Final Rule Provides Exception Process for Underfunded Multiemployer Plans Seeking Special Financial Assistance from PBGC | Practical Law

Final Rule Provides Exception Process for Underfunded Multiemployer Plans Seeking Special Financial Assistance from PBGC | Practical Law

The Pension Benefit Guaranty Corporation (PBGC) has issued a final rule that provides a process for severely underfunded multiemployer pension plans to request an exception from certain withdrawal liability conditions for receiving special financial assistance from the PBGC. The final rule is effective January 26, 2023.

Final Rule Provides Exception Process for Underfunded Multiemployer Plans Seeking Special Financial Assistance from PBGC

by Practical Law Employee Benefits & Executive Compensation
Published on 26 Jan 2023 • USA (National/Federal)
The Pension Benefit Guaranty Corporation (PBGC) has issued a final rule that provides a process for severely underfunded multiemployer pension plans to request an exception from certain withdrawal liability conditions for receiving special financial assistance from the PBGC. The final rule is effective January 26, 2023.
The Pension Benefit Guaranty Corporation (PBGC) has issued a final rule that provides a process for severely underfunded multiemployer pension plans to request an exception from certain withdrawal liability conditions for receiving special financial assistance from the PBGC (88 Fed. Reg. 4900 (Jan. 26, 2023)). The final rule is effective January 26, 2023.

Special Financial Assistance Program Under ARPA-21

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:
  • Use specified interest rate assumptions.
  • Phase in recognition of special financial assistance assets over the projected special financial assistance payout period.
(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 participation in special financial assistance plans. The final rule requested public comments related to the phased-in recognition of special financial assistance program assets for purposes of computing employer withdrawal liability.

Request for Exception from Withdrawal Liability Conditions

In response to public comments, the final rule creates a process under which plan sponsors may request an exception from the interest rate assumptions and phase-in conditions when determining the plan's unfunded vested benefits (UVBs) for purposes of calculating withdrawal liability. To request an exception, a plan sponsor must demonstrate that the exception:
  • Lowers the risk of loss to participants and beneficiaries.
  • Does not increase anticipated employer withdrawals.
  • Does not increase the plan's special financial assistance or unreasonably increase the PBGC's risk of loss.
The plan sponsor or its authorized representative must submit the request before the initial or revised application for special financial assistance.
The request must include:
  • Contact information for the sponsor and its authorized representatives, if applicable.
  • The plan sponsor's employer identification number (EIN) and the plan's three-digit plan identification number.
  • The most recent plan document or restatement, subsequent plan amendments, and declaration of trust.
  • The plan's administrative manuals or documents that govern the assessment or administration of withdrawal liability.
  • The most recent actuarial valuation performed before the plan's request and the actuarial valuations for the previous two years.
  • A copy of the plan actuary's most recent certification.
  • A statement identifying the condition from which the plan sponsor is seeking an exception and explaining how the exception would satisfy the requirements for requesting an exception.
  • A list of the employers whose plan contributions exceed 5% per plan year.
  • The plan actuary's certification that the special financial assistance amount that the plan will request will be based on the assumption that the exception has been granted.
  • An enrolled actuary's detailed statement regarding the requested exception's effect and a demonstration that the estimated withdrawal liability payments and contributions with the exception would exceed the payments and contributions without the exception.
  • Any other information the PBGC requests for its review.
The final rule is effective on January 26, 2023.

Practical Implications

A process to request an exemption from the withdrawal liability conditions under specific circumstances was directly in response to comments received and should aid plan sponsors with unique facts and circumstances.