Following the American Rescue Plan's passage, the PBGC issued an interim final rule in July 2021 that established how multiemployer plans can apply for special financial assistance, created a methodology for how that amount is calculated and outlined restrictions for how those assets can be invested, among other things.
Many stakeholders submitted comments to the PBGC taking issue with the interim final rule, in part because it mandated plans use current assets, future revenues and revenue derived from withdrawal liability payments when making their assistance calculations. That reduces the amount of assistance a plan can receive, they said.
Moreover, the mandated interest rate used for calculating the amount of special financial assistance a plan receives assumes a 5.5% return. But under the interim final rule, the PBGC also required that special financial assistance assets must be invested in investment-grade bonds, which currently have annual yields of about 2% to 2.5%.
The final rule unveiled Wednesday loosened investment restrictions and allows 33% of SFA to be invested in "return-seeking assets," such as public equities, equity funds that invest primarily in public shares, and bonds. The other 67% of SFA funds must be invested in investment-grade fixed-income products.
Also, the final rule, which goes into effect Aug. 8, modifies the SFA calculation method to provide two separate interest assumptions — one for calculating expected investment returns on the plan's non-SFA assets, and a separate rate for calculating investment returns expected to be earned on the plan's SFA assets, according to a PBGC fact sheet.
"This change aligns the interest rates used to calculate SFA with reasonable expectations of future investment returns on plans' SFA assets, addressing the interest rate mismatch issue identified in public comments," the fact sheet said.
Additionally, the final rule requires that plans phase-in recognition of SFA funds for purposes of computing employer withdrawal liability, which is aimed at ensuring that SFA funds do not subsidize employer withdrawals, according to the fact sheet.
Michael P. Kreps, principal and co-chairman of the retirement services practice at Groom Law Group, said the PBGC in the final rule has "softened some of its positions in a way that will better effectuate the intent of the law and maybe blunt some of the prior criticism."
Allowing one-third of SFA to be invested in public equities "should, in many cases, allow for plans to take a little more risk and increase returns to give them all a better chance to have full solvency for 30 or more years," Mr. Kreps added.
The PBGC as of July 6 has approved more than $6.7 billion in special financial assistance to 27 eligible plans that cover more than 127,000 workers and retirees
Also on Wednesday, President Joe Biden spoke to a room full of union members in Cleveland and said the special financial assistance program has fulfilled, in part, a campaign pledge he made to help middle-class families and unions. "With today's actions, millions of workers will have the dignified retirement they deserve," Mr. Biden said, noting that without the special financial assistance program, millions of workers would have seen their benefits cut.