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Rule2021-14696

Special Financial Assistance by PBGC

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Published

July 12, 2021

Effective

July 12, 2021

Issuing agencies

Pension Benefit Guaranty Corporation

Abstract

This document contains an interim final rule that sets forth the requirements for special financial assistance applications and related restrictions and conditions pursuant to the American Rescue Plan Act of 2021.

Full Text

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<title>Federal Register, Volume 86 Issue 130 (Monday, July 12, 2021)</title>
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[Federal Register Volume 86, Number 130 (Monday, July 12, 2021)]
[Rules and Regulations]
[Pages 36598-36631]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-14696]

[[Page 36597]]

Vol. 86

Monday,

No. 130

July 12, 2021

Part II

Pension Benefit Guaranty Corporation

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29 CFR Parts 4000 and 4262

Special Financial Assistance by PBGC; Interim Final Rule

Federal Register / Vol. 86 , No. 130 / Monday, July 12, 2021 / Rules
and Regulations

[[Page 36598]]

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PENSION BENEFIT GUARANTY CORPORATION

29 CFR Parts 4000 and 4262

RIN 1212-AB53

Special Financial Assistance by PBGC

AGENCY: Pension Benefit Guaranty Corporation.

ACTION: Interim final rule; request for comments.

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SUMMARY: This document contains an interim final rule that sets forth
the requirements for special financial assistance applications and
related restrictions and conditions pursuant to the American Rescue
Plan Act of 2021.

DATES:
Effective date: This interim final rule is effective on July 12,
2021.
Comment date: Comments must be received on or before August 11,
2021 to be assured of consideration.

ADDRESSES: Comments may be submitted by any of the following methods:
<bullet> Federal eRulemaking Portal: <a href="http://www.regulations.gov">http://www.regulations.gov</a>.
Follow the online instructions for submitting comments.
<bullet> Email: <a href="/cdn-cgi/l/email-protection#700215175e131f1d1d151e040330001217135e171f06">[email&#160;protected]</a>.
<bullet> Mail or Hand Delivery: Regulatory Affairs Division, Office
of the General Counsel, Pension Benefit Guaranty Corporation, 1200 K
Street NW, Washington, DC 20005-4026.
Commenters are strongly encouraged to submit public comments
electronically. PBGC expects to have limited personnel available to
process public comments that are submitted on paper through mail. Until
further notice, any comments submitted on paper will be considered to
the extent practicable.
All submissions must include the agency's name (Pension Benefit
Guaranty Corporation, or PBGC) and title for this rulemaking (Special
Financial Assistance by PBGC) and the Regulation Identifier Number for
this rulemaking (RIN 1212-AB53). Comments received will be posted
without change to PBGC's website, <a href="http://www.pbgc.gov">www.pbgc.gov</a>, including any personal
information provided. Do not submit comments that include any
personally identifiable information or confidential business
information.
Copies of comments may also be obtained by writing to Disclosure
Division, Office of the General Counsel, Pension Benefit Guaranty
Corporation, 1200 K Street NW, Washington, DC 20005-4026 or calling
202-229-4040 during normal business hours. TTY users may call the
Federal relay service toll-free at 800-877-8339 and ask to be connected
to 202-229-4040.

FOR FURTHER INFORMATION CONTACT: Daniel S. Liebman
(<a href="/cdn-cgi/l/email-protection#5f33363a3d323e31713b3e31363a331f2f3d383c71383029">[email&#160;protected]</a>; 202-229-6510) Deputy General Counsel, Program
Law and Policy Department, Hilary Duke (<a href="/cdn-cgi/l/email-protection#a9cddcc2cc87c1c0c5c8dbd0e9d9cbceca87cec6df">[email&#160;protected]</a>; 202-229-
3839), Assistant General Counsel for Regulatory Affairs, or Stephanie
Cibinic (<a href="/cdn-cgi/l/email-protection#a7c4cec5cec9cec489d4d3c2d7cfc6c9cec2e7d7c5c0c489c0c8d1">[email&#160;protected]</a>; 202-229-6352), Deputy Assistant
General Counsel for Regulatory Affairs, Office of the General Counsel,
Pension Benefit Guaranty Corporation, 1200 K Street NW, Washington, DC
20005-4026. TTY users may call the Federal Relay service toll-free at
800-877-8339 and ask to be connected to 202-229-6510, 202-229-3839, or
202-229-6352.

SUPPLEMENTARY INFORMATION:

Executive Summary

Purpose and Authority

This interim final rule adds to the regulations of the Pension
Benefit Guaranty Corporation (PBGC) a new part 4262 to implement the
requirements under section 9704 of the American Rescue Plan Act of
2021, ``Special Financial Assistance Program for Financially Troubled
Multiemployer Plans.'' This program enhances retirement security for
millions of Americans by providing eligible multiemployer defined
benefit pension plans with special financial assistance (SFA) in the
amounts required for the plans to pay all benefits due during the
period beginning on the date of payment of SFA through the plan year
ending in 2051.
PBGC's legal authority for this rulemaking comes from new section
4262 of the Employee Retirement Income Security Act of 1974 (ERISA)
(Special Financial Assistance by the Corporation), which requires PBGC
to issue regulations or guidance setting forth requirements for SFA
applications by July 9, 2021, permits PBGC to provide for how SFA and
earnings thereon are to be invested, and, in consultation with the
Secretary of the Treasury, permits PBGC to impose reasonable conditions
by regulation or other guidance on an eligible multiemployer plan that
receives SFA. PBGC's legal authority also comes from section 4002(b)(3)
of ERISA, which authorizes PBGC to issue regulations to carry out the
purposes of title IV of ERISA, and from section 4003(a) of ERISA, which
authorizes PBGC to conduct investigations and audits.

Major Provisions of the Regulatory Action

This rulemaking sets forth what information a plan is required to
file to demonstrate eligibility for SFA and the amount of SFA to be
paid by PBGC to the plan. It identifies which plans will be given
priority to file applications before March 11, 2023, and provides for a
processing system, which will accommodate the filing and review of many
applications in a limited amount of time. It also establishes
permissible investments for SFA funds and restrictions and conditions
on plans that receive SFA.

Background

PBGC and the Multiemployer Insurance Program

PBGC administers two insurance programs for private-sector defined
benefit pension plans under title IV of ERISA: One for single-employer
defined benefit pension plans and one for multiemployer defined benefit
pensions plans (multiemployer plans). In general, a multiemployer plan
is a collectively bargained plan involving two or more unrelated
employers. The multiemployer insurance program protects the benefits of
approximately 10.9 million workers and retirees in approximately 1,400
plans. This interim final rule deals with multiemployer plans.
The multiemployer insurance program provides PBGC with tools to
help plans that are insolvent or approaching insolvency to be able to
pay guaranteed benefits.\1\ This help is primarily in the form of
financial assistance loans under section 4261(a) of ERISA. Under that
provision, when a multiemployer plan becomes insolvent, PBGC provides
periodic financial assistance payments to the insolvent plan in amounts
that, together with existing plan assets and any other plan income, are
sufficient to pay guaranteed benefit amounts to participants and
beneficiaries. In general terms, a plan is insolvent if it cannot pay
benefits when due.
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\1\ Multiemployer plan guaranteed benefits are primarily
nonforfeitable benefits and the maximum guarantee is set by law
under section 4022A of ERISA.
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The Multiemployer Pension Reform Act of 2014 (MPRA) created
pathways under ERISA to help improve solvency for plans that are likely
to become insolvent. Plans that are in critical and declining status
\2\ may apply to the U.S.

[[Page 36599]]

Department of the Treasury (Treasury Department) for a suspension of
benefits under section 305(e)(9) of ERISA to avoid insolvency.
Generally, under this process, these plans may propose a reduction of
benefits to no less than 110 percent of PBGC's guaranteed benefit
amount if a plan is projected to become insolvent before paying all
promised benefits when due. A plan may also request partition
assistance from PBGC (under section 4233 of ERISA), which allows the
plan to transfer responsibility for paying monthly guaranteed benefits
for a portion of the plan's participants and beneficiaries to a newly
created successor plan that receives financial assistance from PBGC.
When a partition is approved, the original plan has an ongoing
obligation to pay and preserve benefits for all participants at levels
above PBGC's guaranteed amounts.
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\2\ A plan is in critical and declining status if the plan
satisfies the criteria for critical status under section 305(b)(2)
of ERISA and is projected to become insolvent within the meaning of
section 4245 during the current plan year or any of the 14
succeeding plan years (or 19 succeeding plan years if the plan has a
ratio of inactive participants to active participants that exceeds 2
to 1 or if the funded percentage of the plan is less than 80
percent).
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MPRA also allows critical and declining plans that are likely to
become insolvent to request financial assistance from PBGC upon merging
with another multiemployer plan (``facilitated mergers'' under section
4231(e) of ERISA). Financial assistance to the merged plan may promote
mergers with more viable plans and eliminate the need for benefit
reductions.
In recent years, Congress considered a range of proposals to
address the funding crisis in the multiemployer pension system,
including proposals to expand PBGC's partition authority, loan
programs, and broader reforms to stabilize multiemployer plans and
extend the solvency of PBGC's multiemployer insurance program. In 2018,
Congress created the Joint Select Committee on Solvency of
Multiemployer Pension Plans to develop recommendations to address the
problems in the multiemployer pension system. While the Committee did
not issue recommendations before its term expired, it succeeded in
creating a broader understanding of the issues and identifying
potential reforms. While not a permanent solution, Congress enacted,
and the President signed into law on March 11, 2021, the American
Rescue Plan (ARP) Act of 2021 (Pub. L. 117-2), to address the immediate
crisis facing severely underfunded multiemployer plans and the solvency
of PBGC, and to assist plans by providing funds to reinstate suspended
benefits.

American Rescue Plan Act of 2021--Special Financial Assistance Program
for Financially Troubled Multiemployer Plans

ARP creates a program to enhance retirement security for millions
of Americans by providing SFA to financially troubled multiemployer
plans. The SFA program is expected to assist plans covering more than 3
million participants and beneficiaries, including the provision of
funds to reinstate suspended monthly benefits going forward, and for
make-up payments to restore previously suspended benefits of
participants and beneficiaries. In turn, the SFA program improves the
financial condition of PBGC's multiemployer insurance program. It is
expected that over 100 plans that would have otherwise become insolvent
during the next 15 years will instead forestall insolvency as a direct
result of receiving SFA.
Section 9704 of ARP amends section 4005 of ERISA to establish an
eighth fund for SFA from which PBGC will provide SFA to multiemployer
plans under the program created by the addition of section 4262 of
ERISA. The eighth fund will be credited with amounts from time to time
as the Secretary of the Treasury, in conjunction with the Director of
PBGC, determines appropriate, from the general fund of the Treasury
Department. Transfers from the general fund to the eighth fund cannot
occur after September 30, 2030.
New section 4262 of ERISA sets forth the requirements for SFA,
including specifying which plans are eligible to apply, the cutoff date
for applications, actuarial assumptions, determinations on
applications, restrictions on the use of SFA, and that certain plans
with suspended benefits \3\ must reinstate those benefits and provide
make-up payments to restore previously suspended benefits. Unlike the
financial assistance provided under section 4261 of ERISA, which is in
the form of a loan and provided in periodic payments, a plan receiving
SFA under section 4262 has no obligation to repay SFA, and PBGC must
pay SFA in the form of a single, lump sum payment.
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\3\ Plans with suspended benefits pursuant to sections 305(e)(9)
and 4245(a) of ERISA.
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Section 4262 of ERISA requires PBGC to prescribe in regulations or
other guidance the requirements for SFA applications, including an
alternate application for plans with an approved partition under
section 4233 of ERISA. PBGC also may prioritize applications during the
first 2 years after March 11, 2021, prescribe how SFA funds are to be
invested, and impose conditions on plans that receive SFA.
Although PBGC's rulemakings generally involve coordination and
consultation with the other two agencies that have jurisdiction over
pension plans (the Treasury Department and the U.S. Department of Labor
(Department of Labor or Department)), section 4262 of ERISA
specifically provides for consultation with the Treasury Department
particularly on SFA applications involving a plan's reinstatement of
suspended benefits.\4\ The statute also provides for consultation with
the Treasury Department with respect to a plan that proposes in its
application to change assumptions, with respect to a plan that files an
application under PBGC regulations or guidance prioritizing certain
applications, and on the conditions imposed on plans that receive
SFA.\5\ This interim final rule is a result of that coordination and
consultation, which will continue as the SFA program gets underway at
PBGC and plans begin to apply.
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\4\ See sections 4262(k) and 4262(n) of ERISA.
\5\ See sections 4262(m) and 4262(n) of ERISA.
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Listening Sessions and Request for Comment

After ARP was enacted, interested parties requested to share their
views with PBGC, and PBGC held listening sessions at their request.
Representatives of PBGC's Board of Directors (the Secretaries of the
Department of Labor, the Treasury Department, and the Department of
Commerce) also participated in these listening sessions. Most of the
requesters provided letters or agendas outlining their concerns. In
addition, other interested parties sent PBGC letters communicating
their views. PBGC considered the views and concerns expressed, which
helped to inform this interim final rule.
PBGC has included a request for public comment in this rulemaking
and encourages all interested parties to submit their comments,
suggestions, and views concerning the rule's provisions. PBGC is
particularly interested in feedback on where any additional guidance
may be needed.

Overview and Section-by-Section Discussion of Regulation

Overview and Purpose

To implement section 4262 of ERISA, PBGC is adding a new part 4262
to its regulations, ``Special Financial Assistance by PBGC.'' The
purpose of this new part is to prescribe rules governing applications
for SFA and related requirements. Part 4262 provides guidance to
multiemployer pension plan sponsors on eligibility, determining the
amount of SFA, content of an application for SFA, the process of
applying, PBGC's review of

[[Page 36600]]

applications, and restrictions and conditions.

Eligible Multiemployer Plans

There are four types of multiemployer plans identified in section
4262(b)(1) of ERISA that are eligible to apply for SFA under Sec.
4262.3 of PBGC's regulation. This exclusive list consists of:
(1) A plan in critical and declining status (within the meaning of
section 305(b)(6) of ERISA) in any plan year beginning in 2020, 2021,
or 2022.
(2) A plan with a suspension of benefits approved under section
305(e)(9) of ERISA as of the date ARP became law (March 11, 2021).
(3) A plan certified to be in critical status (within the meaning
of section 305(b)(2) of ERISA) that has a modified funded percentage of
less than 40 percent and a ratio of active to inactive participants
which is less than 2 to 3, in any plan year beginning in 2020, 2021, or
2022.
(4) A plan that became insolvent for purposes of section 418E of
the Internal Revenue Code (the Code) after December 16, 2014 (the date
MPRA became law), has remained insolvent, and has not terminated under
section 4041A of ERISA as of March 11, 2021.
PBGC notes that a plan that terminated by mass withdrawal in a plan
year that ended before January 1, 2020, is not eligible for SFA under
section 4262(b)(1)(A) of ERISA and Sec. 4262.3(a)(1) (plans that are
in critical and declining status (within the meaning of section
305(b)(6) of ERISA) in any plan year beginning in 2020, 2021, or 2022).
This is because the additional funding rules for plans in endangered,
critical, and critical and declining status under section 432 of the
Code do not apply to such a plan in a plan year that begins in 2020,
2021, or 2022.\6\ Accordingly, a plan that terminated by mass
withdrawal before the plan year selected to determine eligibility under
Sec. 4262.3(a)(1) is not in critical and declining status for that
year and therefore is not eligible for SFA. For example, if a plan in
critical and declining status terminated by mass withdrawal in 2019,
the plan would not be eligible for SFA under Sec. 4262.3(a)(1) because
it was not in critical and declining status in 2020, 2021, or 2022.
However, if a plan in critical and declining status terminated by mass
withdrawal in 2020, the plan would be eligible for SFA.
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\6\ Section 412(a)(1) of the Internal Revenue Code (the Code)
requires a pension plan to satisfy the minimum funding standard
applicable to the plan for each plan year. In the case of a
multiemployer defined benefit plan, section 412(a)(2)(C) provides
that participating employers must make contributions under the plan
for a plan year that, in the aggregate, are sufficient to ensure
that the plan does not have an accumulated funding deficiency under
section 431 as of the end of the plan year. Section 412(e)(4)
provides that the minimum funding rules under section 412 apply
until the last day of the plan year in which a plan terminates
within the meaning of section 4041A(a)(2) of ERISA (that is,
termination by mass withdrawal or a cessation of the obligation of
all employers to contribute under the plan). Accordingly, the rules
of section 431 of the Code do not apply to such a plan for periods
after the plan year of termination.
The Internal Revenue Service (IRS) has informed PBGC that
section 432 of the Code, which provides additional funding rules for
multiemployer plans in endangered status or critical status,
likewise does not apply to a multiemployer plan for periods after
the plan year of termination within the meaning of section
4041A(a)(2) of ERISA. This is consistent with section 301(c) of
ERISA (over which the IRS has interpretive jurisdiction pursuant to
section 101 of Reorganization Plan No. 4 of 1978 (43 FR 47713)),
which provides that part 3 of title I of ERISA, including the
minimum funding rules parallel to sections 412, 431, and 432 of the
Code, applies until the last day of the plan year in which the plan
terminates within the meaning of section 4041A(a)(2) of ERISA.
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With respect to critical status plans, PBGC provides some
clarifications on eligibility. Section 4262.3(c)(1) clarifies that a
plan that has elected to be in critical status under section 305(b)(4)
of ERISA but is not certified to be in critical status under section
305(b)(2) is not an eligible multiemployer plan. To ensure uniformity
for applications and clarify what data to use to satisfy eligibility
requirements for critical status plans under section 4262(b)(1)(C),
Sec. 4262.3(a)(3) and (c)(2) specify the data that is used for this
purpose, including specifying line items entered on the Form 5500
Schedule MB to determine the ``modified funded percentage,'' and line
items entered on the Form 5500 to determine the ratio of active to
inactive participants.
Under the regulation, the conditions for eligibility do not need to
be satisfied for the same plan year. PBGC adds this flexibility in
recognition that the filing dates for the certification of plan status
and the Form 5500 are not the same. Generally, the due date for filing
the certification of plan status is well over a year before the due
date for filing the Form 5500 for the same plan year. In addition, data
used for the certification of plan status for a plan year may be from a
different year than the data used for the Form 5500 for the same plan
year, and section 4262 of ERISA is unclear as to the date within a plan
year as of which data used to satisfy the conditions is determined.
Section 4262(b)(2) of ERISA defines ``modified funded percentage''
to mean the percentage equal to a fraction the numerator of which is
the current value of plan assets (as defined in section 3(26) of ERISA)
and the denominator of which is current liabilities (as defined in
section 431(c)(6)(D) of the Code).
The numerator for the plan's funded percentage under Sec.
4262.3(c)(2) is calculated using the current value of assets on line 2a
of Schedule MB,\7\ which is also required to be reported on line 1l,
column (a) of the Schedule H,\8\ and adding to it the current value of
withdrawal liability payments due to be received by the plan on an
accrual basis reflecting a reasonable allowance for amounts considered
uncollectible \9\ (if not already included in the current value of net
assets reported on line 2a). The value calculated for the numerator is
consistent with the meaning of current value of assets under section
3(26) of ERISA.\10\ The current value of assets includes total cash
contributions due to be received on an accrual basis.
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\7\ All line references in this section are to the 2020 Form
5500 and schedules.
\8\ The 2020 Form 5500 instructions provide that, with certain
exceptions, assets reported on line 2a of Schedule MB should be the
same as reported on line 1l, (column a) of the Schedule H.
\9\ PBGC notes that Financial Accounting Standards Board (FASB)
Accounting Standards Codification (ASC) 960, Plan Accounting--
Defined Benefit Pension Plans 960-310-25-3A states: ``A
multiemployer plan may also have a receivable for a withdrawing
employer's share of the plan's unfunded liability. The plan should
record the receivable, net of any allowance for an amount deemed
uncollectible, when entitlement has been determined.''
\10\ The withdrawal liability payments due to be received by the
plan are not included in the actuarial value of assets or the market
value of assets for purposes of sections 431 and 432 of the Code and
the corresponding sections 304 and 305 of ERISA.
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The denominator for the plan's funded percentage under Sec.
4262.3(c)(2) is calculated using the current liability measurement from
line 2b(4) column (2). This entry requires current liability to be
calculated using the assumptions, including interest rate, in the
instructions for line 1d(2)(a) of the Schedule MB. Those instructions
provide how to calculate current liability under section 431(c)(6)(D)
of the Code and provide specifically that the interest rate used to
compute current liability must be in accordance with guidelines issued
by the Treasury Department and the Internal Revenue Service (IRS) and
within the interest rate rules referred to under section 431(c)(6)(D),
which are outlined under section 431(c)(6)(E). PBGC notes that the
current liability is a measure derived using an interest rate chosen by
the actuary within a ``permissible range'' under section 431(c)(6)(E).
Since the selection of the interest rate by the actuary is part of the
determination of current liability, for purposes of measuring the
modified funded

[[Page 36601]]

percentage PBGC has chosen to accept the interest rate selected by the
actuary and not to require the use of an alternate interest rate.
As explained earlier in this section of the preamble, section
4262(b)(1)(C) of ERISA requires as one of the conditions of
eligibility, for critical status plans to have a ratio of active to
inactive participants that is less than 2 to 3. The statute does not
specify what participant count to use. To fill in this gap, the
regulation refers to end-of-year participant counts on the Form 5500.
On the 2020 Form 5500, these are the number of participants identified
on line 6a(2) (for total number of active participants) and the sum of
lines 6b, 6c, and 6e (for inactive participants: Retired or separated
participants receiving benefits, other retired or separated
participants entitled to future benefits, and deceased participants
whose beneficiaries are receiving or are entitled to receive benefits).
Requiring the use of these counts provides for uniformity among
applications in the use of participant counts to determine the ratio.

Assumptions for Determining Eligibility

A plan's eligibility for SFA is determined by PBGC in accordance
with Sec. 4262.3(d) of the regulation, which incorporates the
actuarial assumptions for determining eligibility found in sections
4262(e)(1) and (e)(4) of ERISA. When a plan sponsor applies for SFA
claiming the plan's eligibility based on a certification of either
critical status or critical and declining status completed before
January 1, 2021, PBGC is required to accept the assumptions
incorporated into that certification unless the assumptions are clearly
erroneous.
When a plan sponsor applies for SFA and claims the plan is eligible
based on a certification of plan status for a plan year that was not
completed before January 1, 2021, the sponsor must determine whether
the plan is in critical status or critical and declining status using
the assumptions that were used in the plan's most recently completed
certification before January 1, 2021, unless those assumptions
(excluding the plan's interest rate) are unreasonable. A plan sponsor
that determines that one or more of the assumptions used in the plan's
most recently completed certification before January 1, 2021, is
unreasonable may propose changes to the assumptions in the plan's
application (except to the interest rate) by disclosing the changes,
describing why such assumptions are no longer reasonable, and
demonstrating that the changed assumptions are reasonable.
The information required to be included as part of an application,
including to support changes to assumptions, is described in Sec. Sec.
4262.6 through 4262.8 of the regulation. PBGC's review of the
assumptions used by a plan are described in Sec. 4262.5 of the
regulation.

Amount of Special Financial Assistance

Under section 4262(a)(1) of ERISA, PBGC is to provide SFA to an
eligible multiemployer plan upon application. Under section 4262(j)(1),
the amount of SFA to be provided is the ``amount required for the plan
to pay all benefits due during the period beginning on the date of
payment of the special financial assistance payment . . . and ending on
the last day of the plan year ending in 2051 . . . .'' This is referred
to in section 4262(i)(1) as ``the amount necessary as demonstrated by
the plan sponsor.'' PBGC believes that the plain meaning of the
statutory language is that SFA is the amount by which a plan's
resources fall short of its obligations, taking all plan resources and
obligations into account.
The heart of the matter is found in the requirement that SFA be
``the amount necessary'' or ``required for the plan to pay all benefits
due.'' To the extent that a plan has other means available to pay
benefits, it does not require or need SFA for that purpose.\11\ Thus,
all of a plan's resources must be considered in determining the amount
of SFA for the plan. Moreover, since the determination must be made by
looking through the end of the last plan year ending in 2051, the
resources to be considered must include plan assets and income
(contributions, investment returns, etc.). If Congress had contemplated
the exclusion of these resources in the calculation of the amount of
SFA ``required for the plan,'' it would have done so explicitly.
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\11\ Furthermore, it would not be a reasonable result if the
amount of SFA were to be calculated under a formula that disregards
the plan's available resources, which could lead to a windfall for a
plan that needs only a small amount of SFA to pay benefits. PBGC
estimates that under such an approach, the total amount of SFA
distributed under the program would increase by 2 to 4 times the
estimated $94 billion amount projected under PBGC's ME-PIMS model.
See section (4), Estimated Impact of Regulatory Action, of the
Regulatory Impact Analysis section.
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Additionally, all of a plan's benefits must be considered, as the
statute says clearly ``all benefits.'' And, because plan expenses must
be paid to keep the plan in operation and capable of paying benefits,
all expenses must likewise be taken into account. In short, the
statutory language, by requiring the payment of all benefits due,
mandates by clear implication the consideration of all plan obligations
and resources in determining the amount of SFA that is needed or is
``necessary.''
Some interested parties commented to PBGC on section 4262(j)(1) of
ERISA that, in determining the amount of SFA, PBGC should exclude from
consideration all or a portion of one or more plan obligations or
resources, such as existing assets, expected benefit payments, earnings
on assets, contributions, withdrawal liability, and administrative
expenses. The items to be disregarded, and the theories on which they
are to be ignored, differ from one commenter to another.
The common thread among these comments is that they advance a
particular policy goal or desired outcome and an approach designed to
fit that desired policy goal or outcome. Such desired goals include
providing generous assistance, long-term sustainability, avoiding a
recurrence of the current crisis, protection of retirees, and
simplicity. The approaches advanced to achieve such goals vary among
commenters, but include disregarding resources such as current assets,
or the portion thereof needed to fund post-2051 payments; future
contributions; and other sources of revenue. In considering these
comments, PBGC has concluded that the approaches recommended in these
comments could be supported only by a strained reading of the clear
language of section 4262(j)(1), which defines the SFA amount as the
``amount required for the plan to pay all benefits due during the
period beginning on the date of payment of the special financial
assistance payment under this section and ending on the last day of the
plan year ending in 2051 . . . .''
The inability to project resources and obligations with absolute
precision for 30 years prompted another objection to the plain meaning
of the language in question from some interested parties. The benefits
projected to be paid into the future will rarely turn out to be the
same as the benefits that actually will be paid (which can only be
determined in hindsight). These interested parties argued that the
amount of SFA is insufficient unless it enables a plan to pay ``all
benefits'' actually due through the last plan year in 2051, for example
by assuming zero mortality for that period. However, this approach
would be a radical departure from accepted actuarial practice and would
be at odds with the pattern of actuarial determinations that underlies
section 4262 of ERISA. PBGC thus considers this suggestion to be
contradictory to the statute.

[[Page 36602]]

Calculating the Amount of SFA

Section 4262.4(a) provides that the amount of SFA for a plan is the
amount (if any), subject to adjustment for the date of payment as
described in Sec. 4262.12, by which the value of all plan obligations
exceeds the value of all plan resources, determined as of the plan's
SFA measurement date and limited to the SFA coverage period (the period
ending on the last day of the last plan year ending in 2051). The SFA
measurement date is the last day of the calendar quarter immediately
preceding the date the plan's application was filed.
The value of plan obligations under Sec. 4262.4(b) is the sum of
the present value of specified benefit payments and administrative
expenses. The value of benefit payments is calculated as the present
value of benefit payments expected to be paid during the SFA coverage
period including any reinstatement of benefits attributable to the
elimination of reductions in a participant's or beneficiary's benefit
due to a suspension of benefits under sections 305(e)(9) or 4245(a) of
ERISA as required under Sec. 4262.15 or restoration of benefits under
26 CFR 1.432(e)(9)-1(e)(3). The reinstatement of benefits must be
calculated assuming such reinstatements are paid beginning as of the
SFA measurement date instead of the date SFA is paid. The value of
administrative expenses is calculated as the present value of
administrative expenses expected to be paid during the SFA coverage
period (excluding the amount owed to PBGC under section 4261).
The value of plan resources under Sec. 4262.4(c) is the total of
the fair market value of assets on the SFA measurement date and the
present value of future contributions, withdrawal liability payments,
and other payments expected to be made to the plan (excluding the
amount of financial assistance under section 4261 of ERISA and the
amount of SFA to be received by the plan) during the SFA coverage
period.
The amount of financial assistance owed to PBGC under section 4261
of ERISA, if any, is excluded in the calculation of SFA in the plan's
application. Instead, it is added to the amount of SFA to be paid to
the plan under Sec. 4262.12 as of the date PBGC sends payment of SFA,
offset by the value of financial assistance payments under section 4261
received by the plan following the SFA measurement date, accumulated
with interest.
The projections in Sec. 4262.4(b)(1) and (2) and (c)(2) must be
performed on a deterministic basis using a single set of assumptions as
provided in Sec. 4262.4(d). The deterministic projections must be
based on recent participant census data. Participant census data must
be as of the first day of the plan year in which the plan's initial
application is filed, or, if the date on which the plan's initial
application is filed is less than 270 days after the beginning of the
current plan year and the actuarial valuation for the current plan year
is not complete, the projections may instead be based on the
participant census data as of the first day of the plan year preceding
the year in which the plan's initial application is filed. If a plan
experiences a significant event between the date of the plan's most
recent participant census date and the date the application is filed,
PBGC's assumptions guidance (issued on PBGC's website at <a href="http://www.pbgc.gov/guidance">www.pbgc.gov/guidance</a>) provides guidelines on how to reflect that significant event.
Plans may, but are not required to, use the guidelines if they are
reasonable for the plan.
The SFA measurement date, which is the beginning date for the
deterministic projections, is a date certain in the past instead of a
payment date in the future because the SFA payment date (described
under Sec. 4262.12) is unknown at the time the plan sponsor files the
application. This approach of using a date certain in the past instead
of a date in the future simplifies the calculation but does not change
the SFA amount that would otherwise be calculated as of the payment
date because: (i) Both the SFA-eligible plan resources and SFA-eligible
plan obligations will be reduced equally by the benefit payments and
expenses between those two dates, (ii) the contributions between those
two dates would typically need to be estimated either way, and (iii)
the SFA amount is adjusted for interest between those two dates at the
interest rate used to calculate the present values as of the SFA
measurement date.
Section 4262.4(e)(1) of the regulation specifies the interest rate
assumption a plan must use to calculate the amount of SFA in the plan's
application. Section 4262(e)(2)(A) of ERISA requires a plan to use an
interest rate that is based on the rate used in the plan's most
recently completed certification of plan status before January 1, 2021,
subject to an interest rate limit, but does not consider that there are
potentially two rates used in a certification of plan status: A short-
term rate (used for projecting plan assets) and a long-term rate (used
to determine plan liabilities and for interest adjustments in the
funding standard account). As the determination of the SFA amount
involves long-term projections, the regulation specifies that the SFA
amount is calculated based on the long-term rate that was used for
funding standard account purposes in the plan actuary's projections
that are part of the certification of plan status.
The interest rate limit specified in section 4262(e)(3) of ERISA is
the rate that is 200 basis points higher than the rate specified in
section 303(h)(2)(C)(iii) (disregarding modifications made under clause
(iv) of such section) ``for the month in which the plan's application
for SFA is filed or the 3 preceding months.'' This provision places a
``cap'' on the interest rate, and that the cap is any permissible rate
for a month during the 4-month period ending with the month in which
the plan's application was filed.
Section 4262(f) of ERISA suggests that a plan may have multiple
filing dates by providing two applications deadlines: One for initial
applications and one for revised applications. There is no limit to the
number of times that a plan sponsor may file revised applications as
long as the last revised application is filed by the statutory deadline
of December 31, 2026. Once PBGC has accepted an application for
processing, PBGC believes that it is in the best interest of all
parties to avoid the duplicative work and delays that would result if a
revised application were to use a different interest rate. To prevent
multiple filings for purposes of changing the interest rate, PBGC
establishes a rule in Sec. 4262.11(c) that the assumed interest rate
will always be the rate used in the plan's initial application.
Accordingly, under Sec. 4262.4(e)(1), the assumed interest rate is
the interest rate that is the lesser of the rate used by the plan for
funding standard account projections in the plan's most recently
completed certification of plan status before January 1, 2021, or the
rate that is 200 basis points higher than the rate specified in section
303(h)(2)(C)(iii) of ERISA (disregarding modifications made under
clause (iv) of such section) for any month selected by the plan in the
4-month period ending with the month in which the plan's application
was filed (or the month in which the initial application was filed if
there was more than one filing date). If an application is revised as
provided under Sec. 4262.11 of the regulation, the interest rate used
for the revised application must be the same as the interest rate used
for the initial application.
Some interested parties commented that the interest rate required
under section 4262(e) of ERISA should only apply to the earnings on
current plan assets and that PBGC should allow a separate rate to be
used to determine the amount of SFA required to pay for benefits not
provided by current plan

[[Page 36603]]

assets. Of those commenters, some contend that because the 2020
certifications of plan status did not include an interest rate
assumption for SFA, the interest rate should reflect expected returns
for investment grade bonds. To determine eligibility, for
certifications of plan status completed after December 31, 2020,
section 4262(e)(1) requires a plan to use its most recently completed
certification of plan status before January 1, 2021, unless such
assumptions, excluding the plan's interest rate, are unreasonable
(emphasis added). To determine the amount of SFA, section 4262(e)(2)
mandates that a plan must ``use the interest rate used by the plan in
its most recently completed certification of plan status before January
1, 2021, provided that such interest rate may not exceed the interest
rate limit.'' These provisions do not require the interest rate used
under the certification of plan status to be reasonable for purposes of
eligibility or determining the amount of SFA. Under section 4262(e)(4),
if a plan determines that use of one or more prior assumptions is
unreasonable, the plan may propose to change such assumption. This
provision specifically states that the plan may not propose a change to
the interest rate required for eligibility or SFA amount. In addition,
PBGC does not have authority to provide a different rate or bifurcate
the statutorily mandated interest rate.
For assumptions other than the interest rate, Sec. 4262.4(e)(2)
provides that a plan must use the assumptions that the plan used in its
most recently completed certification of plan status before January 1,
2021, unless such assumptions are unreasonable. If a plan determines
that use of one or more of the assumptions in its most recently
completed certification of plan status before January 1, 2021, is
unreasonable, the plan may propose in its application to change the
assumptions as provided in Sec. 4262.5 of the regulation.
The information required to be included as part of an application,
including to support changes to assumptions, is described in Sec. Sec.
4262.6 through 4262.8 of the regulation. PBGC's review of the
assumptions used by a plan is described in Sec. 4262.5 of the
regulation.

Calculating the Amount of SFA With Respect to Certain Events

Section 4262.4(f) addresses the possibility that a plan may
implement certain changes that could entitle the plan to more SFA than
was intended under section 4262 of ERISA. In these situations, the
amount of SFA that would apply to a plan is limited to the amount of
SFA determined as if the events described in Sec. 4262.4(f) had not
occurred. These events include mergers, transfers of assets or
liabilities (including spinoffs), certain increases in accrued or
projected benefits, and certain reductions in contribution rates. The
limitation applies to events that occur between July 9, 2021, and the
SFA measurement date. To accommodate the possibility of multiple
events, the limitation does not apply on an event-by-event basis but is
based on comparing the amount of SFA a plan applies for with the amount
of SFA a plan (or all plans in the case of a merger) would have
received had the events not occurred.
Section 4262(b)(1) of ERISA establishes criteria for eligibility of
a multiemployer plan for SFA, and section 4262(j) provides for
determining the amount of the SFA, but these provisions do not address
the situation in which a multiemployer plan has engaged in a
transaction that affects the amount of SFA to which a plan is entitled,
including through the manipulation of the eligibility criteria.
Moreover, section 4262(e)(2)(B) provides, as a general rule, that the
actuarial assumptions to be used by a plan are the assumptions used in
the plan's actuarial certification for the most recently completed
certification of plan status before January 1, 2021 (unless those
assumptions are unreasonable), indicating that the plan applying for
SFA must have been in existence and had an actuarial certification as
to its status before January 1, 2021. The provisions regarding interest
rate assumptions under section 4262(e)(2)(A) are specific to the plan
in its most recent certification of plan status completed before
January 1, 2021, and, under the terms of section 4262(e), those
assumptions cannot be changed. A manipulation of those rates via a
merger would not be consistent with that requirement. Although the
statute does not directly address plan mergers, each plan's assumptions
from the most recently completed pre-2021 certification of plan status
must be maintained in order for section 4262(e) to have meaning with
respect to the plans that merged. This rule fills the gap left in the
statute for the calculation of SFA for plans that have been involved in
a merger.
It is likewise appropriate for PBGC, as a prudent steward of
taxpayer funds, and with responsibility for carrying out the purposes
of the title IV insurance program,\12\ to impose conditions on plans
receiving SFA designed to ensure that plans receive no more than the
amount of SFA to which they are entitled. PBGC concludes that, to
achieve that end, it is reasonable not to give effect to changes made
to a plan's structure or terms on or after July 9, 2021, if such
changes either artificially inflate the amount of SFA to which a plan
is entitled or convert an ineligible plan into an eligible plan.
---------------------------------------------------------------------------

\12\ PBGC's inherent authority under section 4002(b)(3) of ERISA
allows PBGC to adopt regulations to carry out the purposes of the
title IV insurance program.
---------------------------------------------------------------------------

Section 4262(m)(1) of ERISA expressly authorizes PBGC, in
consultation with the Secretary of the Treasury, to impose reasonable
conditions ``on an eligible multiemployer plan that receives special
financial assistance'' relating to certain aspects of plan terms or
operations. Such conditions include those relating to the diversion of
contributions to, and allocation of expenses to, other benefit plans;
increases in future accrual rates and any retroactive benefit
improvements; and reductions in employer contribution rates. PBGC's
authority to impose reasonable conditions under section 4262(m)(1) is
not limited to restrictions on a plan following its receipt of SFA
given that these conditions apply to a plan that ``receives'' SFA,
rather than a plan that has received SFA. That understanding of section
4262(m)(1) finds further support in section 4262(m)(2), which restricts
the conditions that PBGC can impose not only ``following receipt of''
SFA, but also ``as a condition of'' SFA. That broad prohibition would
be unnecessary if PBGC's authority under section 4262(m)(1) was limited
to only post-receipt conditions.
Accordingly, pursuant to section 4262(m) of ERISA, in conjunction
with sections 4002(b)(3) and 4262(e), PBGC is authorized to impose
reasonable conditions that ensure that SFA is provided to plans in an
amount that is not inflated by way of contrived events.
(a) Mergers
The rule provides that if two or more plans are merged, then the
SFA is limited so that it does not exceed the sum of the SFA that would
have been calculated for all of the plans involved in the merger had
the plans applied separately for SFA. Thus, a plan that would not have
been entitled to any SFA if not for a merger that occurs on or after
July 9, 2021, cannot become entitled to SFA by merging with a plan that
also would not otherwise be entitled to any SFA. Further, a plan may
not increase the amount of SFA to

[[Page 36604]]

which it is entitled by merging with another plan or plans on or after
July 9, 2021.
As explained earlier in this section of the preamble, this
condition fills the gap in the rules for the calculation of SFA for
plans that merge after the most recent certification of plan status
completed before January 1, 2021. In addition, this requirement is
consistent with PBGC's authority under section 4262(m)(1) of ERISA to
impose reasonable conditions relating to the ``diversion of
contributions to, and allocation of expenses to, other benefit plans.''
When two or more plans merge, a predecessor plan has diverted its
contributions and allocated its expenses to the merged plan.
Specifically, a merged plan, which combines assets and liabilities of
two or more plans, each with its own set of participants and
beneficiaries, and to all of whom all the assets (and, thus, all the
contributions) must be available following the merger, is, in effect,
diverting contributions intended to benefit one set of participants to
another.
(b) Transfers
The rule provides that where assets or liabilities are transferred,
an applicant plan's SFA is limited based on the amount of SFA the plan
would be entitled to if the transfer did not occur. Similar to mergers,
this requirement is premised on PBGC's authority under section
4262(m)(1) of ERISA to impose reasonable conditions relating to the
``diversion of contributions to, and allocation of expenses to, other
benefit plans.''
(c) Other Events
Similar considerations apply to benefit increases and contribution
reductions. These events are also described in section 4262(m)(1) of
ERISA, which permits PBGC to impose conditions on the receipt of SFA
relating to ``increases in future accrual rates and retroactive benefit
improvements'' and on ``reductions in employer contribution rates.''
These events are ordinarily thought of as increasing burdens on plans,
and changes of this type are not commonly adopted with respect to plans
in financial distress. Because SFA is designed to relieve financial
distress, creating or increasing burdens could be a net plus for a
plan. In other words, absent an effective condition in this regulation,
these events would create artificial financial stress on the plan with
the expectation that the plan would be compensated through the payment
of additional SFA. To prevent this manipulation of the standards for
determining the amount of SFA, the rule provides that SFA is limited to
the amount that would have applied had the event not occurred.
There is an exception to this rule. One possible benefit increase
could arise from the restoration of benefit suspensions of retirees and
beneficiaries in pay status that satisfies the requirements of 26 CFR
1.432(e)(9)-1(e)(3). Under that Treasury Department regulation, the
restoration of benefits is not subject to the benefit increase
restrictions under sections 432(e)(9)(E) or 432(f)(1)(B) of the Code,
and an amendment restoring benefits that satisfies the requirements of
26 CFR 1.432(e)(9)-1(e)(3) can be adopted at any time. Because a major
goal of the SFA program is the prompt resumption of payment of
suspended benefits, the restoration of these benefits should be
encouraged and the exception in these regulations (under which benefit
increases pursuant to such an amendment are taken into account in
determining the amount of SFA) facilitates that goal. If an amendment
that satisfies 26 CFR 1.432(e)(9)-1(e)(3) is adopted before the SFA
measurement date, it is taken into account in determining the amount of
the SFA (as the benefits attributable to the restoration would be if
the amendment were adopted later), and the adoption is not an event
that is subject to the limitation on SFA arising from potential abuses.
Finally, if two or more plans are merged and any of the plans
involved in the merger also experienced a transfer of assets or
liabilities, a benefit increase, or a reduction in contributions that
would be subject to the limitation in Sec. 4262.4(f) during the period
described in Sec. 4262.4(f)(1)(i), the amount of SFA for the merged
plan must be determined by applying the limitation in Sec.
4262.4(f)(1)(i) to the plan that experienced the other applicable
event.

PBGC Review of Plan Assumptions

PBGC's review of an application for SFA will focus on the
reasonableness of the plan's and the plan actuary's demonstration
regarding the amount of SFA for the plan. Section 4262.5 sets forth how
PBGC will review plan assumptions.
As described earlier, instead of prescribing actuarial assumptions
to be used for determining SFA, or calling on PBGC to prescribe
assumptions, section 4262 of ERISA generally looks to plan assumptions
previously selected by the plan actuary for determining eligibility for
and calculating the amount of SFA. A mechanism is provided for a plan
to propose changes to actuarial assumptions if it determines that the
use of one or more of its original assumptions (other than the interest
rate) is unreasonable.
Actuarial assumptions under section 4262 of ERISA are derived from
a plan's certification of plan status under section 305 of ERISA. In
general, PBGC believes that a plan's actuarial assumptions adopted for
the certification of plan status (and not for entitlement to SFA)
represent a neutral view of circumstances, unbiased by the prospect of
receiving a substantial sum of money based on those assumptions.
Accordingly, PBGC expects to give far less intensive scrutiny to
``original'' assumptions than to changed assumptions.
PBGC is to accept actuarial assumptions incorporated in a plan's
certification of plan status completed before 2021 for purposes of
eligibility under Sec. 4262.3(d)(1) unless PBGC determines that such
assumptions are ``clearly erroneous.''
For all other purposes, PBGC will accept the assumptions used
unless PBGC determines that they are unreasonable. Each of the
actuarial assumptions and methods used for the actuarial projections
(excluding the interest rate), must be reasonable in accordance with
generally accepted actuarial principles and practices,\13\ taking into
account the experience of the plan and reasonable expectations. To be
reasonable, among other things, an actuarial assumption or method must
be appropriate for the purpose of the measurement, reflect the
actuary's professional judgment, take into account current and
historical data that is relevant to selecting the assumption for the
measurement date, reflect the actuary's estimate of future experience,
and reflect the actuary's observation of the estimates inherent in
market data (if any). In addition, an actuarial assumption or method
must be expected to have no significant bias (i.e., it is not
significantly optimistic or pessimistic).
---------------------------------------------------------------------------

\13\ Actuarial Standards of Practice (ASOPs) are issued by the
Actuarial Standards Board and are available at <a href="http://www.actuarialstandardsboard.org/standards-of-practice">http://www.actuarialstandardsboard.org/standards-of-practice</a>. Certain
ASOPs, including ASOPs Nos. 4, 23, 27, 35, 41, and 56 may be
relevant to the actuary's work related to special financial
assistance, including the assessment of the reasonableness of the
actuary's assumptions and methods.
---------------------------------------------------------------------------

If a plan determines that one or more original assumptions are
unreasonable and must be changed, Sec. 4262.5(c) provides that the
plan's application must describe why the original assumption is no
longer reasonable, disclose the changed assumption, and demonstrate
that the changed

[[Page 36605]]

assumption is reasonable. If there is a change in assumptions, each of
the actuarial assumptions and methods (other than the interest rate)
must be reasonable and the combination of those actuarial assumptions
and methods (excluding the interest rate) must also be reasonable. With
large amounts of SFA at stake, PBGC will be called on to perform a more
searching analysis of any changed assumptions. While PBGC expects
actuaries to be conscientious in setting assumptions, it is a process
that presents many opportunities for judgment calls that may be
influenced by the goal of maximizing SFA.
Concurrent with this interim final rule, PBGC has issued guidelines
for changes to certain assumptions that plans may use for purposes of
determining eligibility for SFA and the amount of SFA. Plans may, but
are not required to, use the guidelines if they are reasonable for the
plan. Guidelines are available for contribution base units (CBUs),
administrative expenses, mortality, contribution rates, and new entrant
profiles, and can be found in the guidance issued on PBGC's website at
<a href="http://www.pbgc.gov/guidance">www.pbgc.gov/guidance</a>.
Additionally, PBGC acknowledges that plans may have a gap in the
assumption for projected CBUs and administrative expenses used in the
prior certification of plan status such that the assumption cannot be
used ``as is'' for determining SFA. This is because plans generally do
not project these assumptions more than 20 years in the future. In
addition, before the enactment of ARP, if a plan was projected to
become insolvent within 20 years, then the plan is unlikely to have
assumptions for CBUs or plan-related administrative expenses for years
after the projected insolvency date. These are natural practices for
purposes of a certification of plan status, but a significant
deficiency where those assumptions are needed to determine the amount
of SFA. A plan can fill this gap with any reasonable extension of its
CBU assumption and administrative expense assumption, but that will
generally mean a ``change'' in assumptions, triggering a more intensive
(and time-consuming) review by PBGC. To assist applicants and aid in
the review of a plan's CBU assumption and administrative expense
assumption, PBGC has developed ``standard'' extensions that plans can
use to complete the assumption set for a plan that otherwise can use
its original assumptions. These assumptions are described in the
guidance mentioned earlier in this section of the preamble.

Information To Be Filed

Sections 4262.6 through 4262.8 of the regulation describe the
information that must be included in a plan's SFA application. Section
4262.6 summarizes the requirements for an application to be considered
complete, including plan information; actuarial and financial
information (including the amount of SFA requested); a completed
checklist (per the SFA instructions on PBGC's website at <a href="http://www.pbgc.gov">www.pbgc.gov</a>);
the signature of an authorized trustee who is a current member of the
board of trustees; a signed penalties of perjury statement; a copy of
the executed plan amendment providing that, beginning with the SFA
measurement date, the plan must be administered in accordance with the
restrictions and conditions specified in section 4262 of ERISA and this
regulation; a copy of the proposed plan amendment to reinstate benefits
and pay make-up payments and certification by the plan sponsor that the
plan amendment will be adopted timely; and information required by PBGC
to clarify or verify the information in a filed application. If any of
the information required under this part and in the SFA instructions is
missing from the filed application, the application will not be
considered complete.
The SFA instructions, including templates, supplement the
regulation and provide guidance to plan sponsors and practitioners on
how to prepare and file the required application information.
Sections 4262.6 through 4262.8 and the instructions specify the
minimum necessary plan, actuarial, and financial information that PBGC
requires to approve or deny an application for SFA and to verify the
amount of SFA within the short 120-day review window permitted under
section 4262(g) of ERISA. As described in the Paperwork Reduction Act
section of this preamble, the application instructions and checklist
have been submitted to the Office of Management and Budget (OMB) for
review and approval under the Paperwork Reduction Act. OMB's decision
regarding this information collection request will be available at
<a href="http://www.Reginfo.gov">http://www.Reginfo.gov</a>.
Unless confidential under the Privacy Act, all information that is
filed with PBGC for an application for SFA may be made publicly
available, at PBGC's sole discretion, on PBGC's website at <a href="http://www.pbgc.gov">www.pbgc.gov</a>
or otherwise publicly disclosed. Except to the extent required by the
Privacy Act, PBGC provides no assurance of confidentiality in any
information or documentation included in an application for SFA.

Application for Plans With a Partition

Under section 4233 of ERISA, a plan may apply to PBGC for a
partition to fund a portion of the plan's benefits to avoid insolvency.
Upon PBGC's approval of an application for partition, PBGC issues a
partition order to provide: (1) For a transfer from the original plan
to the plan created by the partition order (the successor plan), the
minimum amount of benefit liabilities necessary for the original plan
to remain solvent, and (2) financial assistance from PBGC under section
4261 to pay those benefits. The successor plan is but a creature of
PBGC's partition order, terminated and insolvent from its inception.
The original and successor plans are required by section 4233(d)(2) to
have the same plan sponsor and administrator.
Section 4262(c)(3) of ERISA requires PBGC to provide an alternative
application for SFA that may be used for a plan approved for a
partition before March 11, 2021. Section 4262.9 of PBGC's regulation
describes this application.
The plan sponsor of a partitioned plan must apply for SFA using the
alternative application, which contemplates PBGC's rescission of the
partition order as prescribed under Sec. 4262.9(c) and other
conditions particular to a partitioned plan as described under Sec.
4262.9(b). One of these conditions is that the plan sponsor must file a
single application for SFA consisting of information about the original
plan and the successor plan. The combined information must reflect
that, on the date SFA is transferred to the plan, PBGC will rescind the
order that created the successor plan, and the plan sponsor will remove
plan provisions and amendments that were required to be adopted under
the order.
Another condition is that the application must include a statement
that the plan was partitioned and a copy of the provisions or
amendments that the plan was required to adopt under the partition
order. A partitioned plan's application must include all the required
information described in Sec. Sec. 4262.6 through 4262.8 for
applications generally. However, if the plan sponsor of a partitioned
plan has filed any of the required information with PBGC already, the
sponsor is not required to include that information again with its SFA
application. Instead, the sponsor must only note on the checklist
described under Sec. 4262.6(a) that the information was already filed.
Partitioned plans also have benefit suspensions that must be
reinstated if the plan is approved for SFA. Under

[[Page 36606]]

Sec. 4262.15, a plan receiving SFA must reinstate benefits suspended
under section 305(e)(9) of ERISA and provide make-up payments to
participants and beneficiaries, to restore previously suspended
benefits, in accordance with guidance issued by the Treasury Department
and the IRS. This requirement applies to both the original plan and the
successor plan created by a partition where benefits under the original
plan were suspended. Having the original and successor plans apply as
one will ensure coordinated benefit reinstatements for all participants
in the partitioned plan.
The filing of an application for a partitioned plan falls under
priority group 2 for purposes of Sec. 4262.10(d) (explained in
Processing applications), consistent with other plans that are eligible
for SFA because they have implemented a suspension of benefits under
section 305(e)(9) of ERISA as of March 11, 2021. The plan sponsor of a
partitioned plan, therefore, may file an application for SFA beginning
on January 1, 2022, or earlier date specified on PBGC's website.
Partitioned plans have also been receiving financial assistance
from PBGC with repayment obligations under section 4261 of ERISA. How
financial assistance under section 4261 is repaid is prescribed under
Sec. 4262.12(b) of the regulation.

Processing Applications

PBGC expects the SFA program to attract many applicants, and the
statute makes clear that PBGC is expected to process applications
quickly. PBGC is required to hold application processing times to
within 120 days and is given authority to manage that process.
Under section 4262(c) of ERISA, PBGC must issue regulations or
guidance setting forth requirements for SFA applications. Applications
are considered timely filed under section 4262(g) only if they are
filed in accordance with PBGC's regulations. PBGC's inherent authority
under section 4002(b)(3) of ERISA allows PBGC to adopt regulations
relating to the conduct of its business and to carry out the purposes
of the title IV insurance program. Under section 4262(d) of ERISA, PBGC
also may limit the filing of SFA applications to filings for plans that
are in one or more of four ``priority'' categories during a period
limited to within the first 2 years after March 11, 2021.
While PBGC is confident in its ability to process an application
within the mandated 120 days, it might not be able to process all
applications timely if many applications must be processed within a
brief period. Thus, PBGC is concerned about the rate at which
applications are submitted for processing. Relying on the
aforementioned authorities that allow PBGC to administer the SFA
application process, PBGC has developed a ``metering'' system to manage
the filing and processing of applications. The goal of this system is
to process the large number of expected applications within the 120
days mandated by the statute, while avoiding both ``floods'' of
applications that could cause applications to be deemed approved (as
described in Sec. 4262.11) without sufficient PBGC review, and
``droughts'' when processing capacity is sitting idle. The risks of an
insufficiently reviewed application are varied, including, but not
limited to, SFA payments that are insufficient to meet program
requirements, and SFA payments that are higher than necessary to meet
program requirements. These risks are exacerbated by the lump sum form
of payment required by ARP. To manage these risks and ensure the
success, integrity, and proper stewardship of the program, it is
important that PBGC thoroughly review each application.
The electronic filing system described in Sec. 4262.10 of the
regulation is based on three mechanisms. The first mechanism permits
PBGC to accept applications in a manner that in PBGC's estimation
allows for sufficient review and processing within 120 days of filing.
The inherent authority provided by section 4002(b)(3) of ERISA to issue
regulations related to the conduct of its business, and the directive
under section 4262(c) to set forth requirements for applications,
clearly authorize PBGC to limit the number of applications it will
accept at any one time, and to close the filing window to avoid choking
the processing system, provided that every prospective submitter has a
fair opportunity to file its application by December 31, 2025 (or
December 31, 2026, for a revised application).
The second mechanism is a priority system permitted by section
4262(d) of ERISA. PBGC is establishing ``priority'' periods during
which an application will be accepted only for a plan that is in the
category (or one of the categories) to which the period is limited.
This mechanism is consistent with section 4262(d), although not a
direct implementation of that provision, which (by its use of the
disjunctive ``or'') indicates that priority status may be extended to
any one or more subgroups of priority-status plans and which does not
limit the number of priority submission windows. Accordingly, PBGC has
designed this mechanism to prioritize the most impacted plans and
participants first. For example, the highest priority is given to
applications of plans that are projected to become insolvent under
section 4245 of ERISA by March 11, 2022, so that they will not have to
reduce participant benefits, and plans that are already insolvent, to
enable them to reinstate benefits and provide make-up payments to
participants and beneficiaries, to restore previously suspended
benefits. The objective is to accept and process as many applications
in the highest priority group as possible before opening the submission
process to the next priority group. Ultimately--no later than March 11,
2023--the submission process will be opened to all eligible plans, to
ensure that every prospective submitter has a fair opportunity to file
its application during the statutory period. As described earlier in
this section of the preamble, PBGC will continue to meter the flow of
applications to avoid exceeding its capacity to process them within 120
days.
PBGC will accept applications for filing for priority group 1
beginning on July 9, 2021. The second highest priority is given to
applications of plans that have implemented a suspension of benefits
under section 305(e)(9) of ERISA as of March 11, 2021, to enable them
to reinstate benefits and provide make-up payments to participants and
beneficiaries to restore previously suspended benefits, and plans
expected to be insolvent within 1 year of the date an application for
SFA is filed. PBGC will accept applications for filing for priority
group 2 beginning no later than January 1, 2022. The filing dates for
applications from the remaining four priority groups (groups 3-6) are
provided for in Sec. 4262.10(d)(2)(iii) through (vi), with filings for
priority groups 5 and 6 beginning no later than February 11, 2023. In
addition, PBGC will specify on its website, at least 21 days in
advance, the date the last 2 priority groups (groups 5 and 6) may file.
This table shows when applications for each priority group may
begin to be filed.

[[Page 36607]]

------------------------------------------------------------------------
Description of priority Date plans may apply
Priority group group for SFA
------------------------------------------------------------------------
1..................... Plans already insolvent Beginning on July 9,
or projected to become 2021.
insolvent before March
11, 2022.
2..................... Plans that implemented Beginning on January 1,
a benefit suspension 2022, or earlier date
under section specified on PBGC's
305(e)(9) of ERISA as website.
of March 11, 2021.
Plans expected to be
insolvent within 1
year of the date an
application for SFA is
filed.
3..................... Plans in critical and Beginning on April 1,
declining status that 2022, or earlier date
had 350,000 or more specified on PBGC's
participants. website.
4..................... Plans projected to Beginning on July 1,
become insolvent 2022, or earlier date
before March 11, 2023. specified on PBGC's
website.
5..................... Plans projected to Date to be specified on
become insolvent PBGC's website at
before March 11, 2026. least 21 days in
advance of such date,
but no later than
February 11, 2023.
6..................... Plans for which PBGC Date to be specified on
computes the present PBGC's website at
value of financial least 21 days in
assistance under advance of such date,
section 4261 of ERISA but no later than
to be in excess of $1 February 11, 2023.
billion (in the
absence of SFA).
7..................... Additional plans that Date to be specified on
may be added by PBGC PBGC's website no
based on other later than March 11,
circumstances similar 2023.
to those described for
priority groups 1-6.
------------------------------------------------------------------------

As priority groups open, PBGC will continue to accept applications
from plans in earlier priority groups. While the priority mechanism may
entail a relatively short deferral of an application for a given plan
until its respective priority group opens, the amount of SFA ultimately
awarded will reflect the amount required to pay all benefits due
pursuant to the statute.\14\
---------------------------------------------------------------------------

\14\ For instance, the value of plan assets may fluctuate during
a deferral period and the amount of SFA will adjust based on that
experience.
---------------------------------------------------------------------------

Applications of plans in a priority category must also be submitted
to the Secretary of the Treasury under section 432(k)(1)(D) of the
Code. If that requirement applies to an application, PBGC will transmit
the application to the Treasury Department on behalf of the plan, and
the Treasury Department has provided in guidance (Notice 2021-38) that
it will treat the requirement under section 432(k)(1)(D) as satisfied.
The third mechanism is a notification system on PBGC's website to
keep prospective applicants apprised of when a filing window opens or
closes and (if applicable) to what priority groups filing is limited.
This mechanism will enable applicants to know when the system is
accepting their priority group's filing.
In sum, the system works like this:
<bullet> Applications will be accepted initially only from plans in
the highest priority group. PBGC will begin accepting applications from
the other priority groups as of the dates described earlier in this
section of the preamble (and set forth in Sec. 4262.10(d)(2) of the
regulation) and posted on PBGC's website at <a href="http://www.pbgc.gov">www.pbgc.gov</a>.
<bullet> Applications are processed based on capacity. An
application will be considered filed on the date it is electronically
submitted to PBGC if the application meets any applicable priority
requirements and can be accommodated in accordance with the processing
system. Otherwise, PBGC will not consider the application filed and
will notify the applicant that the application must be filed in
accordance with the processing system and instructions on PBGC's
website.
PBGC will accept as many applications as the agency estimates it
can process in 120 days. Once the number of applications reaches that
level, the filing window will temporarily close until PBGC has capacity
to process more applications. PBGC will maintain a dedicated web page
for applications on its website at <a href="http://www.pbgc.gov">www.pbgc.gov</a> to inform prospective
applicants about the current status of the filing window, as well as to
provide advance notice of when PBGC expects to open or temporarily
close the filing window. PBGC will contact interested prospective
applicants via email when such new information is available. PBGC will
also post information about the status of filed applications.
A plan sponsor may contact PBGC informally to discuss a potential
application for SFA.

Emergency Filings

PBGC recognizes that in rare circumstances a plan may experience an
event that brings it closer to insolvency than previously projected.
Consistent with section 4262(d)(1)(D) of ERISA, which allows PBGC to
add priority categories as it determines appropriate based on other
similar circumstances, PBGC is including an emergency filing process to
accept priority applications from a plan that is insolvent or expected
to be insolvent under section 4245(a) of ERISA within 1 year of filing
an application, or a plan that has implemented a suspension of benefits
under section 305(e)(9) of ERISA as of March 11, 2021. Beginning with
PBGC's acceptance of ``priority group 2'' filings, PBGC will accept
emergency filings from these plans during periods when PBGC would not
otherwise accept such applications. A filer submitting an application
under the emergency filing process must substantiate the claim of
emergency status and notify PBGC, in accordance with the SFA
instructions on PBGC's website at <a href="http://www.pbgc.gov">www.pbgc.gov</a>, before submission of
the impending application.

PBGC Action on Applications

Section 4262(g) of ERISA provides that PBGC can either approve or
deny an application for SFA and establishes a short time period during
which PBGC must act or an application is deemed approved. As described
under Sec. 4262.11 of the regulation, PBGC must act on an application
within 120 days after the date an initial or revised application is
properly and timely filed. If PBGC approves an application, it will
notify the plan sponsor of the payment of SFA in accordance with Sec.
4262.12.
If PBGC denies an application, it will notify the plan sponsor in
writing of the reasons for the denial. An application may be denied
because it is incomplete (it does not accurately include the
information required to be filed); because an assumption is
unreasonable, a proposed change in assumption is individually
unreasonable, or the proposed changed assumptions are unreasonable in
the aggregate; or because the plan is not an eligible multiemployer
plan. For example, pending approval of an application if PBGC
determines that documentation supporting a certification of critical
and declining status is missing or the plan sponsor has not responded
to a PBGC request for information to clarify an item in that
documentation, PBGC's

[[Page 36608]]

notice will identify the missing information or documentation required
to complete the application. If PBGC denies an application, the plan
sponsor may choose to submit a revised application or withdraw the
denied application. If the plan sponsor submits a revised application,
the revised application must not differ from the denied application
except to the extent necessary to address the reasons stated in PBGC's
notification for the denial. In other words, PBGC is not requiring a
plan sponsor to refile the entire application. PBGC only needs the
information that cures the reasons specified in the denial notice.
The plan sponsor may withdraw an application (in writing and in
accordance with the SFA instructions on PBGC's website, <a href="http://www.pbgc.gov">www.pbgc.gov</a>)
at any time before or after PBGC denies the application, but not after
PBGC has approved the application. If an application is withdrawn, the
plan sponsor may refile the application as a revised application.
For any revised application, PBGC requires that the ``base data''
(the SFA measurement date, participant census data, and interest rate
assumption) remain the same as reported on the plan's initial
application to guard against multiple filings for purposes of changing
this data. Once PBGC has accepted an initial application for
processing, PBGC believes that it is in the best interest of all
parties to avoid the duplicate work and delays associated with changes
to the base data. Accordingly, if the plan sponsor withdraws an
application and submits a revised application it must use the base data
from its initial application, but it may make other changes.
PBGC's decision on an application for SFA is a final agency action
for purposes of judicial review under the Administrative Procedure Act
(5 U.S.C. 704).

Payment of Special Financial Assistance

Section 4262(j) of ERISA provides that SFA is the amount required
for an eligible plan to pay all benefits due from the date PBGC pays
the SFA to the plan until the last day of the plan year ending in 2051.
But as described earlier in this preamble, a plan sponsor does not know
when SFA will be paid at the time the sponsor prepares an application.
The SFA amount supported by an application and approved by PBGC will be
the amount appropriate to a date in the past. The amount of SFA could
be recomputed as of the date of payment, yet the result would still be
an estimate and the burden of computation would be significant.
Instead, Sec. 4262.12 provides that PBGC will pay a plan the amount
demonstrated under the plan's application, determined as of the SFA
measurement date, plus interest on that amount, representing the time
differential between the computation and the date PBGC sends payment
(not the bank settlement date) and using the interest rate equal to the
rate required under Sec. 4262.4(e)(1).
Section 4262.12(d) of the regulation provides that PBGC will pay
SFA to a plan in a lump sum or substantially so \15\ as soon as
practicable upon approval of the plan's SFA application. PBGC expects
payment to be made usually within 60 days, but no later than 90 days
after the plan's SFA application is approved by PBGC or deemed approved
(and in any event not later than September 30, 2030). Payment will be
made in accordance with payment instructions provided by the plan in
its application. Payment will be considered made when, in accordance
with the plan's payment instructions, PBGC no longer has ownership of
the amount being paid. Any adjustment for delay will be borne by PBGC
only to the extent that it arises while PBGC has ownership of the
funds.
---------------------------------------------------------------------------

\15\ For example, if a plan's SFA payment exceeds the statutory
limitation for a federal wire of $10 billion, the plan will receive
multiple Fedwire payments that will equal the approved lump sum
amount.
---------------------------------------------------------------------------

For a plan with an obligation to repay financial assistance under
section 4261 of ERISA, the regulation describes the process for that
repayment.
Unlike assistance under section 4261, section 4262(a)(2) of ERISA
provides that payment of SFA is not a loan subject to repayment
obligations. However, PBGC clarifies in Sec. 4262.12(d)(1) that SFA is
subject to recalculation or adjustment to correct a clerical or
arithmetic error. PBGC will, and plans must, make payments as needed to
reflect any such changes in a timely manner. SFA is also subject to
debt collection if PBGC determines that a payment for SFA to a plan
exceeded the amount to which the plan was entitled. Section
4262.12(d)(2) provides the rules for payment of a debt owed to the
Federal Government.

Restrictions on Special Financial Assistance

Section 4262(l) of ERISA places restrictions on the use of SFA.
These restrictions are described in Sec. 4262.13 of the regulation.
SFA received, and any earnings thereon, must be segregated from other
plan assets and may only be used to make benefit payments and pay plan
expenses (but SFA may be used before other plan assets are used for
these purposes). In addition, SFA (and earnings) must be invested by
plans in investment-grade bonds or other investments as permitted by
PBGC in Sec. 4262.14. These limitations on the use of SFA reflect the
purpose of SFA. As provided for under section 4262(j)(1) of ERISA and
in Sec. 4262.4, SFA is the amount required for the plan to pay all
benefits due during the SFA coverage period taking into account all
plan resources and obligations. SFA should not be used in a manner that
would divert SFA funds to other purposes--for instance, reducing
sources of plan income, such as employer contributions or withdrawal
liability, or increasing plan obligations, such as to pay for
additional future increases in benefits.

Permissible Investments

Section 4262(l) of ERISA requires that SFA received, and any
earnings thereon, may be used to make benefit payments and pay plan
expenses, and such SFA and earnings must be held separately from other
plan assets. Section 4262(l) also requires that SFA funds be invested
in investment-grade bonds or other investments permitted by PBGC.
Given the statute's requirement that SFA funds, and any earnings on
investment of those funds, be used solely to pay benefits and plan
expenses, PBGC understands that SFA funds should be invested in
relatively safe vehicles that will help ensure that short-term needs to
pay benefits and plan expenses can be met. That section 4262(l) of
ERISA refers to investment-grade bonds first, supports this view. The
allowance under section 4262(l) for ``other investments permitted by
the corporation'' could provide some flexibility (as well as limited
exposure to other assets), but PBGC in this interim final rule is
reluctant to allow for investment vehicles with fundamentally different
characteristics without further input from the public.
Section 4262.14 of the regulation describes the permitted
investments of SFA, referred to as permissible investments. To give
effect to the evident intention that SFA be invested in relatively safe
investments, the regulation permits SFA and earnings on SFA to be
invested only in fixed income securities that must be considered
investment grade except for a 5 percent sleeve that allows a plan to
hold on to investments that were considered investment grade at the
time of purchase but are no longer of that credit quality. Thus, SFA
funds will be fairly protected and plans will have clear expectations
about what the income return will be.

[[Page 36609]]

Permissible investments may be held in individual fixed-income
securities or in commingled funds, such as Exchange Traded Funds
(ETFs), mutual funds, pooled trusts, or other commingled securities
(which are defined in the regulation as permissible fund vehicles). To
ensure the quality of the securities that may be invested with SFA, the
regulation provides that permissible investments are considered
investment grade if a fiduciary, within the meaning of section 3(21) of
ERISA, who is or seeks the advice of an experienced investor (such as
an Investment Advisor registered under section 203 of the Investment
Advisor's Act of 1940) makes such a determination.
For purposes of the regulation, investment grade means publicly
traded securities for which the issuer has at least adequate capacity
to meet the financial commitments under the security for the projected
life of the asset or exposure. Adequate capacity means that the risk of
default by the obligor is low and the full and timely repayment of
principal and interest on the security is expected. These definitions
are consistent with other Federal agency regulations that make
reference to investment grade securities in compliance with Section
939A of the Dodd Frank Act of 2010.\16\ Further, the requirement that
securities be considered investment grade by an experienced investor
acknowledges that plans receiving SFA, and their advisors, have the
requisite investment knowledge and experience to make sound investment
decisions.
---------------------------------------------------------------------------

\16\ See, e.g., 12 CFR 16.2.
---------------------------------------------------------------------------

Plans may be able to access fixed-income securities from overseas
so long as the securities are denominated in U.S. dollars. In practice,
this would mean that such securities are accessible mainly within
publicly traded markets.
To acknowledge that securities held in ETFs, mutual funds, other
commingled funds, or directly through a portfolio of individual
securities, often are supplemented by derivatives that replicate
exposure to physical bonds or that implement hedging strategies to
protect against downside risk, the regulation permits investment in
vehicles allowing for such strategies so long as any derivative or
leveraging strategy does not increase the interest rate risk or credit
risk of the investments beyond the risk in a similar portfolio of
physical securities (i.e., non-derivative securities) with the same
market value. Further, any notional derivative exposure \17\ on
permissible investments that are held in separate accounts (i.e., not
through a permissible fund vehicle), must be supported by liquid assets
that are cash or cash equivalents denominated in U.S. dollars. This
will ensure that the plan or the investment manager will be able to
cover the derivative exposure with little risk to SFA assets.
---------------------------------------------------------------------------

\17\ Notional value is a term often used to value the underlying
asset in a derivatives trade. It can be the total value of a
position, how much value a position controls, or an agreed-upon
amount in the contract. Definition provided on ``Investopedia'' at
<a href="https://www.investopedia.com/terms/n/notionalvalue.asp">https://www.investopedia.com/terms/n/notionalvalue.asp</a>.
---------------------------------------------------------------------------

In listening sessions with interested parties, PBGC heard concerns
about how overly restrictive requirements on how SFA assets could be
invested could have significant adverse impacts on overall plan
financial health. For instance, with interest rates on fixed income
securities remaining at historically extremely low levels, both SFA and
other plan assets could be depleted and be unable to pay plan benefits
long before 2051. PBGC agrees with such concerns. Because PBGC thought
it important for plans exploring whether to apply for SFA to know what
restrictions could be placed on investment of SFA funds, PBGC is
providing a starting point for discussion on permissible investments of
SFA assets in this interim final rule. With an eye toward finding a
more appropriate balance between certainty and safety of investments on
the one hand, and the opportunity for plans to have flexibility to
decide appropriate overall investment policies on the other, PBGC seeks
public input for refining Sec. 4262.14. In particular, PBGC requests
responses, with corresponding data, on the following:
(1) PBGC is interested in understanding the potential benefits and
risks of investing SFA assets in other vehicles that are or have the
nature of fixed income. These might include synthetic replications of
fixed income securities, insurance contracts, hybrid securities,
preferred stock or other vehicles. In this regard, the following
questions are of interest:
<bullet> What are the advantages of investing in such vehicles,
relative to a portfolio of investment grade fixed income, in terms of
expected returns, reduced risk or other improved outcomes?
<bullet> What are the disadvantages of investing in such vehicles
relative to a portfolio of investment grade fixed income, including
lower returns, higher risk, inequitable outcomes amongst participants
or other issues?
<bullet> What are the implementation and management costs of
investing in such vehicles?
<bullet> Which organizations are qualified to manage and advise on
these vehicles?
<bullet> Can the vehicles, as they might be used in multiemployer
plan portfolios or in the pool of SFA assets, be clearly defined and
easily used?
(2) Should permissible investments of SFA assets be limited to
fixed income securities? For instance, should the rule permit
investment of a percentage of SFA assets in certain stock ETFs or
mutual funds that have investment profiles that are not materially
riskier than fixed income-based investment grade securities?
(3) What is the appropriate amount of SFA assets that may be
permitted to be invested in non-investment grade securities?
(4) What is the proper relationship to restrictions on SFA asset
investments to other plan asset allocations?

Conditions for Special Financial Assistance

To ensure that SFA is used for the purpose of paying benefits and
the expenses related to those benefit payments, section 4262(m)(1) of
ERISA gives PBGC authority, in consultation with the Secretary of the
Treasury, to impose reasonable conditions on an eligible multiemployer
plan that receives SFA. Conditions may relate to increases in future
accrual rates and any retroactive benefit improvements, allocation of
plan assets, reductions in employer contribution rates, diversion of
contributions to, and allocation of expenses to, other benefit plans,
and withdrawal liability. In determining what conditions to impose, in
consultation with the Treasury Department, PBGC considered, among other
things, the potential actions of contributing employers and the
security of the accrued benefits of plan participants. These
considerations are discussed in greater detail in the regulatory impact
analysis section of the rule.
Under certain circumstances, a plan sponsor may request approval
from PBGC for an exception to conditions relating to reductions in
employer contribution rates, transfers or mergers, and settlement of
withdrawal liability. These exceptions are explained later in this
section of the preamble. PBGC is soliciting public comment on whether
there are other circumstances relating to the conditions described
under Sec. 4262.16 where PBGC should consider providing approval for
exceptions.
(a) Benefit Increases
Section 4262.16(b) imposes reasonable conditions on a plan that
receives SFA with respect to the types

[[Page 36610]]

of benefits and benefit increases described in section 4022A(b)(1) of
ERISA, without regard to the time the benefit or benefit increase has
been in effect. These conditions are intended to prevent excessive
increases in benefits that would result in a transfer of SFA beyond the
payment of benefits at the level that participants were promised as of
the date of enactment of section 4262, without being overly
restrictive. The condition does not apply to the required reinstatement
of benefits suspended under sections 305(e)(9) or 4245(a) of ERISA or
any restoration of benefits under 26 CFR 1.432(e)(9)-1(e)(3).
The condition in Sec. 4262.16(b)(1) restricts retrospective
benefit increases by providing that a benefit or benefit increase must
not be adopted during the SFA coverage period (defined in Sec. 4262.2
of the regulation) if it is in whole or in part attributable to service
accrued or other events occurring before the adoption date of the
amendment. This condition is needed because retroactive increases in
benefits harm the funded position of the plan without improving
expected future plan income.
The condition in Sec. 4262.16(b)(2) restricts prospective benefit
increases by providing that a benefit or benefit increase must not be
adopted during the SFA coverage period unless the plan actuary
certifies that employer contribution increases projected to be
sufficient to pay for the benefit increase have been adopted or agreed
to, provided that these increased contributions were not included in
the determination of SFA. The plan sponsor must demonstrate that a
benefit increase is paid for in the statement of compliance described
under Sec. 4262.16(i). This condition is intended to guard against
plans implementing significant benefit increases that may accelerate
plan insolvencies and hasten an inability to pay plan-level benefits.
However, plans still have the flexibility to offer active participants
more attractive benefit accruals when the plan is able to afford them.
These conditions on benefit increases are in addition to the
limitations under section 305(f)(1)(B) of ERISA (and corresponding
section 432(f)(1)(B) of the Code) applicable to plans in critical
status.
(b) Allocation of Plan Assets
Section 4262.16(c) imposes a condition on a plan that receives SFA
relating to the allocation of plan assets. This condition requires
that, during the SFA coverage period, plan assets, including SFA, must
be invested in permissible investments as described in Sec. 4262.14
sufficient to pay for at least 1 year (or until the date the plan is
projected to become insolvent, if earlier) of projected benefit
payments and administrative expenses.
By imposing investment constraints on SFA assets in section 4262(l)
of ERISA and providing PBGC the authority to impose additional
constraints on asset allocation in section 4262(m), the statute
contemplates a desire to prevent excessive risk-taking by plans that
receive SFA. PBGC views the gradual increase in the proportion of
assets allocated to fixed income as a plan approaches insolvency as a
sensible and prudent approach to investing over a gradually shortening
time horizon. However, PBGC is interested in whether this condition is
seen as preventing plans from achieving reasonable investment
objectives. PBGC encourages interested parties to respond, and provide
supporting data, to the following questions:
<bullet> Will the requirement to maintain 1 year (or until the date
the plan is projected to become insolvent, if earlier) of benefit
payments and administrative expenses in investment grade fixed income
assets result in an allocation that is significantly different from the
allocation that the plan's investment policy (after receiving SFA)
would otherwise attain?
<bullet> What are the advantages and disadvantages of PBGC not
imposing any conditions under section 4262(m) of ERISA on asset
allocation compared to the proposed condition requiring 1 year (or
until the date the plan is projected to become insolvent, if earlier)
of benefit payments and administrative expenses in investment grade
fixed income?
<bullet> Could an alternative condition, or modification of the
condition under Sec. 4262.16(c), better achieve the objective of
preventing excessive risk-taking by plans while allowing plans to meet
their investment objectives?
(c) Contribution Decreases, Allocating Contributions and Other
Practices
Section 4262.16(d) of the regulation imposes reasonable conditions
on a plan that receives SFA relating to contribution decreases to
ensure that SFA is used for the exclusive purpose of paying benefits
and reasonable administrative expenses and is not effectively
transferred to contributing employers through decreased contribution
obligations. Similarly, Sec. 4262.16(e) imposes reasonable conditions
relating to allocation of income or expenses with another employee
benefit plan and other practices.
For the condition on contribution decreases, Sec. 4262.16(d)
provides that during the SFA coverage period, the contributions
required for each CBU must not be less than, and the definition of the
CBUs must not be different from, those set forth in collective
bargaining agreements or plan documents in effect on March 11, 2021
(including agreed to contribution rate increases through the expiration
date of the collective bargaining agreements).
The regulation provides an exception to this condition where the
plan sponsor determines that the risk of loss to plan participants and
beneficiaries is lessened by the reduction. Where the reduction affects
annual contributions over $10 million and over 10 percent of all
employer contributions, PBGC must also determine that the change
lessens the risk of loss to participants and beneficiaries. Information
required to be submitted to PBGC for a request for approval of a
proposed changed is described in Sec. 4262.16(d)(2). The exception is
intended, for example, to allow a contributing employer to reduce
contributions below collectively bargained rates so that the employer
may continue in business and not be forced to withdraw in conjunction
with a bankruptcy. This condition generally is intended to prevent
reductions in contribution rates that may accelerate plan insolvencies,
while providing limited flexibility for employers with extenuating
financial circumstances.
With respect to the allocation of contributions and other practices
during the SFA coverage period, Sec. 4262.16(e) prohibits a decrease
in the proportion of income (contributions, investment returns, etc.)
or an increase in the proportion of expenses allocated to a plan that
receives SFA. This prohibition applies to written or oral agreements or
practices (other than a written agreement in existence on March 11,
2021, to the extent not subsequently amended or modified) under which
income or expenses are divided or to be divided between a plan that
receives SFA and one or more other employee benefit plans.
Among the practices covered by this prohibition is any allocation
or reallocation of contribution rates from the plan receiving SFA to a
newly formed pension plan. Similarly, plan expenses can be paid by a
plan only if they are properly allocable to that plan. Accordingly,
another prohibited practice is a change in the allocation of expenses
with other benefit plans that serves to increase the proportion of
expenses to be paid by the plan receiving SFA.
However, the prohibition under Sec. 4262.16(e) does not apply to a
good faith allocation of contributions

[[Page 36611]]

pursuant to a reciprocity agreement. (If the principal purpose of
entering into, amending, or modifying a reciprocity agreement after
March 11, 2021, is to circumvent Sec. 4262.16(e), any allocation made
pursuant to such reciprocity agreement will not be considered as made
in good faith.) The prohibition also does not apply to a good faith
allocation of contributions where the contributions to a plan that
receives SFA required for each base unit are not reduced (except if the
reduction is approved by PBGC). It also does not apply to a good faith
allocation of the costs of securing shared space, goods, or services,
where such allocation does not constitute a prohibited transaction
under ERISA or is otherwise exempt from the prohibited transaction
provisions pursuant to section 408(b)(2), 408(c)(2), or 408(a) of
ERISA, or of the actual cost of services provided to the plan by an
unrelated third party. As with the other conditions under Sec.
4262.16, the condition under Sec. 4262.16(e) is intended to ensure
that plans receiving SFA do not engage in transactions that may
accelerate plan insolvency.
(d) Transfers or Mergers
Section 4262.16(f) provides that during the SFA coverage period, a
plan must not engage in a transfer of assets or liabilities (including
a spinoff) or merger except with PBGC's approval. Notwithstanding
anything to the contrary in PBGC's regulation on mergers and transfers
between multiemployer plans (29 CFR part 4231), the plans involved in
the transaction must request approval from PBGC. A request for approval
must contain information that would be required to be submitted under
Sec. 4231.10 and the additional actuarial and financial information
described in Sec. 4262.16(f)(2). PBGC will approve a proposed transfer
or merger if: (1) The transaction complies with section 4231(a)-(d) of
ERISA, (2) the transfer or merger, or the larger transaction of which
the transfer or merger is a part, does not unreasonably increase PBGC's
risk of loss respecting any plan involved in the transaction, and (3)
the transfer or merger is not reasonably expected to be adverse to the
overall interests of the participants and beneficiaries of any of the
plans involved in the transaction. An example of a larger transaction
is where the trustees of a plan receiving SFA arrange a transfer of
assets and liabilities from the plan and amend the plan to
substantially or completely end benefit accruals in connection with the
plan's active participants beginning to accrue benefits under another
existing or newly formed plan.
(e) Withdrawal Liability
Under sections 4201 through 4225 of ERISA, when a contributing
employer withdraws from an underfunded multiemployer plan, the plan
sponsor assesses withdrawal liability against the employer. Withdrawal
liability represents a withdrawing employer's proportionate share of
the plan's unfunded benefit obligations and is an important source of
income for the plan. To assess withdrawal liability, the plan sponsor
must determine the withdrawing employer's (1) allocable share of the
plan's unfunded vested benefits (the value of nonforfeitable benefits
that exceeds the value of plan assets) as of the end of the plan year
before the employer's withdrawal as provided under section 4211, and
(2) annual withdrawal liability payment as provided under section 4219.
Under section 4219(c)(1), an employer's withdrawal liability may be
reduced if the period required to amortize the liability exceeds 20
years.
To preserve SFA for the payment of benefits and expenses and avoid
an indirect transfer of SFA to a withdrawing employer by reducing the
employer's withdrawal liability, in Sec. 4262.16 PBGC uses its
authority under section 4262(m) of ERISA to place reasonable conditions
relating to withdrawal liability on a plan that receives SFA. PBGC
determined that a reasonable condition on a plan that receives SFA is
to require specified interest assumptions to be used for purposes of
determining withdrawal liability.\18\
---------------------------------------------------------------------------

\18\ PBGC intends to propose a separate rule of general
applicability under section 4213(a) of ERISA to prescribe actuarial
assumptions which may be used by a plan actuary in determining an
employer's withdrawal liability.
---------------------------------------------------------------------------

Under Sec. 4262.16(g), for withdrawals that occur after the plan
year in which the plan receives SFA, the interest assumptions used in
determining unfunded vested benefits for purposes of determining
withdrawal liability must be mass withdrawal interest assumptions under
Sec. 4281.13(a) of PBGC's regulation on Duties of Plan Sponsor
Following Mass Withdrawal (29 CFR part 4281). PBGC's interest
assumptions used for mass withdrawal liability approximate the market
price insurance companies charge to assume a pension-benefit-like
liability. Using mass withdrawal interest assumptions for purposes of
calculating withdrawal liability is reasonable because withdrawal
liability is the final settlement of the withdrawing employer's
obligation to pay for unfunded vested benefits. Doing so is
particularly important for plans that have developed an adverse
demographic structure, with a small contribution base relative to their
unfunded vested benefits, which is the condition of many of the plans
that are or will become eligible for SFA.
The prescribed interest assumptions must be used until the later of
10 years after the end of the plan year in which the plan receives
payment of SFA or the last day of the plan year in which the plan no
longer holds SFA or any earnings thereon in a segregated account. The
minimum 10-year period for using these required assumptions is similar
to the time period for the special withdrawal liability rules for
benefit suspensions under MPRA.
PBGC determined that these are reasonable conditions because SFA
does not result from employer contributions, and, without such
conditions, the receipt of SFA could substantially reduce withdrawal
liability owed by a withdrawing employer. That could cause more
withdrawals in the near future than if the plan did not receive SFA,
which would reduce plan income and be an additional burden for these
plans. Congress specified in section 4262 of ERISA that SFA and
earnings thereon may be used by a plan to make benefit payments and pay
plan expenses. Payment of SFA was not intended to reduce withdrawal
liability or to make it easier for employers to withdraw.
In addition, under Sec. 4262.16(h) any settlement of withdrawal
liability during the SFA coverage period must be made only with PBGC
approval if the present value of the liability settled is greater than
$50 million (calculated as described under Sec. 4262.16(h)(1)).
Approval ensures that any negotiated settlements of material size are
in the best interests of the participants in the plan, and do not
create an unreasonable risk of loss to PBGC. The information required
to be submitted for a request for approval of a proposed withdrawal
liability settlement is under Sec. 4262.16(h)(3).
(f) Reporting and Audit
In order to monitor compliance with the conditions imposed on plans
that receive SFA, PBGC requires under Sec. 4262.16(i) that plan
sponsors file with PBGC each plan year, beginning with the plan year
after the payment of SFA and through the last day of the last plan year
ending in 2051, a statement of compliance with the terms and conditions
of SFA. The statement must be filed with PBGC no later than 90 days

[[Page 36612]]

after the end of the plan year and in accordance with the statement of
compliance instructions on PBGC's website at <a href="http://www.pbgc.gov">www.pbgc.gov</a>.
PBGC may conduct periodic audits of plans that have received SFA to
review compliance with the terms and conditions of the SFA program.

Reinstatement of Benefits Previously Suspended

Section 4262(k) of ERISA imposes two conditions on a plan that
receives SFA and previously suspended benefits in accordance with
sections 305(e)(9) or 4245(a) of ERISA. A plan must reinstate any
benefits that were suspended and must provide payments to certain
participants or beneficiaries to make up past amounts of benefits
previously suspended.
As provided under section 4262(k) of ERISA,\19\ Sec. 4262.15
requires plans to reinstate these previously suspended benefits as of
the month in which SFA is paid, and to provide make-up payments with
respect to the previously suspended benefits, in accordance with
guidance issued by the Treasury Department and the IRS. This guidance
has been issued as Notice 2021-38. Section 4262(k) and Sec. 4262.15
give the plan sponsor flexibility to design payment of make-up amounts
as a single lump sum within 3 months of the payment date of SFA, or in
equal monthly installments over a period of 5 years, commencing within
3 months of the payment date, with no installment payment adjusted for
interest.
---------------------------------------------------------------------------

\19\ Section 4262(k) of ERISA contains rules that are parallel
to section 432(k) of the Code. Under section 9704(d)(3) of ARP, the
Secretary of the Treasury has interpretive jurisdiction over the
rules for determining the benefit reinstatement and make-up payments
that must be made by a multiemployer plan receiving SFA, for
purposes of ERISA as well as the Code. Under section 4262(k), the
Secretary of Labor, in coordination with Secretary of the Treasury,
must ensure benefits are reinstated and previously suspended
benefits paid.
---------------------------------------------------------------------------

The plan sponsor of a plan with benefits that were suspended under
section 305(e)(9) or 4245(a) of ERISA is required in Sec. 4262.15(c)
to furnish a notice of reinstatement to participants and beneficiaries
whose benefits were previously suspended and then reinstated in
accordance with section 4262(k) of ERISA. The requirements for the
notice, including content requirements, are in notice of reinstatement
instructions, in an addendum to the SFA application instructions,
available on PBGC's website at <a href="http://www.pbgc.gov">www.pbgc.gov</a>.
PBGC is providing for this notice of reinstatement so that
participants and beneficiaries are adequately informed about the amount
(and calculation) of reinstatement and make-up payments, taking into
account any restoration of benefits under 26 CFR 1.432(e)(9)-1(e)(3),
and know when to expect the reinstatement and make-up payments. The
notice also informs participants and beneficiaries how to contact the
Department of Labor if they need assistance in understanding their
rights under the reinstatement process. The Department has advised that
if participants and beneficiaries better understand the benefits they
will be receiving as a result of the plan receiving SFA, it will help
the Department meet its obligations under section 4262(k) of ERISA to
ensure that suspended benefits are reinstated and make-up payments
made.
Section 4262(k) of ERISA states that ``the Secretary, in
coordination with the Secretary of the Treasury, shall ensure that an
eligible multiemployer plan that receives special financial
assistance'' reinstates suspended benefits and provides make-up
payments required by the statute. The Department of Labor notes that it
will need access to, and if requested, copies of records to ensure that
plans receiving SFA reinstate the suspended benefits of participants
and beneficiaries as required by section 4262(k). Plan fiduciaries have
an obligation under title I of ERISA to maintain complete and accurate
records, including information the Department may need to ensure the
timely reinstatement of suspended benefits and payment of make-up
payments under section 4262(k) of ERISA. The Department has advised
that a plan's failure to maintain adequate and complete records could
result in violations of sections 107, 209, and 404 of ERISA. The
Department is considering issuing guidance to address the records and
information that plans receiving SFA will need to maintain and retain
to comply with title I of ERISA.

Other Provisions

Section 4262 of ERISA contains other provisions that apply to SFA
and plans receiving SFA. These provisions are enumerated under Sec.
4262.17 of the regulation:
<bullet> SFA must not be capped by the guarantee under section
4022A of ERISA.
<bullet> A plan receiving SFA is required to continue to pay
premiums due under section 4007 of ERISA for participants and
beneficiaries in the plan.
<bullet> A plan that receives SFA is deemed to be in critical
status within the meaning of section 305(b)(2) of ERISA until the last
plan year ending in 2051.
<bullet> A plan that receives SFA and subsequently becomes
insolvent under section 4245 of ERISA will be subject to the rules and
guarantee for insolvent plans in effect when the plan becomes
insolvent.
<bullet> A plan that receives SFA is not eligible to apply for a
suspension of benefits under section 305(e)(9) of ERISA.
Section 4262.17 also provides that a plan that receives SFA and
meets the eligibility requirements for partition of the plan under
section 4233(b) of ERISA may apply for partition under section 4233.
One of those requirements, in section 4233(b)(2), provides that a
multiemployer plan is eligible for partition if ``the corporation
determines, after consultation with the Participant and Plan Sponsor
Advocate . . ., that the plan sponsor has taken (or is taking
concurrently with an application for partition) all reasonable measures
to avoid insolvency, including the maximum benefit suspensions under
section 305(e)(9), if applicable[.]'' Section 4262(m)(6) provides that
a plan that receives SFA is not eligible to apply for a subsequent
suspension of benefits under MPRA. Therefore, for a plan that has
received SFA, a suspension of benefits under section 305(e)(9) is not
``applicable'' within the meaning of section 4233(b)(2) and is not a
reasonable measure available to the plan.
Finally, Sec. 4262.17 includes a severability provision that
provides that if any of the provisions of this interim final rule are
found to be invalid or stayed pending further agency action, the
remaining portions of the rule would remain operative.

Compliance With Rulemaking Guidelines

Administrative Procedure Act

The Administrative Procedure Act at 5 U.S.C. 553(b) provides that
notice and comment requirements do not apply when an agency, for good
cause, finds that they are impracticable, unnecessary, or contrary to
the public interest. An exception is also provided at 5 U.S.C.
553(d)(3) to the requirement of a 30-day delay before the effective
date of a rule ``for good cause found and published with the rule.''
Section 9704 of the American Rescue Plan (ARP) Act of 2021 set up a
``Special Financial Assistance Program for Financially Troubled
Multiemployer Plans.'' PBGC is issuing this rule without advance notice
and public comment as an interim final rule to allow for immediate
implementation of this program.
Under new section 4262(c) of ERISA, PBGC is mandated to issue
regulations or guidance setting forth the

[[Page 36613]]

requirements for eligible plans to apply for special financial
assistance (SFA) within a short 120 days of the date of enactment of
ARP (March 11, 2021). Moreover, PBGC must review applications within
only 120 days of filing and plans must apply by the statutory cutoff
date of December 31, 2025 (December 31, 2026, for revised
applications). The compressed timeline for issuing rules, applying for
assistance, and processing applications expresses a clear urgency to
get appropriate assistance to eligible plans as quickly as possible.
Underscoring that urgency, Congress authorized PBGC to prioritize
the filing of applications for eligible plans with the greatest need,
but only during the first 2 years after March 11, 2021. Recognizing
that need, PBGC in this interim final rule is prioritizing applications
of plans, including soon-to-be insolvent plans and already insolvent
plans that previously suspended benefits of participants and
beneficiaries--benefits that must be reinstated and restored through
make-up payments as a requirement of receiving SFA. Any delay of the
effective date of the rule would be contrary to the financial interests
of the participants and beneficiaries in these plans. If financial
assistance is delayed and plans become insolvent, benefits for
participants and beneficiaries will be reduced. For plans already
insolvent with participant benefits that were already reduced, any
delay will result in participants and beneficiaries having to wait
longer to have their benefits reinstated and to receive their make-up
payments.
Furthermore, the interim final rule imposes reasonable conditions
on eligible plans that receive SFA, as permitted under section
4262(m)(1) of ERISA. PBGC finds good cause for making the conditions
provided in the rule effective simultaneously with the application
requirements. Plan sponsors need to know, before applying for SFA, what
conditions will be imposed on the plan. The conditions may affect a
plan sponsor's decision to apply for SFA or its determination of the
amount of SFA. For example, the condition on withdrawal liability may
affect the assumptions used to determine the amount of SFA in the
plan's application. The conditions in the interim final rule are
integral to the application requirements and decisions being made by
plan sponsors, and, therefore, should be effective without delay.
Accordingly, because of the urgent need to get financial assistance
to eligible plans as quickly as possible, PBGC has determined that
prior notice and comment through the issuance of a notice of proposed
rulemaking is impracticable and that the public interest is best served
by issuing this interim final rule. Further, prior notice and comment
is impracticable within the challenging statutory deadline under which
PBGC must issue regulations to set forth requirements for special
financial assistance applications, and within the limited statutory
timeframe (already begun) in which PBGC has to prioritize the filing of
applications of plans with the most urgent need for assistance.
However, PBGC is requesting comments at the time this interim final
rule is issued and may include changes in a final rule in response to
those comments. For the same reasons discussed earlier, pursuant to 5
U.S.C. 553(d)(3), PBGC is making this rule effective on July 12, 2021.

Congressional Review Act

Pursuant to Subtitle E of the Small Business Regulatory Enforcement
Fairness Act of 1996 (also known as the Congressional Review Act or
CRA) (5 U.S.C. 801 et seq.), the Office of Management and Budget (OMB)
has designated this interim final rule as a ``major rule,'' as defined
by 5 U.S.C. 804(2)(a), which is a rule likely to result in an annual
effect on the economy of $100 million or more. Section 808(2) of the
CRA provides that, notwithstanding the effective date of a major rule
defined under section 801, any rule which an agency for good cause
finds that notice and public procedure thereon are impracticable,
unnecessary, or contrary to the public interest, shall take effect at
such time as the Federal agency promulgating the rule determines. This
good cause justification supports waiver of the 60-day delayed
effective date for major rules under the CRA.
As discussed earlier, because of the urgent need for the SFA
program, PBGC has determined that this interim final rule must take
effect on the date of publication. This immediate effective date is
necessary based on the mandate of section 4262(c) of ERISA to issue
regulations or guidance setting forth the requirements for SFA
applications within 120 days of the date of enactment of ARP. This
short statutory deadline is to allow eligible plans, particularly plans
that are close to insolvency or already insolvent, to begin applying
for much needed financial assistance. Under the circumstances, PBGC has
determined that prior notice and comment through the issuance of a
notice of proposed rulemaking is impracticable and that the public
interest is best served by making this interim final rule effective on
July 12, 2021. PBGC does not want to unduly delay providing financial
assistance to plans.

Regulatory Impact Analysis

(1) Relevant Executive Orders for Regulatory Impact Analysis

Under Executive Order (E.O.) 12866, OMB reviews any regulation
determined to be a ``significant regulatory action.'' Section 3(f) of
E.O. 12866 defines a ``significant regulatory action'' as an action
that is likely to result in a rule that: (1) Has an annual effect on
the economy of $100 million or more, or adversely affects in a material
way a sector of the economy, productivity, competition, jobs, the
environment, public health or safety, or State, local or tribal
governments or communities (also referred to as economically
significant); (2) creates serious inconsistency or otherwise interferes
with an action taken or planned by another agency; (3) materially
alters the budgetary impacts of entitlement grants, user fees, or loan
programs, or the rights and obligations of recipients thereof; or (4)
raises novel legal or policy issues arising out of legal mandates, the
President's priorities, or the principles set forth in the E.O.
OMB has determined that this interim final rule is economically
significant under section 3(f)(1) and has therefore reviewed this rule
under E.O. 12866.
E.O. 13563 supplements and reaffirms the principles, structures,
and definitions governing contemporary regulatory review that were
established in E.O. 12866, emphasizing the importance of quantifying
both costs and benefits, reducing costs, harmonizing rules, and
promoting flexibility. It directs agencies to assess the costs and
benefits of available regulatory alternatives and, if regulation is
necessary, to select regulatory approaches that maximize net benefits
(including potential economic, environmental, and public health and
safety effects, distributive impacts, and equity).
PBGC has provided an assessment of the potential benefits, costs,
and transfers associated with this interim final rule.

(2) Introduction and Need for Regulation

As discussed earlier in the preamble, section 9704 of the American
Rescue Plan (ARP) Act of 2021, ``Special Financial Assistance Program
for Financially Troubled Multiemployer Plans,'' establishes a new
section 4262 of ERISA. To implement section 4262, this interim final
rule adds to PBGC's

[[Page 36614]]

regulations a new part 4262 (Special Financial Assistance by PBGC). It
is through this program that PBGC will provide special financial
assistance (SFA) to eligible multiemployer pension plans from a fund
established by ARP \20\ for SFA purposes and credited with transfers
from the general fund of the Treasury Department.
---------------------------------------------------------------------------

\20\ Specifically, section 9704 of ARP establishes an eighth
fund under section 4005 of ERISA.
---------------------------------------------------------------------------

Before the enactment of ARP on March 11, 2021, the Congressional
Budget Office (CBO) projected the SFA program under section 4262 of
ERISA to pay approximately $86 billion in total assistance to on
average (across model simulations) 185 plans.\21\ PBGC has estimated
the transfer amounts of the SFA program using ME-PIMS, PBGC's
stochastic modeling tool, and projects the aggregate SFA to be
approximately $94 billion in assistance payments to more than 200 plans
and $150 million to PBGC to administer the SFA program. PBGC further
estimates that plans that received financial assistance from PBGC under
section 4261 of ERISA in the form of loans will repay PBGC in aggregate
approximately $200 million.
---------------------------------------------------------------------------

\21\ Congressional Budget Office Cost Estimate, February 17,
2021, <a href="https://www.cbo.gov/system/files/2021-02/hwaysandmeansreconciliation.pdf">https://www.cbo.gov/system/files/2021-02/hwaysandmeansreconciliation.pdf</a>.
---------------------------------------------------------------------------

SFA is expected to assist plans covering more than 3 million
participants, including by providing funds for make-up payments to
restore previously suspended benefits that total approximately $150
million for currently insolvent plans and approximately $550 million
for plans that have adopted approved benefit suspensions under MPRA.
Based on the average of 500 stochastic model simulations, ME-PIMS
projects that over 100 plans that would have otherwise become insolvent
during the next 15 years will instead forestall insolvency as a direct
result of receiving SFA.
Section 4262(m) of ERISA provides PBGC with specific regulatory
authority (in consultation with the Secretary of the Treasury) to
impose reasonable conditions on eligible multiemployer plans that
receive SFA (see Conditions for special financial assistance earlier in
the preamble). Absent the imposition of any conditions, there would be
a potential for employers and plan sponsors to take actions that could
impair the financial health of their plans and thereby jeopardize the
retirement security of plan participants and PBGC's multiemployer
insurance program. Examples include actions that will increase plan
obligations, such as amendments to increase benefit levels, or actions
that could reduce future plan income, such as reductions to
contribution rates or employer withdrawals. Each of these actions has
the potential to accelerate plan insolvencies, which would bring about
participant benefit cuts and increased future claims to PBGC's
multiemployer insurance program that may impair PBGC's ability to pay
financial assistance under section 4261.

(3) Regulatory Action

PBGC strives to implement the SFA program established under this
interim final rule in a manner that is consistent with the following
key objectives: (1) To transfer to a plan the amount required under
section 4262 of ERISA as soon as practicable; (2) to prioritize the
applications of plans in imminent need of financial support and where
participants' suspended benefits are to be restored; (3) to establish
an efficient system for processing applications; and (4) to ensure
prudent stewardship of taxpayer-funded appropriations for SFA,
including the prevention of waste, fraud, and abuse in the SFA program.
Section 4262(m) of ERISA gives PBGC authority, in consultation with
the Secretary of the Treasury, to impose reasonable conditions on an
eligible multiemployer plan that receives SFA relating to increases in
future accrual rates and any retroactive benefit improvements,
allocation of plan assets, reductions in employer contribution rates,
the allocation of contributions and other practices, and withdrawal
liability. In determining what conditions to impose, in consultation
with the Treasury Department, PBGC evaluated the regulatory
alternatives under section 4262(m) to set conditions based on the
following objectives: (1) Meeting the goals of ARP in providing for the
SFA program; (2) stewardship of taxpayer-funded appropriations for SFA;
(3) maintaining the security of the accrued pension benefits (current
and future accruals) of participants in plans that receive SFA; and (4)
preservation of the solvency of the PBGC multiemployer insurance
program.
The regulatory action and related economic considerations for each
condition are described as follows.

Conditions Related to Future Benefit Accruals

The interim final rule provides that, during the SFA coverage
period (beginning on the plan's SFA measurement date through the last
day of the last plan year ending in 2051), plans that receive SFA can
only accept a collective bargaining agreement (CBA) that increases
future benefit accruals unless the plan actuary certifies that employer
contribution increases projected to be sufficient to pay for the
benefit increase have been adopted or agreed to, and provided that such
increased contributions were not included in the determination of SFA.
Plans in critical status are already subject to constraints on
increasing future benefit accrual levels. Under section 305(f)(1) of
ERISA, they must be able to fund any benefit improvements using
contributions that are not already contemplated within their
rehabilitation plans.
The interim final rule similarly would prohibit plans from
implementing significant benefit increases that likely could accelerate
insolvencies after receiving taxpayer-funded assistance. However, it is
evident that attracting and retaining active members to these
financially troubled plans is critical to ensuring that the plans
retain contribution income levels sufficient to sustain plan assets.
Accordingly, the interim final rule allows plans to provide benefit
increases when these increases can be paid for by additional employer
contributions. The condition also does not apply to the required
reinstatement of benefits suspended under section 305(e)(9) or 4245(a)
of ERISA or to any restoration of benefits under 26 CFR 1.432(e)(9)-
1(e)(3).

Conditions Related to Retroactive Benefit Improvements

The interim final rule provides that, during the SFA coverage
period, plans that receive SFA are strictly prohibited from adopting an
amendment to provide any retroactive benefit improvements. Unlike
increases to the level of future accruals, which incentivize active
members to participate in the plan and can thereby improve the expected
contribution income, increases to retroactive benefit levels harm the
funded position of the plan without improving expected future plan
income.

Conditions Related to Allocation of Plan Assets

The interim final rule provides that, during the SFA coverage
period, plans must hold a sufficient portion of total plan assets,
which includes all segregated accounts (including SFA), in permissible
investments (described in Sec. 4262.14) to meet expected plan benefit
payments and administrative expenses for at least 1 year (or until the
date the plan is projected to become insolvent, if earlier). This
requirement is in addition to the restrictions on investments under
Sec. 4262.14. For plans with a large proportion of plan assets as SFA,
this additional condition is not likely to

[[Page 36615]]

result in any additional restrictions on asset allocation until the
plan's SFA account is depleted.
The interim final rule provides plans that receive SFA with the
opportunity to invest in a portfolio that can benefit from risk and
illiquidity premiums over the long-term investment horizon. This
flexibility to invest in other assets is likely to extend the solvency
of these plans, and the limit on that flexibility will only constrain
plans that would otherwise accept an inappropriate level of risk after
receiving taxpayer assistance.

Conditions Related to Reductions in Employer Contribution Rates

The interim final rule provides that, during the SFA coverage
period, the contributions required for each CBU must not be less than,
and the definition of the CBUs used must not be different from, those
set forth in the CBA or plan documents (including agreed to
contribution increases to the end of the collective bargaining
agreements) in effect on March 11, 2021. However, an exception is
provided where a plan sponsor determines that the risk of loss to plan
participants and beneficiaries is lessened by the reduction. Where the
reduction affects annual contributions over $10 million and over 10
percent of all employer contributions, the plan sponsor must request
approval from PBGC, which must also determine that the change lessens
the risk of loss to participants and beneficiaries. Plans in critical
status are already subject to constraints on reducing future
contribution rates and must abide by the terms of their rehabilitation
plans. The interim final rule is intended to broadly prevent reductions
in contribution rates that may accelerate the future insolvencies of
plans, while still providing very limited flexibility for employers
with extenuating financial circumstances.

Conditions Related to the Allocation of Contributions and Other
Practices

Under the interim final rule, during the SFA coverage period, a
decrease in the proportion of income (contributions, investment
returns, etc.) or an increase in the proportion of expenses allocated
to a plan that receives SFA is prohibited. This prohibition applies to
written or oral agreements or practices (other than a written agreement
in existence on March 11, 2021, to the extent not subsequently amended
or modified) under which income or expenses are divided or to be
divided between a plan that receives SFA and one or more other employee
benefit plans. However, the prohibition does not apply to a good faith
allocation of contributions pursuant to a reciprocity agreement. (If
the principal purpose of entering into, amending, or modifying a
reciprocity agreement after March 11, 2021, is to circumvent this
condition, any allocation made pursuant to such reciprocity agreement
will not be considered as made in good faith.) The prohibition also
does not apply to a good faith allocation of contributions where the
contributions to a plan that receives SFA required for each base unit
are not reduced (except if the reduction is approved by PBGC). It also
does not apply to a good faith allocation of the costs of securing
shared space, goods, or services, where such allocation does not
constitute a prohibited transaction under ERISA or is otherwise exempt
from the prohibited transaction provisions pursuant to section
408(b)(2), 408(c)(2), or 408(a) of ERISA, or of the actual cost of
services provided to the plan by an unrelated third party.
This condition is to ensure that plans do not inappropriately
reallocate contributions away from the plan to other benefit programs
or inappropriately reallocate expenses from other benefit programs to
the plan.
In addition, during the SFA coverage period, a plan receiving SFA
must not engage in a transfer of assets or liabilities (including a
spinoff) or merger except with PBGC's approval. PBGC will approve a
proposed transfer or merger if: (1) The transaction complies with
section 4231(a)-(d), (2) the transfer or merger, or the larger
transaction of which the transfer or merger is a part, does not
unreasonably increase PBGC's risk of loss respecting any plan involved
in the transaction and (3) the transfer or merger is not reasonably
expected to be adverse to the overall interests of the participants and
beneficiaries of any of the plans involved in the transaction.
This condition is to ensure that plans that receive taxpayer-funded
assistance do not subsequently engage in transactions that may allocate
contributions away from the plan in a manner that is projected to
accelerate insolvency.

Conditions Related to Withdrawal Liability

Under the interim final rule, a plan must use the interest
assumptions under Sec. 4281.13(a) to determine withdrawal liability
beginning for withdrawals after the plan year in which the plan
receives SFA. This condition continues to apply until the later of 10
years after the end of the plan year in which the plan receives payment
of SFA or the last day of the plan year in which the segregated SFA
asset account is fully depleted.
The interim final rule also provides that, during the SFA coverage
period, plans that receive SFA cannot enter into a negotiated
settlement agreement with a withdrawing employer that is in excess of
$50 million without first obtaining approval from PBGC. It is important
to ensure that any negotiated settlements of material size are not
projected to be harmful to participants in the plan or harmful to
PBGC's multiemployer insurance program.
The interim final rule would prevent the payment of SFA from
resulting in decreases in withdrawal liability assessments and thereby
reduce the incentive for employers to withdraw from these plans. The
purpose of SFA is to help plans pay for benefits and plan expenses and
not to indirectly subsidize employers to exit these plans.

(4) Estimated Impact of Regulatory Action

The following table summarizes the estimated transfers and costs
expected as a result of implementation of the SFA program.
---------------------------------------------------------------------------

\22\ SFA payments to plans are expected to be $474 million in
2027 and $0 thereafter. PBGC administrative expenses are expected to
be $14 million per year from 2027 through 2029 and $10.5 million in
2030. Additional PBGC expenses are expected to be incurred from 2031
through 2051, but would not be funded through general
appropriations. Annual compliance filings are expected to be
$726,800 per year from 2027 through 2051. Condition exemption
filings are expected to be $19,600 per year from 2027 through 2051.

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
PV amount (3% PV amount (7% 2027-2051
rate) rate) 2021 2022 2023 2024 2025 2026 (Total) 22
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Annual Transfer Amounts
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
SFA payments to plans (total $86.35 billion.. $77.33 billion.. $1.46 billion... $43.68 billion.. $23.03 billion.. $13.32 billion.. $8.89 billion... $3.33 billion... $0.47 billion.
nominal value of $94.2
billion).

[[Page 36616]]

Financial assistance loan ($194.17) ($186.92) ($200.00) $0.............. $0.............. $0.............. $0.............. $0.............. $0.
repayment to PBGC (total million. million. million.
nominal value of $200
million).
Total transfer amounts $86.16 billion.. $77.14 billion.. $1.26 billion... $43.68 billion.. $23.03 billion.. $13.32 billion.. $8.89 billion... $3.33 billion... $0.47 billion.
(total nominal value of
$94.0 billion).
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Annual Cost Amounts
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
PBGC administrative expenses $129.57 million. $108.41 million. $20.50 million.. $17.50 million.. $15.75 million.. $15.00 million.. $14.75 million.. $14.00 million.. $52.50 million.
(total nominal value of $150
million).
SFA applications.............. $8,091,600...... $7,232,400...... $1,199,300...... $2,121,800...... $2,183,300...... $1,998,800...... $1,260,800...... $78,800......... $0.
Benefit reinstatement $69,900......... $66,000......... $34,400......... $38,700......... $0.............. $0.............. $0.............. $0.............. $0.
participant notices.
Annual compliance filings..... $12,495,000..... $7,231,200...... $0.............. $99,500......... $275,400........ $456,500........ $622,200........ $726,800........ $18,168,750.
Condition exemption filings... $354,000........ $209,900........ $0.............. $0.............. $19,600......... $19,600......... $19,600......... $19,600......... $489,250.
Total cost amounts........ $150.58 million. $123.15 million. $21.73 million.. $19.76 million.. $18.23 million.. $17.47 million.. $16.65 million.. $14.83 million.. $71.16 million.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Filing and Issuance Requirements

As discussed in this interim final rule, to request SFA for a
multiemployer plan, a plan sponsor must, under section 4262 of ERISA
and part 4262, file an application with PBGC. The applications for SFA
must include information about the plan, plan documentation, and
actuarial information. The information is necessary for PBGC to verify
a plan's eligibility for SFA, amount of requested SFA, and if
applicable, inclusion in a priority group. In addition, under part
4262, a plan that has received SFA is required to file a compliance
notice with PBGC once every year until 2051. As discussed further in
the Paperwork Reduction Act section, the estimated average cost (dollar
equivalent of the in-house hour burden + contractor costs) to prepare
the one-time application to PBGC is $30,750, and the estimated average
cost to prepare the annual statement of compliance is $2,550. PBGC
estimates that over the next 3 years (2021-2023) it will receive
annually an average of 60 applications for SFA at an aggregate average
annual cost of $1,845,000 and 49 annual statements of compliance at an
aggregate average annual cost of $124,950.
In addition, certain plan sponsors that receive SFA are subject to
participant disclosure and reporting requirements. A plan sponsor of a
plan with benefits that were suspended under sections 305(e)(9) or
4245(a) of ERISA must issue a notice of reinstatement to participants
and beneficiaries whose benefits were previously suspended and then
reinstated. PBGC estimates that over the next 3 years (2021-2023) an
average of 11.33 plans annually (34 total plans) will issue the notice
of reinstatement to an average of 3,050 participants and beneficiaries
at an aggregate average annual cost of $24,367.
A plan sponsor that receives SFA also is required to administer the
plan in accordance with conditions prescribed by PBGC in Sec. 4262.16.
A plan sponsor may request approval from PBGC for an exception under
certain circumstances for conditions relating to reductions in
contributions, transfers or mergers, and settlement of withdrawal
liability. PBGC expects these determination requests to be infrequent.
PBGC estimates that it will receive an average of 2.2 requests per year
beginning in 2023 at a cost of $19,570 per year (averaged over 2021-
2023 = $6,523).
Over the next 3 years (2021-2023), the total average annual cost
for the information collection is $2,000,840 ($1,845,000 + $124,950 +
$24,367 + $6,523).

Conditions for Plans That Receive SFA

The following table provides estimated financial impacts under a
benchmark scenario analysis for each of the 6 areas for conditions
listed under section 4262(m)(1) of ERISA. The estimated results were
produced by ME-PIMS, PBGC's stochastic modeling tool used to project
the future solvency and potential financial assistance under section
4261 for each plan in the U.S. multiemployer pension plan system.\23\
The level of complexity and the lack of availability of complete plan-
level data needed to program the specifications under the range of
alternative regulatory actions under section 4262(m) are barriers to
producing precise financial estimates for each potential action.
Instead, PBGC conducted a single benchmark scenario for each regulatory
condition that illustrates the order-of-magnitude financial impact.
---------------------------------------------------------------------------

\23\ The following web page on PBGC's website provides more
detailed information about PBGC's Multiemployer Program Pension
Insurance Modeling System (ME-PIMS): <a href="https://www.pbgc.gov/about/projections-report/pension-insurance-modeling-system">https://www.pbgc.gov/about/projections-report/pension-insurance-modeling-system</a>.
---------------------------------------------------------------------------

The baseline assumptions represent PBGC's best-estimate assumptions
for determining the aggregate amounts of SFA under section 4262 of
ERISA and financial assistance under section 4261 based on employer and
plan behavior that remains consistent before and following the
distribution of SFA. The benchmark scenario assumptions represent a
single scenario that was used to estimate each alternative regulatory
action that was considered.

[[Page 36617]]

----------------------------------------------------------------------------------------------------------------
Baseline Benchmark scenario Estimated
Regulatory condition assumption assumption benchmark impact * Comments
----------------------------------------------------------------------------------------------------------------
Future Benefit Accruals......... No assumed accrual An immediate 10% $5 billion to $8 Plans are already
increases. increase in billion in constrained on
future accruals section 4261 increasing
followed by Financial accrual levels
annual increases Assistance based on
based on assumed (estimated rehabilitation
wage index through 2070). plan
increases (no requirements. The
corresponding estimated impact
contribution rate is primarily due
increases). to accelerated
plan
insolvencies.
Most increases to
benefit accrual
rates would not
be covered under
PBGC guaranteed
benefit limits.
Retroactive Benefit Accruals.... No assumed accrual A one-time 10% $7 billion to $10 Plans are already
increases. increase in billion in constrained on
retroactive section 4261 increasing
accrued benefits Financial benefit levels
for all active Assistance based on
participants (estimated rehabilitation
increases (no through 2070). plan
corresponding requirements. The
contribution rate estimated impact
increases). is primarily due
to accelerated
plan
insolvencies.
Most increases to
accrued benefits
would not be
covered under
PBGC guaranteed
benefit limits.
Allocation of Plan Assets....... Baseline All plans that $5 billion to $15 Plans required to
stochastic receive SFA billion in invest all
returns under ME- utilize an LDI section 4261 available plan
PIMS model, strategy to match Financial assets in high
without assets to benefit Assistance quality fixed
restrictions on payments. (estimated income securities
asset allocation. through 2070). are expected to
attain lower
investment
returns, which
accelerates plan
insolvencies.
Reduction in Contribution Rates. Level contribution A one-time 20% $20 billion to $40 The estimated
rates (no assumed decrease in the billion in impact includes
decreases). per-capita section 4261 the acceleration
contribution rate Financial of projected plan
increases (no Assistance insolvencies
corresponding (estimated resulting from
reduction in through 2070). reduced
future accruals). contribution
levels, as well
as lower
contribution and
withdrawal
liability income
following
insolvency used
to partially
offset benefit
payments.
Allocation of Contributions and No assumed A one-time $10 billion to $25 Reallocation of
Other Practices. reallocation of immediate decline billion in contributions to
contributions to to CBUs of 20%, section 4261 other plans could
other plans. CBUs followed by Financial take the form of
projected with annual 1.3% Assistance plan transactions
annual 1.3% declines (estimated such as spinoffs
decline. (includes through 2070). or liability
corresponding transfers, which
reduction in are not
future accruals). explicitly
modeled.
Withdrawal Liability............ No assumed future Employers $15 billion to $20 Plans are assumed
employer representing 35% billion in to project the
withdrawals of active members section 4262 SFA. increased level
explicitly withdraw of employer
factored into immediately after withdrawals as
modeling. receiving SFA. part of
assumption
setting for SFA
determination
purposes.
----------------------------------------------------------------------------------------------------------------
* The estimated impacts that increase the $94 billion of SFA amounts under section 4262 of ERISA occur from 2021
through 2027. The estimated impacts for all ``Section 4261 Financial Assistance'' represent the aggregate
nominal amount of this assistance provided through 2070. ``Section 4261 Financial Assistance'' is the
multiemployer insurance program financial assistance PBGC provides in periodic payments upon plan insolvency
under section 4261 of ERISA, which is limited to PBGC guarantee amounts.

(5) Regulatory Alternatives Considered

Conditions Related to Future Benefit Accruals

PBGC first considered the implications of foregoing any regulatory
authority provided under section 4262(m) of ERISA to impose reasonable
conditions related to future benefit accruals. The primary factor in
support of the option to not regulate is that additional constraints on
benefit improvements may be unnecessary and may be considered onerous.
Plans that receive SFA will be deemed to be in critical status through
the plan year ending in 2051 and will be subject to the terms of their
applicable rehabilitation plan. A rehabilitation plan generally
restricts a plan from increasing benefits unless the plan is able to
provide additional contribution income that is not already contemplated
with the rehabilitation plan.
Although this may be applicable for many plans, there may be
additional benefits to imposing a secondary restriction on benefit
increases as permitted under section 4262(m) of ERISA. A secondary
condition may eliminate some existing flexibility but could prevent
plans from adopting benefit improvements that prove ultimately to be
unaffordable for the plan. If a plan that receives SFA were able to
subsequently implement significant increases to the future accrual
rate, it would likely accelerate the plan's insolvency date which would
jeopardize participant benefits and impose financial strain on PBGC's
multiemployer insurance program.
PBGC estimates that a one-time 10 percent increase in the future
accrual rate accompanied by annual increases based on the national
average wage index, for all active participants, could increase the
aggregate nominal amount of future financial assistance under section
4261 of ERISA by approximately $5 billion to $8 billion. Absent
regulatory action, it is unknown the extent to which employers can and
would increase future accrual rates. PBGC would generally expect the
financial impact to be less than this estimated range due to the
existing rehabilitation plan constraints, but the true impact is
unknown and subject to a great deal of uncertainty.
Another regulatory alternative was considered under which PBGC
would limit levels of future increases based on wage indexation. This
alternative would allow plans with limited flexibility to adopt
increases but would prevent significant improvements that may prove
unaffordable. PBGC considered that certain eligible plans may have
recently imposed substantial reductions in the accrual level to
forestall insolvency, such that the current level of accruals are not
sufficient to retain active members. Although this alternative would
have helped to limit the financial impact below the $5 billion to $8
billion range modeled in the sensitivity scenario, it was determined to
be too restrictive.
Yet another regulatory alternative was considered under which PBGC
would strictly prohibit any increases in future benefit accruals until
2051. Under this approach, the value of plan accrual rates could erode
significantly due to inflation. As the benefits lose value, it would
likely become increasingly

[[Page 36618]]

difficult for plans to retain their active members. Plans could suffer
irreparable harm to the contribution base as a result, which would
likely guarantee that plans would go insolvent. As a result, PBGC
determined that this regulatory alternative would harm plan
participants and the multiemployer insurance program.

Conditions Related to Retroactive Benefit Improvements

PBGC first considered the implication of foregoing any regulatory
authority provided under section 4262(m) of ERISA to impose reasonable
conditions related to retroactive benefit improvements. The primary
support for not regulating is that additional constraints on benefit
improvements may be unnecessary and may be considered onerous. Plans
that receive SFA are deemed to be in critical status through the plan
year ending in 2051 and will be subject to the terms of their
applicable rehabilitation plan. A rehabilitation plan generally
restricts a plan from increasing benefits unless the plan is able to
provide additional contribution income that is not already contemplated
with the rehabilitation plan.
However, as with the advantages of a condition on future benefit
accruals discussed earlier, a secondary condition on retroactive
benefit increases could prevent plans from adopting benefit
improvements that ultimately prove to be unaffordable for the plan.
PBGC estimates that a one-time 10 percent increase in retroactive
accrued benefits for all active participants could increase the
aggregate nominal amount of future financial assistance under section
4261 by approximately $7 billion to $10 billion. Absent regulatory
action, the extent to which employers can and would increase
retroactive benefits is unknown. PBGC would generally expect the
financial impact to be less than this estimated range due to existing
rehabilitation plan constraints, but the true impact is unknown and
subject to a great deal of uncertainty.
Another regulatory alternative considered would allow for
retroactive benefit improvements, subject to rehabilitation plan
constraints, but only up to a specified limit. The alternative would
provide plans with limited flexibility to increase benefits, but also
prevent excessive improvements that would impair a plan's financial
position. Yet another alternative would be to limit the amount of
retroactive benefit increases to a restoration of accrued benefits to
levels available before reductions applied pursuant to rehabilitation
plan requirements in recent years. The benefit of this approach would
be to improve potentially the retirement security of active plan
participants, who have experienced the disproportionate impact of
benefit reductions. However, increases to future accrual rates more
effectively bolster the future engagement of active participants than
retroactive benefit improvements. By prohibiting all retroactive
benefit improvements, plans will remain on a more favorable financial
path and any surplus income would be better utilized by improving
future accruals to help attract and retain active members.

Conditions Related to Allocation of Plan Assets

PBGC first considered the implications of foregoing any regulatory
authority provided under section 4262(m) of ERISA to impose reasonable
conditions related to asset allocation. There were two primary factors
in support of this approach. First, section 4262(l) already restricts
the investment of SFA to investment-grade bonds and other investments
as permitted by PBGC. This condition alone serves as a significant
constraint on a plan's ability to pursue higher returns in risk-seeking
assets, particularly for plans that had previously been insolvent or
close to insolvency and received an amount of SFA that is large in
proportion to the amount of existing plan assets. Second, imposing
conditions that severely restrict the level of return-seeking assets
may impair a plan's ability to achieve greater investment returns and
forestall insolvency. Although a higher proportion of return-seeking
assets exposes plans to greater losses in the event of adverse market
conditions, the long-term investment horizon affords plans the risk
capacity to recoup these losses.
The primary risk to foregoing any regulatory action to impose
conditions on asset allocation is the potential for a scenario under
which plans that receive SFA invest heavily in highly risky,
speculative assets and the market experiences a severe, prolonged
downturn. Plans may choose to pay all benefits and administrative
expenses from the SFA account before exhausting any existing plan
assets. Following the depletion of SFA, plans would then experience no
constraints on their asset allocation and could seek to invest in
highly risky assets. Although the long-term investment horizon does
afford plans with time to recoup losses, a severe and prolonged
downturn could cause irreparable harm to the plan's financial position.
PBGC is unable to measure a precise financial impact for foregoing any
regulatory condition with respect to asset allocation. However, under
most economic scenarios, PBGC expects a more favorable outcome both to
plan solvencies and future PBGC program outlays by imposing less
restrictive conditions related to asset allocation, such as the
condition in the interim final rule.
A separate regulatory alternative was considered under which PBGC
would require all plan assets to be invested in accordance with the
restrictions for SFA under section 4262(l) of ERISA (i.e., investment-
grade bonds or other investments as permitted by PBGC). This condition
would effectively require plans to pursue a liability-driven investment
strategy under which fixed income assets are matched to expected
benefit payments to immunize the portfolio from risk. This condition
would be highly restrictive on a plan's ability to select plan assets.
It would mitigate year-to-year volatility in plan funded status and
would severely restrict a plan's attainable investment returns and thus
potentially accelerate the insolvency of the plan. Because available
fixed income yields are expected to be lower than the interest rate
limit defined under section 4262(e)(3), plans would generally become
insolvent before the 2051 plan year. Based on modeling using ME-PIMS,
PBGC estimates that this regulatory alternative could increase future
financial assistance payments under section 4261 by $5 billion to $15
billion over the next four decades. Due to the increased financial
impact of this option and the adverse impact to plan participants
resulting from accelerated plan insolvencies, PBGC did not choose to
pursue this alternative.

Conditions Related to Reductions in Employer Contribution Rates

PBGC first considered the implications of foregoing any regulatory
authority provided under section 4262(m) of ERISA to impose reasonable
conditions related to reductions in employer contribution rates. The
primary benefit of this option is that it could provide plans with
flexibility to reduce contribution rates if it is expected to attract
or retain employers in the plan. Any mechanism that allows plans to
bolster their active membership could help to improve their funded
status through increased contribution levels. A plan's authority to
allow for reduced contribution rates during the collective bargaining
process is already constrained by the terms of their rehabilitation
plan, which is mandated for plans certified in critical status.
However, if plans are able to allow for

[[Page 36619]]

reductions in employer contribution rates, the contribution income into
the plan may decrease if the reduced rates do not effectively increase
plan participation. Plans may view SFA as a windfall that will allow
for contribution rate relief that benefits employers at the expense of
the plan's financial health. Although the financial impact is likely to
be significantly less than the $23 billion to $36 billion range
estimated under the ME-PIMS benchmark scenario for a 20 percent
universal reduction in assumed contribution rates (primarily due to the
aforementioned rehabilitation plan constraints), PBGC expects there to
be a material (albeit unknown) impact.
A separate regulatory alternative was considered under which PBGC
would strictly prohibit plans from accepting any collective bargaining
agreement under which there was a reduction in the contribution rate.
This alternative is similar to the provision in the interim final rule
but does not allow for any exceptions to the prohibition. PBGC
recognizes that employers that are on the brink of insolvency may be
able to avoid bankruptcy by reducing the contribution rate to the
pension plan. Although this exception reduces short term contribution
income to the plan, it may increase long-term contribution levels by
enabling the contributing employer to stay solvent and have the
resources available to contribute to the plan.

Conditions Related to the Allocation of Contributions and Other
Practices

PBGC considered the implications of foregoing any regulatory action
under section 4262(m) of ERISA to impose reasonable conditions related
to the allocation of contributions and other practices. The primary
benefit of this option is that the bargaining parties would retain full
discretion over how to allocate contributions to benefit programs that
align with their desired preferences. Regulatory action by PBGC could
be considered onerous.
However, PBGC recognizes that absent any regulations the bargaining
parties could take actions that allocate contributions away from the
pension plan and allow it to fail and become covered under PBGC's
insurance program. PBGC used ME-PIMS to estimate the financial impact
of a 25 percent one-time reduction in CBUs for all plans that receive
SFA. This would reflect the efforts that may be made by some plans to
shift hours away from the plan to increase contribution allocations to
other programs. The 25 percent reduction percentage was set as an
average to reflect that some bargaining parties may not allocate any
contributions away from the plan whereas other bargaining parties may
allocate a substantive portion of contributions away from the plan.
Under this benchmark scenario, financial assistance under section 4261
of ERISA would increase by approximately $10 billion to $25 billion
over the following decades. However, the extent to which bargaining
parties would engage in these types of strategies is highly uncertain.

Conditions Related to Withdrawal Liability

PBGC first considered the implications of foregoing any regulatory
authority provided under section 4262(m) of ERISA to impose reasonable
conditions related to withdrawal liability. Absent any conditions,
plans may anticipate a potential surge of employer withdrawal upon
receipt of the SFA. Plans would account for this anticipated outcome by
requesting a greater amount of SFA in their applications to PBGC (plans
would do so by setting the actuarial assumptions accordingly). The
extent to which the aggregate amount of SFA provided under section 4262
is impacted is unknown, but PBGC estimates that it could range from 10%
to 30%. The greater the amount of SFA that is provided to plans, the
greater the reduction in the employers' unfunded vested benefit
obligations and therefore the greater the incentive for employers to
withdraw from the plans. This outcome could materially increase the
amounts of SFA provided under section 4262.
A separate regulatory alternative was considered under which PBGC
would mandate that, during the SFA coverage period, SFA assets are
disregarded in the determination of unfunded vested benefits for the
assessment of withdrawal liability. This alternative would prevent a
decrease in the value of employer unfunded benefit obligations due to
receipt of SFA and thereby block an incentive from arising that may
cause employers to withdraw from these plans. This would mitigate
against a change in plan assumptions for increased employer withdrawals
within the application for SFA that would in turn increase the
aggregate transfers of SFA across all plans under section 4262. This
alternative was determined to be more administratively complex and
therefore less desirable.

Regulatory Flexibility Act

Because PBGC is not publishing a general notice of proposed
rulemaking under 5 U.S.C. 553(b), the regulatory flexibility analysis
requirements of the Regulatory Flexibility Act do not apply. See 5
U.S.C. 601(2).

Paperwork Reduction Act

This interim final rule contains a collection of information that
PBGC has submitted to the Office of Management and Budget (OMB) for
review and approval under the Paperwork Reduction Act. OMB's decision
regarding this information collection request will be available at
<a href="http://www.Reginfo.gov">http://www.Reginfo.gov</a>. An agency may not conduct or sponsor, and a
person is not required to respond to, a collection of information
unless it displays a currently valid OMB control number.
PBGC estimates that over the next 3 years an annual average of 60
plan sponsors will file applications for SFA (39 in 2021, 69 in 2022,
and 71 in 2023). PBGC needs the information in the application to
review a plan's eligibility for SFA, priority group status, and amount
of requested SFA, and to make payment of SFA. PBGC estimates that each
application requires $30,000 in contractor cost and 10 hours of in-
house fund time. Thus, the application imposes estimated annual burdens
of $1,800,000 (60 x $30,000) and 600 (60 x 10) hours.
PBGC estimates that over the next 3 years an annual average of 49
plan sponsors will file Annual Statements of Compliance (0 in 2021, 39
in 2022, and 108 in 2023). PBGC needs the information in this statement
to ensure that a plan is compliant with the conditions imposed upon its
receiving SFA. PBGC estimates that each Annual Statement of Compliance
requires $2,400 in contractor cost and 2 hours of in-house fund time.
The Annual Statement of Compliance imposes estimated annual burdens of
$117,600 (49 x $2,400) and 98 (49 x 2) hours.
Over the next 3 years an average of 11.33 plans per year (16 plans
in 2021, 18 plans in 2022, and 0 in 2023) will be required to send
notices to participants with suspended benefits. This notice is
intended to ensure participants understand the calculation and dates of
their reinstated benefits and, if applicable, make-up payments. PBGC
estimates that the burden for each plan to prepare required notices is
$2,000 in contractor cost and 2 hours of in-house fund time. Thus,
these notices impose estimated annual burdens of $22,667 (11.33 x
$2,000) and 22.66 (11.33 x 2) hours. PBGC is considering issuing a
model notice and hereby solicits public comment on whether a model
notice would be helpful.
Also, PBGC estimates that beginning in 2023, PBGC will receive an
average

[[Page 36620]]

of 2.2 requests per year (averaged over 2021-2023 = 0.73 per year) for
determinations concerning a transfer of assets or liabilities
(including a spinoff) or merger (1 per year); a withdrawal liability
settlement greater than $50 million (1 per year); or a contribution
decrease (.2 (1 every 5 years)) (0 plans in 2021, 0 plans in 2022, and
2.2 plans in 2023). PBGC needs the information requested to make a
determination on the proposed transaction, withdrawal liability
settlement, or contribution decrease. PBGC estimates an average annual
hour burden (employer and fund office hours) and average annual cost
burden (contractor costs) per request of:
<bullet> 1.6 hours (8 hours x .2) and $5,000 ($25,000 x .2) for a
proposed contribution change;
<bullet> 4 hours and $12,000 for a proposed transfer or merger; and
<bullet> 2 hours and $2,000 for a proposed settlement of withdrawal
liability.
PBGC estimates that, beginning in 2023, for 2.2 determination
requests, the aggregated average annual hour burden will be 7.6 hours
(1.6+4+2 employer and fund office hours) and the aggregated average
annual cost burden will be $19,000 ($5,000 + $12,000 + $2,000 in
contractor costs). For 2021-2023, PBGC estimates an average annual hour
burden of 2.53 hours (7.6/3) and average annual cost burden of $6,333
($19,000/3).
The estimated aggregate average annual hour burden for 2021-2023
for the information collection in part 4262 is 723.20 hours (600 + 98 +
22.67 + 2.53), which means a cost equivalent of $54,240 assuming a
blended hourly rate of $75 for employer and fund office administrative,
clerical, and supervisory time. The estimated aggregate average annual
cost burden for 2021-2023 for the information collection in part 4262
is $1,946,600 ($1,800,000 + $117,600 + $22,667 + $6,333), which means
approximately 4,867 contract hours assuming an average hourly rate of
$400 for work done by outside actuaries and attorneys. The actual hour
burden and cost burden per plan will vary depending on plan size and
other factors.
The estimated average annual burden figures for 2021-2023 are shown
in the following chart.

----------------------------------------------------------------------------------------------------------------
Hour burden--
Average number of respondents p/year Hour burden equivalent cost Cost burden
hours
----------------------------------------------------------------------------------------------------------------
Applications for SFA: 60.................................... 600 $45,000 $1,800,000
Annual compliance statements: 49............................ 98 7,350 117,600
Notice of reinstatement: 11.33.............................. 22.67 1,700 22,667
Requests for determination: 1 (0.73)........................ 2.53 190 6,333
---------------------------------------------------
Totals: 121............................................. 723.20 54,240 1,946,600
----------------------------------------------------------------------------------------------------------------

Plan sponsors of multiemployer plans applying for SFA are required
to file an application with PBGC with the required information under
part 4262. For payment of SFA, they are required to include with an
application for SFA, common form SF 3881, ACH Vendor/Miscellaneous
Payment Enrollment, OMB control no. 1530-0069.
Written comments and recommendations for the information
requirements under this interim final rule should be sent to the Office
of Information and Regulatory Affairs, Office of Management and Budget,
Attention: Desk Officer for Pension Benefit Guaranty Corporation
through <a href="http://www.reginfo.gov/public/do/PRAMain">www.reginfo.gov/public/do/PRAMain</a>. Find this particular
information collection by selecting ``Currently under Review--Open for
Public Comments'' or by using the search function. To be assured of
consideration, comments must be submitted by August 11, 2021.
PBGC is soliciting public comments to--
<bullet> Evaluate whether the collection of information is
necessary for the proper performance of the functions of the agency,
including whether the information will have practical utility;
<bullet> Evaluate the accuracy of the agency's estimate of the
burden of the collection of information, including the validity of the
methodology and assumptions used;
<bullet> Enhance the quality, utility, and clarity of the
information to be collected; and
<bullet> Minimize the burden of the collection of information on
those who are to respond, including the use of appropriate automated,
electronic, mechanical, or other technological collection techniques or
other forms of information technology, e.g., permitting electronic
submission of responses.

List of Subjects

29 CFR Part 4000

Employee benefit plans, Pension insurance, Pensions, Reporting and
recordkeeping requirements.

29 CFR Part 4262

Employee benefit plans, Pension insurance, Pensions, Reporting and
recordkeeping requirements.

For the reasons given above, PBGC is amending 29 CFR chapter XL as
follows:

PART 4000--FILING, ISSUANCE, COMPUTATION OF TIME, AND RECORD
RETENTION

0
1. The authority citation for part 4000 continues to read as follows:

Authority: 29 U.S.C. 1083(k), 1302(b)(3).

Sec. 4000.3 [Amended]

0
2. In Sec. 4000.3, amend paragraph (b)(4) by adding ``4262,'' after
``4245,''.

0
3. Add part 4262 to read as follows:

PART 4262--SPECIAL FINANCIAL ASSISTANCE BY PBGC

Sec.
4262.1 Purpose.
4262.2 Definitions.
4262.3 Eligibility for special financial assistance.
4262.4 Amount of special financial assistance.
4262.5 PBGC review of plan assumptions.
4262.6 Information to be filed.
4262.7 Plan information.
4262.8 Actuarial and financial information.
4262.9 Application for a plan with a partition.
4262.10 Processing applications.
4262.11 PBGC action on applications.
4262.12 Payment of special financial assistance.
4262.13 Restrictions on special financial assistance.
4262.14 Permissible investments of special financial assistance.
4262.15 Reinstatement of benefits previously suspended.
4262.16 Conditions for special financial assistance.
4262.17 Other provisions.

Authority: 29 U.S.C. 1302(b)(3), 1432.

Sec. 4262.1 Purpose.

The purpose of this part is to prescribe rules governing
applications for special financial assistance under section 4262 of
ERISA and related requirements.

[[Page 36621]]

Sec. 4262.2 Definitions.

The following terms are defined in Sec. 4001.2 of this chapter:
Code, ERISA, fair market value, IRS, multiemployer plan, PBGC, plan,
and plan sponsor. In addition, for purposes of this part:
Form 5500 means the Annual Return/Report of Employee Benefit Plan
required to be filed for employee benefit plans under sections 104 and
4065 of ERISA and sections 6057(b) and 6058(a) of the Code.
Merger means merger as defined in Sec. 4231.2 of this chapter.
SFA coverage period means the period beginning on the plan's SFA
measurement date and ending on the last day of the last plan year
ending in 2051.
SFA measurement date means the last day of the calendar quarter
immediately preceding the date the plan's application was filed.
Special financial assistance or SFA means special financial
assistance from PBGC under section 4262 of ERISA.
Transfer and transfer of assets or liabilities means transfer and
transfer of assets or liabilities as defined in Sec. 4231.2 of this
chapter.

Sec. 4262.3 Eligibility for special financial assistance.

(a) In general. Subject to all the provisions of this section, a
multiemployer plan is eligible for special financial assistance in any
of the following cases:
(1) Critical and declining status plans. The plan is in critical
and declining status within the meaning of section 305(b)(6) of ERISA
for the specified year; or
(2) Plans with a suspension of benefits. A suspension of benefits
has been approved with respect to the plan under section 305(e)(9) of
ERISA as of March 11, 2021; or
(3) Critical status plans. The plan:
(i) Is certified to be in critical status within the meaning of
section 305(b)(2) of ERISA for a specified year; and
(ii) The percentage calculated under paragraph (c)(2) of this
section was less than 40 percent; and
(iii) The ratio of the total number of active participants at the
end of the plan year required to be entered on the Form 5500 that was
required to be filed for a specified year to the sum of inactive
participants (retired or separated participants receiving benefits,
other retired or separated participants entitled to future benefits,
and deceased participants whose beneficiaries are receiving or are
entitled to receive benefits) required to be entered on such Form 5500
was less than 2 to 3.
(4) Insolvent plans. The plan became insolvent for purposes of
section 418E of the Code after December 16, 2014, has remained
insolvent, and has not terminated under section 4041A of ERISA as of
March 11, 2021.
(b) Specified year. For purposes of this section, the term
specified year means a plan year specified by the plan sponsor
beginning in 2020, 2021, or 2022. The specified years for paragraphs
(a)(3)(i), (ii), and (iii) of this section need not be the same.
(c) Additional rules for critical status plans--(1) Elected status.
Election of critical status under section 305(b)(4) of ERISA does not
satisfy the requirement for the certification of critical status by the
plan's actuary under paragraph (a)(3)(i) of this section.
(2) Percentage. The percentage calculated as--
(i) The current value of net assets as of the first day of the plan
year that was required to be entered on the Form 5500 Schedule MB that
was required to be filed for a specified year; plus
(ii) The current value of withdrawal liability due to be received
by the plan on an accrual basis, reflecting a reasonable allowance for
amounts considered uncollectible, as of the first day of the plan year
for the specified year in paragraph (c)(2)(i) of this section (if not
already included in the current value of net assets in paragraph
(c)(2)(i) of this section); divided by
(iii) The current liability attributable to all benefits as of the
first day of the plan year required to be entered on the Form 5500
Schedule MB specified in paragraph (c)(2)(i) of this section.
(d) Actuarial assumptions. Determinations of eligibility under
paragraph (a)(1) or (3) of this section must be made in accordance with
the provisions in this paragraph (d).
(1) Certifications completed before January 1, 2021. For
certifications of plan status completed before January 1, 2021, PBGC
will accept assumptions incorporated in the determination of whether a
plan is in critical status or critical and declining status as
described in section 305(b) of ERISA unless such assumptions are
clearly erroneous.
(2) Certifications completed after December 31, 2020. For
certifications of plan status completed after December 31, 2020, the
determination of whether a plan is in critical status or critical and
declining status for purposes of eligibility for special financial
assistance must be made using the assumptions that the plan used in its
most recently completed certification of plan status before January 1,
2021, unless such assumptions (excluding the plan's interest rate
assumption) are unreasonable.
(3) Changes in assumptions. If a plan determines that use of the
assumptions under paragraph (d)(2) of this section is unreasonable, the
plan's application may include a proposed change in the assumptions
(excluding the plan's interest rate assumption), as described in Sec.
4262.5.

Sec. 4262.4 Amount of special financial assistance.

(a) In general. Subject to paragraph (f) of this section, the
amount of special financial assistance for a plan is the amount (if
any), subject to adjustment for the date of payment as described in
Sec. 4262.12, by which--
(1) The value, as of the plan's SFA measurement date, of all SFA-
eligible plan obligations; exceeds
(2) The value, as of the plan's SFA measurement date, of all SFA-
eligible plan resources.
(b) SFA-eligible plan obligations. The value of SFA-eligible plan
obligations as of the plan's SFA measurement date, is the sum of--
(1) The present value of benefits expected to be paid by the plan
during the SFA coverage period including any reinstatement of benefits
attributable to the elimination of reductions in a participant's or
beneficiary's benefit due to a suspension of benefits under sections
305(e)(9) or 4245(a) of ERISA as required under Sec. 4262.15 and any
restoration of benefits under 26 CFR 1.432(e)(9)-1(e)(3), and assuming
such reinstatements are paid beginning as of the SFA measurement date;
and
(2) The present value of administrative expenses expected to be
paid by the plan using plan assets during the SFA coverage period,
excluding the amount owed to PBGC under section 4261 of ERISA (which is
added to the amount of special financial assistance in Sec. 4262.12
determined as of the date special financial assistance is paid).
(c) SFA-eligible plan resources. The value of SFA-eligible plan
resources as of the plan's SFA measurement date, is the sum of--
(1) The fair market value of plan assets on the SFA measurement
date; and
(2) The present value of future contributions, withdrawal liability
payments, and other payments expected to be made to the plan (excluding
the amount of financial assistance under section 4261 of ERISA and
special financial assistance to be received by the plan) during the SFA
coverage period.
(d) Deterministic basis. The projections in paragraphs (b)(1) and
(2) and (c)(2) of this section must be

[[Page 36622]]

performed on a deterministic basis using a single set of assumptions as
described in paragraph (e) of this section. The projections must be
based on participant census data as of the first day of the plan year
in which the plan's initial application for special financial
assistance is filed, or, if the date on which the plan's initial
application for special financial assistance is filed is less than 270
days after the beginning of the current plan year and the actuarial
valuation for the current plan year is not complete, the projections
may instead be based on the participant census data as of the first day
of the plan year preceding the year in which the plan's initial
application for special financial assistance is filed.
(e) Actuarial assumptions. The amount of special financial
assistance must be determined in accordance with generally accepted
actuarial principles and practices and the provisions in this paragraph
(e).
(1) The assumed interest rate is the lesser of the rate in
paragraph (e)(1)(i) or (ii) of this section.
(i) The interest rate in this paragraph (e)(1)(i) is the interest
rate used for funding standard account purposes as projected in the
plan's most recently completed certification of plan status before
January 1, 2021.
(ii) The interest rate in this paragraph (e)(1)(ii) is the interest
rate that is 200 basis points higher than the rate specified in section
303(h)(2)(C)(iii) of ERISA (disregarding modifications made under
clause (iv) of such section) for the month in which the plan's
application for special financial assistance is filed or one of the 3
preceding months, as selected by the plan.
(2) The assumptions other than the interest rate are those used for
the plan's most recently completed certification of plan status before
January 1, 2021, unless such assumptions are unreasonable.
(3) If a plan determines that use of the assumptions under
paragraph (e)(2) of this section is unreasonable, the plan's
application may include a proposed change in the assumptions (excluding
the plan's interest rate assumption under paragraph (e)(1) of this
section), as described in Sec. 4262.5.
(f) Certain events--(1) General rules. (i) The special financial
assistance of a plan that experiences one or more of the events
described in paragraphs (f)(2), (3), and (4) of this section during the
period beginning on July 9, 2021, and ending on the SFA measurement
date is limited to the amount of special financial assistance that
would have applied to the plan on the SFA measurement date if the
events had not occurred, as determined in a reasonable manner.
(ii) The special financial assistance of a plan that experiences a
merger event during the period described in paragraph (f)(1)(i) of this
section is limited to the sum of the amounts of special financial
assistance that would have applied to the plans involved in the merger
on the SFA measurement date if the merger had not occurred, as
determined in a reasonable manner. If any of the plans involved in the
merger also experiences one or more of the events described in
paragraph (f)(2), (3), or (4) of this section during the period
described in paragraph (f)(1)(i) of this section, the amount of special
financial assistance for that plan on the SFA measurement date,
determined as if the merger had not occurred, must be determined in
accordance with paragraph (f)(1)(i) of this section.
(2) Transfers. The event described in this paragraph (f)(2) is a
transfer of assets or liabilities (including a spinoff).
(3) Benefit increases. The event described in this paragraph (f)(3)
is the execution of a plan amendment increasing accrued or projected
benefits under a plan, other than a restoration of suspended benefits
that satisfies the requirements of 26 CFR 1.432(e)(9)-1(e)(3).
(4) Contribution reductions. The event described in this paragraph
(f)(4) is the execution of a document reducing a plan's contribution
rate (including any reduction in benefit accruals adopted
simultaneously or arising from a pre-existing linkage between benefit
accruals and contributions), but only if the plan does not demonstrate
(in accordance with the special financial assistance instructions on
PBGC's website at <a href="http://www.pbgc.gov">www.pbgc.gov</a>) that the risk of loss to participants
and beneficiaries is reduced (disregarding special financial
assistance) by execution of the document. The document referred to in
this paragraph (f)(4) is either--
(i) A collective bargaining agreement not rejected by the plan; or
(ii) A document reallocating contribution rates.
(5) Effect of pre-event ineligibility. In determining the amount of
special financial assistance that would have applied to a plan if an
event described in this paragraph (f) had not occurred, if the plan
would have been ineligible for special financial assistance under Sec.
4262.3 in the absence of the event, then the amount of special
financial assistance is deemed to be $0 (zero).
(6) Examples. The following examples illustrate the provisions of
paragraph (f) of this section.
(i) Example 1. Plan A applies for special financial assistance. If
the limitation in paragraph (f)(1)(i) of this section did not apply,
Plan A would be entitled to special financial assistance in the amount
of $20X. Before the SFA measurement date, but on or after July 9, 2021,
Plan A transferred a portion of its assets and liabilities to Plan B.
If the transfer had not occurred, Plan A would, as of the SFA
measurement date, be entitled to special financial assistance in the
amount of $40X. Although an event described in paragraph (f)(2) of this
section occurred with respect to Plan A, Plan A's special financial
assistance is unaffected by the limitation in paragraph (f)(1)(i) of
this section and is $20X. Plan B also applies for special financial
assistance. If the limitation in paragraph (f)(1)(i) of this section
did not apply, Plan B would be entitled to special financial assistance
in the amount of $30X. If the transfer from Plan A had not occurred,
Plan B would, as of the SFA measurement date, be ineligible for special
financial assistance. As a result of the event described in paragraph
(f)(2) of this section, the limitation in paragraph (f)(1)(i) of this
section reduces Plan B's special financial assistan

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