It's been roughly six months since the Pension Benefit Guaranty Corp. began approving special financial assistance applications for struggling multiemployer plans, and while stakeholders are pleased with the pace of approvals and transparency from the PBGC, they're also eager for the agency to issue final rules concerning the amount of aid plans will receive.
"We're all living under an interim final rule, which is good, I'm glad we have that, but there's always some nervousness about will the agency change its mind and necessitate us to go back to the drawing board and redo calculations and redo work?" said Michael P. Kreps, Washington-based principal and co-chairman of the retirement services practice at Groom Law Group. "I think the hope is PBGC can get this rule out and we don't have to redo stuff we've already done."
Mr. Kreps and others may not have to wait much longer for an answer as the PBGC sent a final rule to the White House's Office of Management and Budget for review late on May 20 as Pensions & Investments went to press. The review process could take several weeks.
Democrats in March 2021 passed the American Rescue Plan Act, which in part created a federal assistance program for struggling multiemployer funds.
The PBGC as of May 18 has approved more than $6.1 billion in special financial assistance to 25 eligible plans that cover more than 117,000 workers and retirees.
A multiemployer plan is eligible for assistance if it satisfies one of four criteria: it has been in critical and declining status in any plan year beginning in 2020 through 2022; it has had its benefits suspended as of March 11, 2021; it is in critical status, has a modified funding ratio below 40% and has a ratio of active-to-inactive participants of less than 2-to-3; or it became insolvent after Dec. 16, 2014, but as of March 11, 2021, has not been terminated.
Under that American Rescue Plan, the PBGC issued an interim final rule in July 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.
The special financial assistance — which the PBGC estimates will total about $94 billion — was designed to shore up struggling multiemployer pension plans through 2051.
To calculate the amount of special financial assistance a plan would receive, the interim final rule sets forth a methodology that takes the present value of plan obligations — the value of its benefit payments and administrative expenses — and subtracts from it the present value of plan resources — its assets, including projected withdrawal liability payments, and projected employer contributions.
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 requires that special financial assistance assets must be invested in investment-grade bonds, which currently have annual yields of about 2% to 2.5%.