The Pension Benefit Guaranty Corporation (PBGC) has issued a final rule that:

(88 Fed. Reg. 76660 (Nov. 7, 2023).)

For more information on multiemployer plans, see Practice Note, Multiemployer Pension Plans.

The American Rescue Plan Act of 2021 (ARPA-21) included a new ERISA Section 4262 and Internal Revenue Code Section 432(k). ERISA Section 4262 established the special financial assistance program (SFAP), which allows the sponsor of a severely underfunded multiemployer plan as defined in Section 4262(b) to apply to the PBGC to receive special financial assistance, provided certain conditions are satisfied. Code Section 432(k) provides rules relating to an eligible multiemployer plan that applies to PBGC for special financial assistance under ERISA Section 4262.

In July 2021, the PBGC issued an interim final rule (IFR) that implemented the SFAP (see Legal Update, PBGC's Interim Final Rule Implements the Special Financial Assistance Program (SFAP) and IRS Notice 2021-38 Provides Related Guidance). The PBGC replaced the IFR with a final rule in July 2022 (see Legal Update, PBGC's Final Rule Implements the Special Financial Assistance Program (SFAP) for Financially Troubled Multiemployer Plans). Among other things, the final rule required that, when determining underfunding for withdrawal liability purposes, plans must:

(29 C.F.R. § 4262.16(g)(1) and (g)(2); see Practice Note, Multiemployer Pension Plans: Withdrawal Liability.)

The phase-in condition was intended to ensure that special financial assistance funds do not subsidize employer withdrawals from multiemployer plans receiving special financial assistance.

In July 2023, the PBGC issued FAQ guidance addressing the calculation methodology for the phase-in condition.

The final rule incorporates the PBGC's July 2023 guidance regarding the methodology for calculating the phase in of special financial assistance funds. Specifically, the final rule clarifies that the value of plan assets being taken into account when calculating the plan's unfunded vested benefits (UVBs), for purposes of calculating withdrawal liability, cannot be less than zero as a result of excluding special financial assistance amounts.

Additionally, the final rule addresses how the following are factored into the calculation:

The final rule also incorporates an illustrative example regarding the calculation methodology from the PBGC's July 2023 guidance.

Regarding multiemployer plans terminating due to mass withdrawal, the final rule amends the regulation governing payment of nonforfeitable benefits, including in a lump sum, to plan participants and beneficiaries (29 C.F.R. § 4041A.43). The regulation currently provides that plans may distribute nonforfeitable benefits in a lump sum if the value of the benefits does not exceed $5,000. The SECURE 2.0 Act of 2022, however, increased the statutory limit to $7,000, effective January 1, 2024 (see Legal Update, SECURE 2.0 Act Makes Comprehensive Changes to Retirement Plans). To avoid having to modify the regulation each time the statutory limit is raised, the final rule replaces the specific dollar amount with a reference to the dollar amount in the ERISA provision containing the maximum lump-sum distribution limit (ERISA Section 203(e)(1) (29 U.S.C. § 1053(e)(1))).