A multiemployer plan is a pension plan created through an agreement between two or more unrelated employers and one or more unions. The employers are usually in the same or related industries. For example, multiemployer plans provide benefits for workers in industries such as transportation, construction, and hospitality.
The Special Financial Assistance (SFA) Program addresses the immediate crisis facing more than 250 severely underfunded multiemployer plans by providing eligible plans with special financial assistance to enable them to pay benefits at plan levels.
PBGC estimates that it will pay approximately $97 billion in special financial assistance to over 250 financially troubled plans that cover more than 3 million participants and beneficiaries.
The special financial assistance includes funds to reinstate previously reduced monthly benefits going forward, and for make-up payments that will restore previously reduced benefits of participants and beneficiaries.
The criteria for SFA eligibility are established under the statute and in PBGC’s SFA regulation. A multiemployer plan is eligible for special financial assistance if it satisfies one of the following criteria:
- The plan is in critical and declining status (running out of money) in any plan year beginning in 2020 through 2022;
- A reduction of benefits has been approved for the plan under the Multiemployer Pension Reform Act of 2014 (MPRA) as of March 11, 2021;
- In a plan year beginning in 2020 through 2022, the plan is in critical status, has a “modified funding percentage” (as defined by the law) of less than 40 percent, and has a ratio of active to inactive participants of less than two to three (the requirements do not have to be met for the same plan year); or
- The plan became insolvent after December 16, 2014, and has remained insolvent and has not been terminated as of March 11, 2021.
A plan with a plan year beginning in 2020 through 2022 will not be ineligible for SFA solely because of a change in plan year made on or after March 11, 2021, in accordance with guidance issued by the Internal Revenue Service (IRS). A plan sponsor should refer to IRS Revenue Procedure 87-27 to determine whether the change in plan year is automatically approved or a Form 5308 should be filed.
Please contact your union or plan administrator for additional information.
Yes. A plan that is in critical and declining status (running out of money) or critical status may become eligible for special financial assistance in the future if it meets special financial assistance eligibility requirements. (See eligibility requirements)
Yes. Any plan that is eligible under the criteria (See Question 3. How does the new law affect financially troubled multiemployer pension plans?) may apply for special financial assistance. If a plan receives special financial assistance, it will not be eligible for a new suspension of benefits under MPRA.
The amount of financial assistance provided to an eligible plan is the amount required for the plan to pay all benefits due through the last day of the plan year that ends in 2051, with no reduction in a participant’s or beneficiary’s accrued benefit as of March 11, 2021. If your plan has previously suspended or reduced your benefits, your plan will also receive the amount required to reinstate your suspended benefits and to provide make-up payments equal to the amount of your previously suspended benefits.
It depends on your plan’s situation and your situation. Your plan administrator can provide information specific to your situation.
- If your plan is solvent, has not reduced benefits under a MPRA suspension of benefits, and remains solvent, your benefit will not be affected:
- If you are already retired and receiving a pension, you will continue to receive the same amount.
- If you have not yet started to receive your pension benefit, when you do, you will receive the full amount you earned under the terms of the plan.
- If your benefits were reduced because of a MPRA benefit suspension:
- Your full (pre-suspension) benefit will be reinstated for future benefit payments, and
- If you are already retired and receiving benefits on the date special financial assistance is paid to the plan, you will also receive make-up payments (either a single lump-sum payment or equal monthly installment payments over 5 years as determined by your plan) to make up for any past reduction in your monthly benefits.
- If your plan became insolvent after December 16, 2014, and, as a result, your benefit was reduced to the amount guaranteed by PBGC:
- Your full (pre-insolvency) benefit will be reinstated for future benefit payments, and
- If you are already retired and receiving benefits on the date special financial assistance is paid to the plan, you will also receive make-up payments either a single lump-sum payment or equal monthly installment payments over 5 years (as determined by your plan) to make up for any past reduction in your monthly benefits.
If your plan previously suspended benefits and receives special financial assistance, your plan is required to reinstate suspended monthly benefits going forward and to provide make-up payments to repay your previously suspended benefits. Your plan will determine the form that your make-up payments (to repay previously suspended benefits) will be paid, as either a single lump sum or in monthly installments over five years. A lump sum make-up payment must be within 3 months after special financial assistance is paid to the plan. Monthly installment payments must begin to be paid within 3 months after special financial assistance is paid to the plan.
Based on its experience reviewing applications, PBGC made two minor changes to section B.5 of the instructions about information required to be filed related to a plan’s “zone certifications.”
Filers are required to provide documentation supporting each certification. The instructions state that information may be provided in an addendum or by reference to other submitted materials. A sentence was added at the end of the first paragraph in section B.5 to clarify that filers should separately identify as “supplemental” all information included with the zone certification to comply with this requirement that was not part of the original zone certification.
PBGC also eliminated a documentation requirement to support a certification of critical and declining status. A filer is required to provide a plan-year-by-plan-year projection demonstrating the plan year that the plan is projected to become insolvent and to identify cash-flow information for each of those years. PBGC has determined that the breakdown of benefit payment information “separately identifying payments with respect to current retirees and beneficiaries, terminated vested participants not currently receiving benefits, currently active participants, and new entrants” is not needed to review that the plan is in critical and declining status. Consequently, PBGC removed the required breakdown of benefit payments.
Some multiemployer plans utilize an actuarial assumption to exclude the liability for benefits of certain older terminated vested participants who have not yet applied for benefits from the measurement of plan liabilities in their actuarial valuations and zone status certifications. For example, some plans take the position that if a terminated vested participant has not applied for benefits by the time the participant reaches age 70, the liabilities for benefits of that participant should be excluded from the measurement of plan liabilities under the assumption that the participant will never apply for benefits. If a plan proposes a change in such an assumption in its application for SFA that has the effect of including the benefits for some or all of the previously excluded participants in the cash flow projections used to determine the amount of SFA, PBGC will assess the reasonableness of that assumption change as follows:
- In all such cases, PBGC will ask the applicant to provide the following information:
- A listing of the participants whose benefits were excluded from the measurement of liabilities in the most recent actuarial valuation that would be included in the determination of the amount of SFA under the proposed assumption change,
- A description of the efforts that the plan has made to locate such participants,
- Any applicable plan policies and procedures regarding identifying and locating missing or deceased participants, and
- Details of a recent death audit (generally not earlier than one year prior to the SFA measurement date) indicating that there is no readily available information to the effect that any such participants had passed away as of the SFA measurement date.
- The plan proposing such an assumption change may demonstrate the reasonableness of including the benefits of some or all of the previously excluded participants in the cash flow projection used to determine the amount of SFA in one of two ways:
- By providing an experience study indicating that it is reasonable to assume that such participants will eventually apply for benefits, or
- Alternatively, PBGC will accept a proposed assumption change provided that benefits for participants previously excluded who are older than age 85 on the SFA Measurement Date are excluded from the determination of SFA.
The Department of Labor advises that PBGC’s acceptance of such an assumption change to determine the amount of Special Financial Assistance has no effect on the obligations of plan fiduciaries to maintain complete and accurate records (to include updated addresses), conduct a prudent search for missing participants, communicate with participants and beneficiaries nearing or past retirement age, or to pay benefits when due under title I of ERISA. See Missing Participants – Best Practices at https://www.dol.gov/agencies/ebsa/employers-and-advisers/plan-administration-and-compliance/retirement/missing-participants-guidance/best-practices-for-pension-plans.
This guidance represents PBGC’s current thinking on this topic. It does not create or confer any rights for or on any person or operate to bind the public. A plan can use an alternative approach if the approach satisfies the requirements of the applicable statutes and regulations.
When calculating the amount of SFA excluded from plan assets for purposes of the withdrawal liability condition of 29 CFR 4262.16(g)(2) requiring a phased recognition of SFA assets in determining the amount of unfunded vested benefits (UVBs), how should the SFA assets attributable to make-up payments of previously suspended pension benefits be considered in this calculation? Under section 4262(k) of ERISA and 29 CFR 4262.15, pension benefits suspended under the Multiemployer Pension Reform Act of 2014 or due to the insolvency of the plan must be reinstated and make-up payments of previously suspended benefits must be paid to certain participants and beneficiaries. These make-up payments must be paid shortly after the plan receives payment of SFA, either as a lump sum within 3 months of the date SFA is paid, or in equal monthly installments over 5 years, starting within 3 months of the SFA payment date. The phased recognition of SFA assets for purposes of calculating employer withdrawal liability was intended to approximate the pattern of how the SFA assets are likely to be spent down by a plan. Therefore, in the calculation under 29 CFR 4262.16(g)(2)(ix), the amount of the SFA attributable to the make-up payments that have already been paid should be excluded from the “total amount of SFA paid to the plan under § 4262.12” before multiplication by the phase-in fraction. The result is the amount under § 4262.16(g)(2)(ix) by which the value of plan assets used to determine UVBs for the determination year is reduced under § 4262.16(g)(2)(viii).
This calculation methodology applies regardless of whether the make-up payments are made in a lump sum or in equal monthly installments over 5 years, and regardless of whether such payments are made from SFA assets or non-SFA assets, or some combination thereof.
Example: In plan year 2022, a plan received an SFA payment amount of $50,000,000 and a supplemented SFA payment amount of $30,000,000. A total of $20,000,000 in lump sum make-up payments were paid by the plan in plan year 2022. An employer withdraws in 2023. At the end of the determination year (2022), the amount of SFA required to be excluded from assets equals $60,000,000 ($50,000,000 + $30,000,000 – $20,000,000). If, instead, the make-up payments were paid by the plan in plan year 2023, the amount of SFA required to be excluded from assets at the end of the determination year (2022) would equal $80,000,000. Under this scenario, the plan’s unfunded vested benefit liability would be the same at the end of the determination year because the additional $20,000,000 of SFA required to be excluded from assets offsets the $20,000,000 in SFA that the plan still holds for make-up payments but has not yet distributed as of the end of the determination year. Similarly, if the employer withdraws in 2024, the make-up payments were paid in 2023, and the phase-in fraction was 9/10th for 2023, the amount of SFA excluded from the assets at the end of the determination year (2023) would be $54,000,000 ([9/10th x $60,000,000 [$50,000,000 + $30,000,000 - $20,000,000]]).
No. The value of plan assets taken into account as of the end of a determination year under § 4262.16(g)(2)(viii) used for the purpose of determining UVBs may not be less than zero.
PBGC will provide updates of the intended date the e-Filing portal will be re-opened and will provide advance notice to the plans at the top of the waiting list that will be allowed to apply at that time. Once notified, a plan will have seven calendar days from the date the e-Filing portal is opened to submit a complete application. If the plan’s application is not submitted within this time, the plan’s spot on the waiting list will be forfeited and the plan will need to submit a new email request to SFA@pbgc.gov to be placed at the end of the waiting list.
No. Except for "emergency applications,” all eligible plans are treated the same for the purpose of order of acceptance of applications beginning on March 11, 2023. Plans that are insolvent or expected to be insolvent within 1 year of an application and plans that have suspended benefits under MPRA as of March 11, 2021, retain the ability to submit emergency filings (see § 4262.10(f)).
No. A lock-in application will set the plan’s SFA measurement date and base data but has no impact on the process PBGC follows for accepting complete SFA applications for review. A plan can be placed on the SFA application waiting list with or without having filed a lock-in application. Plans that have submitted or intend to submit a “lock-in” application and also wish to be on the SFA application waiting list, must submit an email request to be on the waiting list, as set forth above, to SFA@pbgc.gov.
No. For any plan that wishes to submit its initial application at a time when the SFA e-Filing portal is closed, PBGC’s SFA regulation provides a mechanism, called a “lock-in” application that allows plans to set the SFA measurement date and other base data in advance of submitting a complete application. Plans may submit a “lock-in” application at any time, and by so doing, the amount of SFA is not affected by any waiting period. Plans also receive interest on the SFA amount from the SFA measurement date to the date PBGC sends payment to the plan. In addition, the statute and PBGC’s regulation define the amount of SFA each eligible plan may receive, but the law does not cap the overall amount of SFA that PBGC may pay.
In general, PBGC believes the meaning of these terms is well understood by sophisticated investors. However, “investment grade” is defined in particular in § 4262.14 of the SFA regulation as “securities for which the issuer (or obligor) has at least adequate capacity to meet the financial commitments under the security for the projected life of the asset or exposure.” The definition of “investment grade” is not based on credit ratings because the Dodd-Frank Wall Street Reform and Consumer Protection Act (2010) prohibits the use of credit ratings in federal regulations.
No, it is not anticipated that PBGC will provide upfront advice about, or confirmation of, whether a particular asset class, sub-asset class, fund structure or investment strategy is permissible. However, upon review of a plan’s Annual Statement of Compliance or an audit, PBGC may determine that a particular asset is not permissible. Given the wide variety of permissible investment options, PBGC expects plans will be able to find investment options that meet the definition of permissible investments in the SFA regulation without issue.
Permissible investment grade fixed income (IGFI) securities (and cash) are listed in § 4262.14(d) of the SFA regulation. These securities (and cash) include:
- Securities issued, guaranteed, or sponsored by the U.S. Government or its designated agencies, to include U.S. Savings Bonds, Treasury Bonds, Treasury Bills, and GNMA (‘‘Ginnie Mae’’), and government-sponsored enterprise (GSE) issued debt securities (e.g., ‘‘Fannie Mae,’’ ‘‘Freddie Mac,’’ etc.), that are reported on line 1c(2) of the 2021 Form 5500 Schedule H.
- Investment grade municipal bonds.
- Noninterest-bearing cash and interest-bearing cash equivalents reported on line 1a and line 1c(1) of the 2021 Form 5500 Schedule H.
- Money market funds.
Permissible IGFI also includes bonds and other debt securities that meet the following criteria in § 4262.14(d)(1) of the SFA regulation: 1) pay a fixed amount or fixed rate of interest, 2) are denominated in U.S. dollars, 3) are registered with the Securities and Exchange Commission (SEC) under the Securities Act of 1933, and 4) are investment grade under the terms of the rules in § 4262.14(f).
Generally, the types of investment grade securities included in a typical aggregate U.S. bond index fund are permissible IGFI securities, except fixed-to-float securities or those resold in reliance on the SEC’s Rule 144A. Some of the types of securities included in such indexes that may meet the criteria for permissible IGFI securities include:
- U.S. Treasury bonds
- U.S. Government Agency bonds
- U.S. Corporate bonds
- Asset-backed debt securities
- Mortgage-backed debt securities
- Commercial mortgage-backed debt securities
Some securities that are not included in aggregate indexes, for example because of minimum amount outstanding requirements or those within one year of maturity, may be permissible because they meet the criteria in § 4262.14(d)(1) of the SFA regulation.
By contrast, some securities, like those resold in reliance on SEC Rule 144A or fixed-to-float securities, are included in aggregate bond indexes, but are not permissible IGFI securities. Funds based on these indexes are still permissible if they abide by an investment policy that restricts investment predominantly to permissible IGFI securities. Other examples of securities that are not permissible IGFI are high yield bonds, convertible bonds, preferred stock, collateralized loan obligations, and annuity purchases.
Funds, including mutual funds, Exchange-Traded Funds (ETFs), and collective trusts, are permissible IGFI funds if they abide by an investment policy that restricts investment predominantly to permissible IGFI securities. Both passively managed index funds and actively managed funds may be permissible. Funds that include immaterial amounts of below-investment grade bonds are permissible whether the bonds were investment grade at the time the fund purchased them or not. These include, for example, funds:
- Invested according to a typical broad-based investment grade index – often referred to as “aggregate” or “core” index funds; or
- That deviate from a broad-based index by overweighting certain portions of the index (and are therefore underweight in other portions) if the overweighting is to securities that are permissible IGFI.
The first category of permissible return-seeking assets (RSA) is common stock registered with the SEC and traded on U.S. exchanges. This includes equity securities that are issued by corporations in other countries and Real Estate Investment Trusts (REITs).
The second category of permissible RSA consists of bonds or other debt securities that were permissible IGFI securities at the time acquired by the SFA account but have been downgraded to a below-investment-grade rating. Such securities change from being permissible IGFI to being permissible RSA at the time they are downgraded.
The third category of permissible RSA consists of investment grade SEC Rule 144A debt securities.
Some examples of investments that are not permissible RSA are stocks traded over the counter, stocks traded on foreign exchanges, funds invested in foreign markets (e.g., an EAFE equity fund or a foreign debt fund even if the funds are valued in U.S. dollars), high yield bonds (except fallen angels), alternative investments such as direct real estate or hedge funds, and investments with or that create leverage.
Funds, including mutual funds, Exchange-Traded Funds (ETFs) and collective trusts, are permissible RSA funds if they abide by an investment policy that restricts investment predominantly to common stock traded on a U.S. exchange, U.S. Treasury securities with less than one year to maturity date, cash and cash equivalents described in § 4262.14(d)(5) and money market funds described in § 4262.14(d)(6). The preamble to the July 2022 final rule notes that equity funds that track broad-based U.S. indexes, e.g., the S&P 500, would be permissible RSA investments. Both passively managed index funds and actively managed funds may be permissible. Funds invested in RSA that are permissible include, for example:
- Large cap, small cap, or mid cap index funds; or
- Value or growth style index funds; or
- Funds that are actively managed.
Some debt securities issued (“resold”) using the SEC’s Rule 144A safe harbor exemption from SEC registration are permissible RSA investments under § 4262.14(c)(3) of the SFA regulation. To be permissible as RSA, “Rule 144A” debt securities must meet all the criteria for investment grade fixed income described in the SFA regulation (see § 4262.14(e) and (f)) except for the requirement to be registered with the SEC. Securities resold in reliance on SEC Rule 144A are sometimes referred to as “private placement” securities. However, when they are originally resold, they are available to a broad group of institutional investors and may be traded widely at that time. In addition, they may be traded publicly after a period of 6-12 months. Securities that are commonly referred to as “private credit” are typically issued directly to a small number of accredited investors and not widely traded. Private credit securities are neither registered with the SEC nor resold using SEC Rule 144A and therefore are not permissible investments.
The final rule allowance of up to 33 percent of SFA assets and earnings thereon invested in permissible RSA becomes effective when an application (including a supplemented application for plans paid SFA under the terms of the interim final rule) is filed under the July 2022 final rule. If a plan received SFA under the interim final rule and did not file a supplemented application, the SFA account may invest only in IGFI assets. Each time permissible RSA are purchased (except for automatic reinvestment of distributions from a permissible fund) within the account holding SFA assets, the 33 percent limit applies immediately after the purchase. Any purchase that results in the portion of SFA assets exceeding 33 percent results in a noncompliant allocation of SFA assets. In addition, at any point in time, there must be a prior date within 12 months of the current date at which time the portion of SFA assets invested in RSA did not exceed 33 percent. The portion of SFA assets invested in RSA may at times exceed 33 percent due to changes in the value of different types of permissible investments. However, each statement of compliance provided by a plan that received SFA must certify that both the time-of-purchase and within-12-months provisions in § 4262.14(b)(1) have been met.
Section 4262.14 of the SFA regulation provides that SFA assets and earnings thereon must be invested in permissible investments. For return-seeking assets (RSA), § 4262.14(c)(2) provides that what is permissible (among others) are investments in shares held in a permissible fund vehicle (described in § 4262.14(g)) that abides by an investment policy that restricts investment predominantly to equity securities registered under section 12(b) of the Securities Exchange Act of 1934, U.S. Treasury securities with less than one year to maturity date, cash and cash equivalents described in § 4262.14(d)(5) and money market funds described in § 4262.14(d)(6).
Similarly, for IGFI, § 4262.14(d)(2) provides (among other investments) that SFA and earnings thereon must be in shares held in a permissible fund vehicle (described in § 4262.14(g) that abides by an investment policy that restricts investment predominantly to securities described in § 4262.14(d) that are denominated in U.S. dollars and are investment grade as defined in § 4262.14(f).
A fund vehicle is likely to be categorized as impermissible if it has the potential to invest more than 20 percent of its market value in impermissible securities or in other funds, i.e., “fund of funds,” regardless of whether the other funds are permissible. The potential to invest may be determined using the “Principal Investment Strategies” information in the fund prospectus or similar disclosures for collective trusts.
For collective trusts, the potential to invest more than 20 percent of market value in impermissible securities could be ascertained by establishing that a trust replicates the objective and strategy for a mutual fund that is a permissible fund vehicle. A trust is likely to be a permissible fund vehicle if the objective of the trust is to replicate as closely as practicable an index that does not include impermissible securities. If any and all statements of the objective, policies and strategy of a collective trust clearly preclude the potential for investment of more than 20 percent of the market value in impermissible securities then it is likely to be a permissible fund vehicle.