extended by litigation or the filing of this section that abides by an described under paragraph (f) of this
any form of appeal. investment policy that restricts section) by a fiduciary, within the
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Federal Register / Vol. 87, No. 130 / Friday, July 8, 2022 / Rules and Regulations 41017
meaning of section 3(21) of ERISA, who § 4262.15 Reinstatement of benefits (2) Prospective. A benefit or benefit
is or seeks the advice of an experienced previously suspended. increase must not be adopted during the
investor (such as an Investment Adviser (a) In accordance with guidance SFA coverage period unless—
registered under section 203 of the issued by the Secretary of the Treasury (i) The plan actuary certifies that
Investment Advisers Act of 1940). under section 432(k) of the Code, a plan employer contribution increases
(f) Investment grade means securities with benefits that were suspended projected to be sufficient to pay for the
for which the issuer (or obligor) has at under section 305(e)(9) or 4245(a) of benefit increase have been adopted or
least adequate capacity to meet the ERISA must: agreed to; and
financial commitments under the (1) Reinstate any benefits that were (ii) Those increased contributions
security for the projected life of the asset suspended for participants and were not included in the determination
or exposure. For purposes of this beneficiaries effective as of the first of the special financial assistance.
paragraph (f), adequate capacity to meet month in which the special financial (3) Request for exception. No earlier
financial commitments means that the assistance is paid to the plan; and than 10 years after the end of the plan
risk of default by the issuer (or obligor) (2) Make payments equal to the year in which the plan receives payment
is low and the full and timely amounts of benefits previously of special financial assistance under
repayment of principal and interest on suspended to any participants or § 4262.12, the plan sponsor may request
the security is expected. beneficiaries who are in pay status as of approval from PBGC for an exception
(g) Permissible fund vehicle means an the date that the special financial from the conditions under paragraphs
investment company or collective trust, assistance is paid. (b)(1) and (2) of this section by
that is— (b) A plan must make the payments in demonstrating to the satisfaction of
(1) An open-end investment company paragraph (a)(2) of this section either in: PBGC that, taking into account the value
registered on Form N–1A under section (1) A single lump sum no later than of the proposed benefit or benefit
8 of the Investment Company Act of 3 months after the date that the special increase, the plan will avoid insolvency.
1940; or financial assistance is paid to the plan; A request for PBGC approval of a
(2) A unit investment trust (as defined or proposed benefit or benefit increase
in section 4(2) of the Investment (2) Equal monthly installments over a must be submitted by the plan sponsor
Company Act of 1940 and registered period of 5 years, with the first or its duly authorized representative
under section 8 of such Act) the shares installment paid no later than 3 months and must contain all of the following
of which are listed and traded on a after the date that the special financial identifying, actuarial, and financial
national securities exchange, and that assistance is paid to the plan, with no information:
has been formed and operates under an installment payment adjusted for (i) Name, address, email, and
exemptive order granted by the U.S. interest. telephone number of the plan sponsor
(c) The plan sponsor of a plan with and the plan sponsor’s authorized
Securities and Exchange Commission;
benefits that were suspended under representatives, if any.
or
section 305(e)(9) or 4245(a) of ERISA (ii) The nine-digit employer
(3) A collective trust fund that is identification number (EIN) assigned to
must issue a notice of reinstatement to
maintained by a bank or trust company the plan sponsor by the IRS and the
participants and beneficiaries whose
and that has been formed and operates three-digit plan identification number
benefits were previously suspended and
pursuant to an exemption under section (PN) assigned to the plan by the plan
then reinstated in accordance with
3(c)(11) of the Investment Company Act sponsor, and, if different, the EIN and
section 4262(k) of ERISA and section
of 1940. PN last filed with PBGC. If an EIN or PN
432(k) of the Code. The requirements for
(h) Permissible investments must not has not been assigned, that should be
the notice are in notice of reinstatement
be supplemented by, and permissible indicated.
instructions available on PBGC’s
fund vehicles cannot include, (iii) A certification by the enrolled
website at www.pbgc.gov.
derivatives or otherwise be leveraged in actuary that the plan or any of its
a way that could increase the risk of the § 4262.16 Conditions for special financial component parts received special
permissible investment beyond the risk assistance. financial assistance and the most recent
associated with the market value of the (a) In general. A plan that receives value of special financial assistance
un-leveraged permissible investment. special financial assistance must be assets.
Any notional derivative exposure, other administered in accordance with the (iv) The EIN assigned to the plan
than exposure gained through a conditions in this section. sponsor by the IRS and the PN assigned
permissible fund vehicle described (b) Benefit increases. This paragraph to the plan by the plan sponsor of the
under paragraph (g) of this section, must (b) applies to benefits and benefit plan that applied for special financial
be supported by liquid assets that are increases described in section assistance, if not the same as the EIN
cash or cash equivalents denominated 4022A(b)(1) of ERISA without regard to and PN in paragraph (b)(3)(ii) of this
in U.S. dollars. the time the benefit or benefit increase section.
(i) This section is applicable to a plan has been in effect. This paragraph (b) (v) A copy of the proposed benefit or
that applies or has applied for special does not apply to the reinstatement of benefit increase amendment.
financial assistance under this part. benefits that were suspended under (vi) Most recent plan document or
Notwithstanding the preceding section 305(e)(9) or 4245(a) of ERISA (as restatement of the plan document and
sentence, for a plan that received special provided under § 4262.15) or a all subsequent amendments adopted (if
financial assistance under this part in restoration of benefits under 26 CFR any).
effect before August 8, 2022, this section 1.432(e)(9)–1(e)(3). (vii) A copy of the most recent
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will not apply unless and until the plan (1) Retrospective. A benefit or benefit actuarial valuation performed for the
files a supplemented application under increase must not be adopted during the plan before the date of the plan’s
this part. Before the date that the plan SFA coverage period if it is in whole or submission of a request for approval
files a supplemented application under in part attributable to service accrued or under this paragraph (b)(3), and the
this part, the rules under this section in other events occurring before the actuarial valuation performed for each
effect before August 8, 2022 apply. adoption date of the amendment. of the 2 plan years immediately
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41018 Federal Register / Vol. 87, No. 130 / Friday, July 8, 2022 / Rules and Regulations
preceding the most recent actuarial (C) Plan level benefit payments the plan sponsor by the IRS and the
valuation. organized by participant type (e.g., three-digit plan identification number
(viii) A copy of the plan actuary’s active, retiree, terminated vested) for the (PN) assigned to the plan by the plan
most recent certification under section projection period. sponsor, and, if different, the EIN and
305(b)(3) of ERISA, including a detailed (D) Administrative expenses for the PN last filed with PBGC. If an EIN or PN
description of the assumptions used in projection period. has not been assigned, that should be
the certification, and the basis under (E) Assumed investment return indicated.
which they were determined. The separately for special financial (iii) Name, address, email, and
description must include information assistance and non-special financial telephone number of the contributing
about the assumptions used for the assistance amounts. employer for which the proposed
projection of future contributions, (F) Fair market value of assets as of contribution change is being submitted,
withdrawal liability payments, and the end of the year. and the employer’s authorized
investment returns, and any other (xii) The present value of accrued representatives, if any.
assumption that may have a material benefits. (iv) Names and addresses of each
effect on projections. (xiii) Any additional information
controlled group member of the
PBGC determines it needs to review a
(ix) A statement certified by an contributing employer identified in
request for approval of a proposed
enrolled actuary of the effect of the paragraph (d)(2)(ii) of this section, along
amendment, including any adjustments
proposed benefit or benefit increase on with a chart depicting the structure of
to assumptions required by PBGC in its
the plan’s existing benefit formula and the controlled group by entity and its
review of whether the plan is projected
benefit amount, and a demonstration ownership with ownership percentage.
to avoid insolvency.
that the expected contributions equal or (c) Allocation of plan assets. During (v) Audited financial statements
exceed the estimated amount necessary, the SFA coverage period, plan assets, (income statement, balance sheet,
taking into account the proposed benefit including special financial assistance, cashflow statement, and notes) for the
or benefit increase, to satisfy the must be invested in investment grade contributing employer and the
minimum funding requirement of fixed income as described in controlled group including the
section 431 of the Code. § 4262.14(d) sufficient to pay for at least contributing employer, if available, for
(x) A detailed statement certified by 1 year (or until the date the plan is the most recent 4 years, or, if audited
an enrolled actuary that the plan is projected to become insolvent, if earlier) financial statements were not prepared,
projected to avoid insolvency, taking of projected benefit payments and unaudited financial statements, a
into account the value of the proposed administrative expenses, taking into statement explaining why audited
benefit or benefit increase. The account the limitations on derivatives statements are not available, and tax
statement must include the basis for the and leverage in § 4262.14(h). returns with all schedules for the most
conclusion, supporting data, (d) Contribution decreases. (1) During recent 4 years available. The financial
calculations, assumptions, a description the SFA coverage period, the statement submissions must:
of the methodology, the basis for contributions to a plan that receives (A) Identify the cash contributions to
assumptions used, and the present value special financial assistance required for the multiemployer plan for which the
of the proposed benefit or benefit each contribution base unit must not be contributing employer is seeking
increase. The statement must also less than, and the definition of the contribution relief;
specify the amount of the change in the contribution base units used must not (B) Identify all outstanding
minimum required contribution under be different from, those set forth in indebtedness, including the name of the
section 431 of the Code attributable to collective bargaining agreements or plan lender, the amount of the outstanding
the proposed benefit or benefit increase documents (including contribution loan, scheduled repayments interest
for the first full plan year in which it is increases to the end of the collective rate, collateral, significant covenants,
in effect, including the change in bargaining agreements) in effect on and whether the loan is in default;
normal cost, the change in actuarial March 11, 2021, unless the plan sponsor (C) Identify and explain any material
accrued liability and the annual determines that the change lessens the changes in financial position since the
amortization amount associated with risk of loss to plan participants and date of the last financial statement;
the change in actuarial accrued liability. beneficiaries and, if the contribution (D) To the extent that the contributing
(xi) The statement in paragraph reduction affects over $10 million of employer has undergone or is in the
(b)(3)(x) of this section must include an annual contributions and over 10 process of undergoing a partial
exhibit showing the annual cash flow percent of all employer contributions, liquidation, estimate the sales, gross
projection for the plan for 30 years PBGC also determines that the change profit, and operating profit that would
beginning on or after the proposed lessens the risk of loss to plan have been reported for each of the 3
adoption date of the amendment. The participants and beneficiaries. years covered by the financial statement
cash flow projection should use an open (2) A request for PBGC approval of a for only that portion of the business that
group valuation. Annual cash flow proposed contribution change that is currently expected to continue; and
projections must reflect the following affects over $10 million of annual (E) State the estimated liquidation
information: contributions and over 10 percent of all values for any assets related to
(A) Fair market value of assets as of employer contributions must be discontinued operations or operations
the beginning of the year, splitting the submitted by the plan sponsor or its that are not expected to continue, along
assets by special financial assistance duly authorized representative and must with the sources for the estimates.
and non-special financial assistance (vi) Projected financial statements
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contain all of the following information:
amounts. (i) Name, address, email, and (income statement, balance sheet, cash
(B) Contributions and withdrawal telephone number of the plan sponsor flow statement) for the current year and
liability payments made and expected to and the plan sponsor’s authorized the following 4 years as well as the key
be made to the plan taking into account representatives, if any. assumptions underlying those
a reasonable allowance for amounts (ii) The nine-digit employer projections and a justification for the
considered uncollectible. identification number (EIN) assigned to reasonableness for each of those key
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Federal Register / Vol. 87, No. 130 / Friday, July 8, 2022 / Rules and Regulations 41019
assumptions. The projections must (iii) The actual cost of services (iii) A certification by the enrolled
include: provided to the plan by an unrelated actuary that the plan or any of its
(A) All business or operating plans third party; or component parts received special
prepared by or for management, (iv) Contributions where the financial assistance and the most recent
including all explanatory text and contributions to a plan that receives value of special financial assistance
schedules; special financial assistance required for assets.
(B) All financial submissions, if any, each base unit are not reduced, except (iv) The EIN assigned to the plan
made within the prior 3 years to a as otherwise permitted by paragraph (d) sponsor by the IRS and the PN assigned
financial institution, government of this section. to the plan by the plan sponsor of the
agency, or investment banker in support (2) Request for exception. No earlier plan that applied for special financial
of possible outside financing or sale of than 5 years after the end of the plan assistance, if not the same as the EIN
the business; year in which the plan receives payment and PN in paragraph (e)(2)(ii) of this
of special financial assistance under section.
(C) All recent financial analyses done (v) A copy of the proposed
by an outside party with a certification § 4262.12, the plan sponsor may request
approval from PBGC for an exception reallocation of contributions
by the employer’s chief executive officer amendment.
that the information on which each from the conditions under paragraph (e)
(vi) Most recent plan document or
analysis is based is accurate and of this section by demonstrating to the
restatement of the plan document and
complete; and satisfaction of PBGC that, taking into
all subsequent amendments adopted (if
(D) Any other relevant information. account the value of any proposed
any).
reallocation of contributions, the plan (vii) A copy of the most recent
(vii) Description of events leading to
will avoid insolvency, that the actuarial valuation performed for the
the current financial distress.
reallocation is needed due to a plan before the date of the plan’s
(viii) Description of financial and significant increase in health benefit
operational restructuring actions taken submission of a request for approval
costs due to a change in Federal law under this paragraph (e)(2), and the
to address financial distress, including which goes into effect after March 11,
cost cutting measures, employee count actuarial valuation performed for each
2021, that the reallocation is no more of the 2 plan years immediately
or compensation reductions, creditor than a 10 percent reduction in the
concessions obtained, and any other preceding the most recent actuarial
amount of the contribution rate valuation.
restructuring efforts undertaken; also, negotiated on or before March 11, 2021,
indicate whether any new profit-sharing (viii) A copy of the plan actuary’s
that is allocable to the pension plan, and most recent certification under section
or other retirement plan has been or will that the reallocation relating to any
be established or if benefits under any 305(b)(3) of ERISA, including a detailed
change in Federal law is for no more description of the assumptions used in
such existing plan will be increased. than 5 years. A continuation of the
(ix) Any additional information PBGC the certification, and the basis under
reallocation of contributions relating to which they were determined. The
determines it needs to review a request any change in Federal law after the
for approval of a proposed contribution description must include information
initial reallocation beyond 5 years must about the assumptions used for the
change. satisfy the requirement for a projection of future contributions,
(e) Allocating contributions and other contribution decrease under paragraph withdrawal liability payments, and
practices—(1) In general. During the (d) of this section. A subsequent change investment returns, and any other
SFA coverage period, a decrease in the in Federal law causing a significant assumption that may have a material
proportion of income or an increase in increase in health benefit costs is a effect on projections.
the proportion of expenses allocated to separate event for purposes of applying (ix) A statement certified by an
a plan that receives special financial this exception, except that a plan may enrolled actuary of the effect of the
assistance pursuant to a written or oral reallocate contributions under this proposed reallocation of contributions
agreement or practice (other than a exception from the conditions under on the plan’s existing contributions, and
written agreement in existence on paragraph (e) of this section for no more a demonstration that the expected
March 11, 2021, to the extent not than 10 years cumulatively for all contributions equal or exceed the
subsequently amended or modified) reallocation requests during the SFA estimated amount necessary, taking into
under which the income or expenses are coverage period. A request for PBGC account the proposed reallocation of
divided or to be divided between a plan approval of a proposed reallocation of contributions, to satisfy the minimum
that receives special financial assistance contributions must be submitted by the funding requirement of section 431 of
and one or more other employee benefit plan sponsor or its duly authorized the Code.
plans is prohibited. The prohibition in representative and must contain all of (x) A detailed statement certified by
the preceding sentence does not apply the following identifying, actuarial, and an enrolled actuary that the plan is
to a good faith allocation of: financial information: projected to avoid insolvency, taking
(i) Contributions pursuant to a (i) Name, address, email, and into account the value of the proposed
reciprocity agreement; telephone number of the plan sponsor reallocation of contributions. The
(ii) Costs of securing shared space, and the plan sponsor’s authorized statement must include the basis for the
goods, or services, where such representatives, if any. conclusion, supporting data,
allocation does not constitute a (ii) The nine-digit employer calculations, assumptions, a description
prohibited transaction under ERISA or identification number (EIN) assigned to of the methodology, the basis for
is exempt from such prohibited the plan sponsor by the IRS and the assumptions used, and the present value
jspears on DSK121TN23PROD with RULES3
transaction provisions pursuant to three-digit plan identification number of the proposed reallocation of
section 408(b)(2) or 408(c)(2) of ERISA, (PN) assigned to the plan by the plan contributions.
or pursuant to a specific prohibited sponsor, and, if different, the EIN and (xi) The statement in paragraph
transaction exemption issued by the PN last filed with PBGC. If an EIN or PN (e)(2)(x) of this section must include an
Department of Labor under section has not been assigned, that should be exhibit showing the annual cash flow
408(a) of ERISA; indicated. projection for the plan for 30 years
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41020 Federal Register / Vol. 87, No. 130 / Friday, July 8, 2022 / Rules and Regulations
beginning on or after the proposed unreasonably increase PBGC’s risk of after the transaction, through the year
adoption date of the amendment. The loss with respect to any plan involved that each plan pays its last dollar of
cash flow projection should use an open in the transaction, and is not reasonably benefit (but not to exceed 100 years).
group valuation. Annual cash flow expected to be adverse to the overall The cash flow projection should use an
projections must reflect the following interests of the participants and open group valuation until the plan
information: beneficiaries of any of the plans reaches insolvency. Annual cash flow
(A) Fair market value of assets as of involved in the transaction. projections must reflect the following
the beginning of the year, splitting the (2) Request for approval. A request for information:
assets by special financial assistance approval of a proposed transfer of assets (A) Fair market value of assets as of
and non-special financial assistance or liabilities (including a spinoff) or the beginning of the year, splitting the
amounts. merger must be submitted by the plan assets by special financial assistance
(B) Contributions and withdrawal sponsor or its duly authorized and non-special financial assistance
liability payments expected to be made representative and must contain the amounts.
to the plan taking into account a information that must be submitted with (B) Contributions and withdrawal
reasonable allowance for amounts a notice of merger or transfer and a liability payments taking into account a
considered uncollectible. request for a compliance determination reasonable allowance for amounts
(C) Plan level benefit payments under subpart A of part 4231 of this considered uncollectible.
organized by participant type (e.g., chapter and all of the following (C) Plan level benefit payments
active, retiree, terminated vested) for the information for each of the plans organized by participant type (e.g.,
projection period. involved in the transaction: active, retiree, terminated vested) for the
(D) Administrative expenses for the (i) A certification by the enrolled projection period.
projection period. actuary that the plan or any of its (D) Guaranteed benefits payable post
(E) Assumed investment return component parts received special insolvency by participant type (e.g.,
separately for special financial financial assistance and the most recent active, retiree, terminated vested).
assistance and non-special financial value of special financial assistance (E) Administrative expenses for the
assistance amounts. assets. projection period.
(F) Fair market value of assets as of (ii) A copy of the actuarial valuation (F) Assumed investment return
the end of the year. performed for each of the 2 plan years separately for special financial
(xii) The present value of accrued before the most recent actuarial assistance and non-special financial
benefits. valuation filed in accordance with assistance amounts.
(xiii) A demonstration that the § 4231.9(f) of this chapter. (G) Fair market value of assets as of
reallocation is needed due to a (iii) A copy of the plan actuary’s most the end of the year.
significant increase in health benefit recent certification under section (vi) If the plan requests that PBGC
costs due to a change in Federal law, 305(b)(3) of ERISA, including a detailed approve that a waiver of the conditions
that the reallocation is no more than a description of the assumptions used in in paragraph (b)(1) of this section
10 percent reduction in the amount of the certification, and the basis under (retrospective benefits), paragraph (d) of
the contribution rate negotiated on or which they were determined. The this section (contribution decreases),
before March 11, 2021, going to the description must include information and the condition in paragraph (e) of
pension plan, and that the reallocation about the assumptions used for the this section relating to allocating
is for no more than 5 years for a projection of future contributions, contributions and other income applies
reallocation request relating to any withdrawal liability payments, and to the merged plan, a demonstration that
single change in Federal law and no investment returns, and any other the requirements for a waiver in
more than 10 years cumulatively for all assumption that may have a material paragraph (f)(4) of this section are met.
reallocation requests during the plan’s effect on projections. (vii) A detailed narrative description
SFA coverage period. (iv) A detailed narrative description with supporting documentation
(xiv) Any additional information demonstrating that the transaction does demonstrating that the transaction is not
PBGC determines it needs to review a not unreasonably increase PBGC’s risk reasonably expected to be adverse to the
request for approval of a proposed of loss with respect to any plan involved overall interests of the participants and
amendment, including any adjustments in the transaction. The narrative must be beneficiaries of any of the plans
to assumptions required by PBGC in its supported by a detailed determination involved in the transaction. The
review of whether the plan is projected certified by the enrolled actuary of the narrative description and supporting
to avoid insolvency. present value of financial assistance documentation must consider the
(f) Transfer or merger. During the SFA under section 4261 of ERISA which is projected month and year of plan
coverage period, a plan must not engage calculated using the guaranteed benefits insolvency for each of the plans before
in a transfer of assets or liabilities and administrative expenses presented and after the transaction.
(including a spinoff) or merger except in the cash flow projections under (viii) Any additional information
with PBGC’s approval. Notwithstanding paragraph (f)(2)(v) of this section, PBGC determines it needs to review a
anything to the contrary in 29 CFR part discounted using interest rates request for approval of a proposed
4231, the plans involved in the published under section 4044 of ERISA. transfer of assets or liabilities (including
transaction must request approval from The certification must include a spinoff) or merger.
PBGC. supporting data, calculations, (3) Application of conditions with
(1) In general. PBGC will approve a assumptions, a description of the respect to an approved transfer or
proposed transfer of assets or liabilities methodology, the basis for assumptions merger. If PBGC approves a transfer of
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(including a spinoff) or merger if PBGC used, and the projected date of assets and liabilities (that is not a
determines that the transaction insolvency. merger) from a plan that receives special
complies with section 4231(a)–(d) of (v) The statement in paragraph financial assistance to another plan (the
ERISA and that the transaction, or the (f)(2)(iv) of this section must include an transferee plan) under this paragraph (f),
larger transaction of which the transfer exhibit showing the annual cash flow the restrictions and conditions that
or merger is a part, does not projections for each plan before and apply to the plan that receives special
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Federal Register / Vol. 87, No. 130 / Friday, July 8, 2022 / Rules and Regulations 41021
financial assistance will also apply to benefits under subpart D of part 4211 of (i) The end of the tenth plan year after
the transferee plan as determined by this chapter and determining the first plan year in which the plan
PBGC as a condition of the approval. If withdrawal liability for employers that receives payment of special financial
PBGC approves a merger under this participated in that plan. assistance under § 4262.12; or
paragraph (f), the restrictions and (4) Waiver of conditions with respect (ii) The end of the plan year described
conditions that apply to a plan that to an approved merger. A plan may in paragraph (g)(1)(iii) of this section (if
receives special financial assistance will request a waiver of the condition in the special financial assistance most
apply after the merger as follows: paragraph (b)(1) of this section recently paid to the plan as of the end
(i) The restrictions in §§ 4262.13(b) (retrospective benefit increase), of that plan year is calculated under this
and 4262.14 and the conditions in this paragraph (d) of this section part as in effect before August 8, 2022);
paragraph (f) (transfer or merger), (contribution decreases), and the otherwise the end of the plan year
paragraph (h) of this section condition in paragraph (e) of this described in paragraph (g)(1)(iv) of this
(withdrawal liability settlement), section relating to allocating section.
paragraph (i) of this section (annual contributions and other income for the (iii) The plan year described in this
compliance statement), and paragraph merged plan in the plan’s request for paragraph (g)(1)(iii) is the plan year by
(j) of this section (audit) apply to the PBGC’s approval of a merger pursuant to which the plan is projected to exhaust
merged plan. paragraph (f)(1) of this section. If any of any SFA assets as determined under the
(ii) The conditions in paragraph (b)(2) the plans involved in the merger engage methodology of § 4262.4(b), applying
of this section (prospective benefit in multiple transactions in any 1-year the interest rate under § 4262.4(e)(2) to
increase), paragraph (c) of this section period, the transactions will be the special financial assistance as
(allocation of plan assets), and considered in the aggregate. The plan’s determined as of the SFA measurement
paragraph (e) of this section relating to application must demonstrate the date as determined under this part as in
allocating expenses do not apply to the following requirements for a waiver— effect before August 8, 2022. However,
merged plan. (i) The total current value of assets of if the first plan year in which the plan
(iii) In the absence of a waiver
the plans that received special financial receives payment of special financial
described in paragraph (f)(4) of this
assistance before the merger must be 25 assistance is after the plan year that
section, the condition in paragraph
(b)(1) of this section (retrospective percent or less of the total current value includes the plan’s SFA measurement
benefit increase) continues to apply to of assets of the merged plan, calculated date, the plan year by which the plan is
participants in the plan that received using the current value of assets most projected to exhaust any SFA assets is
special financial assistance before the recently required before the merger to be deferred by the number of years by
merger, the condition in paragraph (d) entered by the plans on the Form 5500 which the first plan year in which the
of this section (contribution decreases) Schedule MB. plan receives payment is after the plan
continues to apply to employers who (ii) The total current liability of the year that includes the plan’s SFA
had an obligation to contribute to the plans that received special financial measurement date.
plan that received special financial assistance before the merger must be 25 (iv) The end of the plan year by
assistance before the merger, and the percent or less of the total current which, according to the plan’s
condition in paragraph (e) of this liability of the merged plan, calculated projection, the plan is projected to
section relating to allocating using the current liability most recently exhaust any SFA assets, as determined
contributions and other income required before the merger to be entered under § 4262.4(b). However, if the first
continues to apply to contributions or by the plans on the Form 5500 Schedule plan year in which the plan receives
income relative to the plan that received MB. payment of special financial assistance
special financial assistance before the (iii) In the most recent certification of is after the plan year that includes the
date of the merger. plan status for any plan that did not plan’s SFA measurement date, the plan
(iv) For the condition described in receive special financial assistance year by which the plan is projected to
paragraph (g)(1) of this section before the merger, the plan actuary must exhaust any SFA assets is deferred by
(withdrawal liability interest have certified that the plan is not in the number of years by which the first
assumption), the merged plan must use endangered or critical status (including plan year in which the plan receives
the interest assumptions in appendix B critical and declining status) and is not payment of special financial assistance
to part 4044 of this chapter to determine projected to be in critical status within is after the plan year that includes the
the unfunded vested benefits that arose 5 years from the date of the plan’s plan’s SFA measurement date.
under the plan that received special request for approval, and the plan must (2) Phase-in of SFA—(i) In general. In
financial assistance before the date of not be described in section 432(b)(5) of determining unfunded vested benefits
the merger for purposes of allocating the Code. under section 4213(c) of ERISA (for the
unfunded vested benefits under subpart (g) Withdrawal liability purpose of determining withdrawal
D of part 4211 of this chapter and determination—(1) Interest liability), the procedures in this
determining withdrawal liability for assumptions. A plan must use the paragraph (g)(2) must be followed.
employers that participated in that plan. interest assumptions in appendix B to (ii) Phase-in period. The procedures
(v) For the condition described in part 4044 of this chapter in determining in this paragraph (g)(2) apply to the
paragraph (g)(2) of this section the unfunded vested benefits of the plan determination of unfunded vested
(withdrawal liability amount of special under section 4213(c) of ERISA (for the benefits as of the end of any
financial assistance required to be purpose of determining withdrawal determination year that is not earlier
phased in), the merged plan must apply liability), and in determining the than the payment year or later than the
jspears on DSK121TN23PROD with RULES3
the special financial assistance phase-in amortization schedule under section exhaustion year.
condition to determine the unfunded 4219(c)(1)(A) of ERISA, beginning with (iii) Determination year. For purposes
vested benefits that arose under the plan the first plan year in which the plan of this paragraph (g)(2), the
that received special financial assistance receives payment of special financial determination year is the plan year as of
before the date of the merger for assistance under § 4262.12 and until the the end of which unfunded vested
purposes of allocating unfunded vested later of— benefits are being valued.
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41022 Federal Register / Vol. 87, No. 130 / Friday, July 8, 2022 / Rules and Regulations
(iv) Payment year. For purposes of number of years determined under application, Plan A is projected to
this paragraph (g)(2), the payment year paragraph (g)(2)(x) of this section as of exhaust its special financial assistance
is the first plan year in which the plan the end of the determination year and assets during plan year 2028.
receives special financial assistance. the denominator of which is the number Accordingly, the payment year is 2024
(v) Determination of exhaustion year. of years determined under paragraph and the exhaustion year is 2029 (the
For purposes of this paragraph (g)(2), if (g)(2)(xi) of this section as of the end of projected SFA exhaustion year in the
the special financial assistance most the determination year. application plus 1 year for the
recently paid to the plan as of the last (x) Numerator. The number of years difference between the plan year that
day of the determination year is determined under this paragraph includes the SFA measurement date and
calculated under this part as amended (g)(2)(x) is the number of plan years in the payment year). Employer P
effective August 8, 2022, then the the period beginning with the withdraws from Plan A in 2028. For
exhaustion year is the plan year determination year and ending with the Employer P: {1} the determination year
described in paragraph (g)(2)(vi) of this exhaustion year. is 2027; {2} the numerator of the phase-
section; otherwise, the exhaustion year (xi) Denominator. The number of in fraction is 3 (2027 to 2029); {3} the
is the plan year described in paragraph years determined under this paragraph denominator of the phase-in fraction is
(g)(2)(vii) of this section. (g)(2)(xi) is the number of plan years in 6 (2024 to 2029); and {4} the phased in
(vi) Exhaustion year. The plan year the period beginning with the payment amount is $500,000 ($1,000,000 × 3⁄6). If
described in this paragraph (g)(2)(vi) is year and ending with the exhaustion total assets (assuming no phased
the plan year by which, according to the year. recognition of SFA) are $100,000,000,
plan’s projection, the plan is projected (xii) Plan year. For purposes of this unfunded vested benefits are based on
to exhaust any SFA assets, as paragraph (g)(2), any reference to a plan assets of $99,500,000.
determined under § 4262.4(b). However, year means a complete plan year.
if the first plan year in which the plan (xiii) No receivable. Special financial (B) Example 2. Plan B, a calendar-year
receives payment of SFA is after the assistance assets must be excluded from plan, filed an application for special
plan year that includes the plan’s SFA the determination of unfunded vested financial assistance under the terms of
measurement date, the exhaustion year benefits until the date that special the interim provisions of this part with
is deferred by the number of years by financial assistance is paid to the plan an SFA measurement date in plan year
which the payment year is after the plan under § 4262.12, and no receivable shall 2022 and received a special financial
year that includes the plan’s SFA be set up as of any earlier date in assistance payment of $1,000,000 in
measurement date. anticipation of the plan receiving such 2022. According to the methodology
(vii) Exhaustion year before any SFA payment. under paragraph (g)(2) of this section
paid under this part. The plan year (xiv) Reporting. For any withdrawal and the information submitted in the
described in this paragraph (g)(2)(vii) is liability assessed during the phase-in plan’s application under the interim
the plan year by which the plan is period, the amount described under provisions of this part, Plan B is
projected to exhaust any SFA assets, paragraph (g)(2)(ix) of this section must projected to exhaust its special financial
determined under the methodology of be reported in the plan’s annual assistance assets during plan year 2028.
§ 4262.4(b), applying the interest rate statement of compliance (as required However, Plan B files a supplemented
under § 4262.4(e)(2) to the special under paragraph (i) of this section) for application under this part in 2023 and
financial assistance as determined as of the plan year in which the liability is receives an additional special financial
the SFA measurement date as assessed. assistance payment of $100,000 in 2024.
determined under this part as in effect (xv) Applicability. This paragraph In Plan B’s supplemented application,
before August 8, 2022. However, if the (g)(2) applies to a plan in determining the plan is projected to exhaust its
first plan year in which the plan withdrawal liability for withdrawals special financial assistance assets
receives payment of SFA is after the occurring after the plan year in which during plan year 2030. Employer R
plan year that includes the plan’s SFA the plan receives payment of special withdraws from Plan B in 2024, which
measurement date, the exhaustion year financial assistance under this part. is after Plan B filed a supplemented
is deferred by the number of years by Notwithstanding the preceding application. For Employer R: {1} the
which the payment year is after the plan sentence, for a plan that received special payment year is 2022; {2} the
year that includes the plan’s SFA financial assistance under this part in determination year is 2023; {3} the
measurement date. effect before August 8, 2022, this exhaustion year is 2028; {4} the
(viii) SFA assets excluded. The value paragraph (g)(2) will not apply unless numerator of the phase-in fraction is 6
of the plan assets taken into account as the plan files a supplemented (2023 to 2028); {5} the denominator of
of the end of each determination year is application under this part. If the plan the phase-in fraction is 7 (2022 to 2028);
the value of the assets that would files a supplemented application, this and {6} the phased in amount is
otherwise be taken into account in the paragraph (g)(2) applies to the plan in $857,143 ($1,000,000 × 6⁄7). If total
absence of this provision reduced by the determining withdrawal liability for assets (assuming no phased recognition
amount described in paragraph (g)(2)(ix) withdrawals occurring on or after the of SFA) are $100,000,000, unfunded
of this section. date the plan files the supplemented vested benefits are based on assets of
(ix) Calculation of SFA assets application. $99,142,857. Employer S withdraws
excluded. The amount described in this (xvi) Examples. The following from Plan B in 2028. For Employer S:
paragraph (g)(2)(ix) is the total amount examples illustrate the provisions of {1} the payment year is 2022; {2} the
of special financial assistance paid to paragraph (g)(2) of this section. determination year is 2027; {3} the
the plan under § 4262.12 (as determined (A) Example 1. Plan A, a calendar- exhaustion year is 2030; {4} the
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under § 4262.12(a) or (b), or under year plan, filed an application for numerator of the phase-in fraction is 4
§ 4262.12(b) and (c) for plans paid under special financial assistance under this (2027 to 2030); {5} the denominator of
a supplemented application, as part with an SFA measurement date in the phase-in fraction is 9 (2022 to 2030);
applicable) as of the end of the plan year 2023 and received a special and {6} the phased in amount is
determination year multiplied by a financial assistance payment of $488,889 ($1,100,000 × 4⁄9). If total
fraction, the numerator of which is the $1,000,000 in 2024. In the plan’s assets (assuming no phased recognition
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Federal Register / Vol. 87, No. 130 / Friday, July 8, 2022 / Rules and Regulations 41023
of SFA) are $100,000,000, unfunded (ii) The nine-digit employer assistance through the last day of the
vested benefits are based on assets of identification number (EIN) assigned to plan year following the plan year in
$99,511,111. If, instead of withdrawing the plan sponsor by the IRS and the which the plan received payment of
in 2024, Employer R withdrew from three-digit plan number (PN) assigned to special financial assistance, and must be
Plan B in 2023 before Plan B filed its the plan by the plan sponsor, and, if filed no later than 90 days after the end
supplemented application, the phase-in different, the EIN and PN last filed with of such plan year.
condition would not apply and PBGC. If an EIN or PN has not been (3) Each statement of compliance
unfunded vested benefits would be assigned, that should be indicated. must be signed and dated by a trustee
based on total assets of $100,000,000. (iii) A copy of the proposed who is a current member of the board
(C) Example 3. Plan C, a calendar-year settlement agreement. of trustees and authorized to sign on
plan, filed an application for special (iv) A description of the facts leading behalf of the board of trustees, or by
financial assistance under this part with up to the proposed settlement, another authorized representative of the
an SFA measurement date in plan year including— plan sponsor.
2024 and received a special financial (A) The date the employer withdrew (j) Audit. As authorized under section
assistance payment of $1,000,000 in from the plan; 4003 of ERISA, PBGC may conduct
2025. According to the plan’s (B) The calculation of the withdrawal periodic audits of a plan that receives
application, Plan C is projected to liability amount, including payment special financial assistance to review
exhaust its SFA assets during plan year dates and amounts listed in the compliance with the terms and
2024. Accordingly, the payment year is schedule for liability payments conditions of the special financial
2025 and the exhaustion year is 2025 provided to the withdrawn employer in assistance under this part and section
(the projected SFA exhaustion year in accordance with section 4291(b)(1)(A) of 4262 of ERISA.
the application plus 1 year for the ERISA; (k) Filing rules. The filing rules in this
difference between the plan year that (C) The amount(s) and date(s) of paragraph (k) apply to a request for
includes the SFA measurement date and withdrawal liability payments made; PBGC approval under paragraph (b), (d),
the payment year). Employer T and (f), or (h) of this section and a statement
withdraws from Plan C in 2026. For (D) How the proposed settlement
of compliance under paragraph (i) of
Employer T: {1} the determination year amount was determined (discount rate
this section.
is 2025; {2} the numerator of the phase- used, financial condition of the
(1) Method of filing. A filing described
in fraction is 1 (2025 to 2025); {3} the employer, and other factors, as
under paragraph (b), (d), (f), (h), or (i) of
denominator of the phase-in fraction is applicable).
(v) Most recent 3 years of audited this section must be made electronically
1 (2025 to 2025); and {4} the phased in in accordance with the rules in part
amount is $1,000,000 ($1,000,000 × 1⁄1). financial statements and a 5-year cash
flow projection for the employer with 4000 of this chapter. The time period for
If total assets (assuming no phased filing a request or statement of
recognition of SFA) are $100,000,000, which the plan proposes to settle.
(vi) A copy of the most recent compliance must be computed under
unfunded vested benefits are based on the rules in subpart D of part 4000 of
assets of $99,000,000. actuarial valuation report of the plan.
(vii) A statement certifying the this chapter.
(h) Withdrawal liability settlement. (1) (2) Where to file. A filing described
During the SFA coverage period, a plan trustees have determined that the
proposed settlement is in the best under paragraph (b), (d), (f), (h), or (i) of
must obtain PBGC approval for a this section must be submitted as
proposed settlement of withdrawal interest of the plan and the plan’s
participants and beneficiaries. described in § 4000.4 of this chapter.
liability if the amount of the liability
settled is greater than $50 million (viii) Any additional information § 4262.17 Other provisions.
calculated as the lesser of— PBGC determines it needs to review a
request for approval of a proposed (a) Special financial assistance is not
(i) The allocation of unfunded vested capped by the guarantee under section
benefits to the employer under section withdrawal liability settlement.
(i) Reporting. In accordance with the 4022A of ERISA.
4211 of ERISA; or (b) A plan that receives special
(ii) The present value of withdrawal statement of compliance instructions on
PBGC’s website at www.pbgc.gov, a plan financial assistance must continue to
liability payments assessed for the
sponsor must file with PBGC for each pay premiums due under section 4007
employer discounted using the interest
plan year, beginning with the plan year of ERISA for participants and
assumptions in appendix B to part 4044
in which the plan received payment of beneficiaries in the plan.
of this chapter.
(2) PBGC will approve a proposed special financial assistance and through (c) A plan that receives special
settlement of withdrawal liability if it the last plan year ending in 2051, a financial assistance is deemed to be in
determines— statement of compliance with the terms critical status within the meaning of
(i) Implementation of the settlement is and conditions of the special financial section 305(b)(2) of ERISA until the last
in the best interests of participants and assistance under this part and section day of the last plan year ending in 2051.
beneficiaries; and 4262 of ERISA as follows— (d) A plan that receives special
(ii) The settlement does not create an (1) Except as provided in paragraph financial assistance and subsequently
unreasonable risk of loss to PBGC. (i)(2) of this section, a plan’s statement becomes insolvent under section 4245
(3) A request for approval of a of compliance for each plan year must of ERISA will be subject to the rules and
proposed settlement of withdrawal be filed no later than 90 days after the guarantee for insolvent plans in effect
liability must be submitted by the plan end of the plan year. when the plan becomes insolvent.
sponsor or its duly authorized (2) If six months or fewer remain in (e) A plan that receives special
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representative and must contain all of the plan year after the month that financial assistance is not eligible to
the following information: includes the date the plan first received apply for a suspension of benefits under
(i) Name, address, email, and payment of special financial assistance, section 305(e)(9) of ERISA.
telephone number of the plan sponsor the first statement of compliance must (f) A plan that receives special
and the plan sponsor’s authorized cover the period from the date the plan financial assistance and meets the
representatives, if any. received payment of special financial eligibility requirements for partition of
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41024 Federal Register / Vol. 87, No. 130 / Friday, July 8, 2022 / Rules and Regulations
the plan under section 4233(b) of ERISA construed so as to continue to give the Issued in Washington, DC, by:
may apply for partition. maximum effect to the provision Gordon Hartogensis,
(g) If any provision in this part is held permitted by law, unless such holding Director, Pension Benefit Guaranty
to be invalid or unenforceable by its will be one of utter invalidity or Corporation.
terms, or as applied to any person or unenforceability, in which event the [FR Doc. 2022–14349 Filed 7–7–22; 8:45 am]
circumstance, or stayed pending further provision will be severable from this BILLING CODE 7709–02–P
agency action, the provision will be part.
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- c780a6b663372df79fdd7dff2f5f2bdbfbc73b0e0e6aeb62f3d11d2126b59de1
- Our copy
- FR-2022-07-08_2022-14349.pdf
- Original
- www.govinfo.gov