Rule2023-01415
Special Financial Assistance by PBGC-Withdrawal Liability Condition Exception
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
January 26, 2023
Effective
January 26, 2023
Issuing agencies
Pension Benefit Guaranty Corporation
Abstract
The Pension Benefit Guaranty Corporation (PBGC) published a final rule in the Federal Register on July 8, 2022, concerning the requirements for special financial assistance applications and related restrictions and conditions pursuant to the American Rescue Plan (ARP) Act of 2021, and provided a 30-day comment period on the condition requiring a phased recognition of special financial assistance in a plan's determination of withdrawal liability. PBGC is amending its special financial assistance regulation to add an exception process for the conditions relating to withdrawal liability.
Full Text
<html>
<head>
<title>Federal Register, Volume 88 Issue 17 (Thursday, January 26, 2023)</title>
</head>
<body><pre>
[Federal Register Volume 88, Number 17 (Thursday, January 26, 2023)]
[Rules and Regulations]
[Pages 4900-4906]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-01415]
=======================================================================
-----------------------------------------------------------------------
PENSION BENEFIT GUARANTY CORPORATION
29 CFR Part 4262
RIN 1212-AB53
Special Financial Assistance by PBGC--Withdrawal Liability
Condition Exception
AGENCY: Pension Benefit Guaranty Corporation.
ACTION: Final rule; response to comments.
-----------------------------------------------------------------------
SUMMARY: The Pension Benefit Guaranty Corporation (PBGC) published a
final rule in the Federal Register on July 8, 2022, concerning the
requirements for special financial assistance applications and related
restrictions and conditions pursuant to the American Rescue Plan (ARP)
Act of 2021, and provided a 30-day comment period on the condition
requiring a phased recognition of special financial assistance in a
plan's determination of withdrawal liability. PBGC is amending its
special financial assistance regulation to add an exception process for
the conditions relating to withdrawal liability.
DATES: This final rule is effective on January 26, 2023.
FOR FURTHER INFORMATION CONTACT: Daniel S. Liebman
(<a href="/cdn-cgi/l/email-protection#3955505c5b545857175d5857505c5579495b5e5a175e564f"><span class="__cf_email__" data-cfemail="a4c8cdc1c6c9c5ca8ac0c5cacdc1c8e4d4c6c3c78ac3cbd2">[email protected]</span></a>; 202-229-6510), Deputy General Counsel,
Program Law and Policy Department, Hilary Duke (<a href="/cdn-cgi/l/email-protection#caaebfa1afe4a2a3a6abb8b38abaa8ada9e4ada5bc"><span class="__cf_email__" data-cfemail="7511001e105b1d1c1914070c35051712165b121a03">[email protected]</span></a>;
202-229-3839), Assistant General Counsel for Regulatory Affairs, or
Stephanie Cibinic (<a href="/cdn-cgi/l/email-protection#62010b000b0c0b014c111607120a030c0b0722120005014c050d14"><span class="__cf_email__" data-cfemail="fa99939893949399d4898e9f8a929b94939fba8a989d99d49d958c">[email protected]</span></a>; 202-229-6352), Deputy
Assistant General Counsel for Regulatory Affairs, Regulatory Affairs
Division, Office of the General Counsel, Pension Benefit Guaranty
Corporation, 445 12th Street SW, Washington, DC 20024-2101. If you are
deaf or hard of hearing or have a speech disability, please dial 7-1-1
to access telecommunications relay services.
SUPPLEMENTARY INFORMATION:
Executive Summary
On July 9, 2021, the Pension Benefit Guaranty Corporation (PBGC)
issued an interim final rule with a request for comment, adding to its
regulations 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.'' \1\
On July 8, 2022, PBGC issued a final rule that made changes to the
special financial assistance (SFA) program and requested comments on
the condition requiring a phased recognition of SFA in a plan's
determination of withdrawal liability (July 2022 final rule).\2\ In
response to comments received, PBGC is adding an exception process for
certain withdrawal liability conditions that apply to a plan that
receives SFA.
---------------------------------------------------------------------------
\1\ The rule was published in the Federal Register on July 12,
2021, at 86 FR 36598.
\2\ The rule was published in the Federal Register on July 8,
2022, at 87 FR 40968.
---------------------------------------------------------------------------
PBGC's legal authority for this rulemaking comes from section 4262
of the Employee Retirement Income
[[Page 4901]]
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, permits PBGC to
provide for how SFA and earnings thereon are to be invested, and
permits PBGC, in consultation with the Secretary of the Treasury, 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.
Background
Section 4262 of ERISA creates a program to enhance retirement
security for millions of Americans by providing SFA to certain
financially troubled multiemployer pension plans upon application for
assistance. Section 4262 of ERISA sets forth the provisions for SFA,
including which plans are eligible to apply, the cutoff date for
applications, rules relating to actuarial assumptions and PBGC's
determinations on applications, and restrictions on the use of SFA. It
also provides that certain plans with suspended benefits must reinstate
those benefits prospectively and provide make-up payments to restore
previously suspended benefits. A plan receiving SFA under section 4262
has no obligation to repay SFA.
On July 9, 2021, PBGC issued an interim final rule on Special
Financial Assistance by PBGC (29 CFR part 4262). Part 4262 provides
guidance to multiemployer pension plan sponsors on eligibility for SFA,
determining the amount of SFA, content of an application for SFA, the
process of applying, PBGC's review of applications, restrictions and
conditions, and reporting and notice requirements. On July 8, 2022,
with the approval of PBGC's board of directors, PBGC published a final
rule implementing changes to the SFA program, including changes to the
methodology to calculate SFA, permissible investments for SFA funds
(SFA received and any earnings thereon), the application of conditions
on a plan that merges with a plan that receives SFA, and the withdrawal
liability conditions that apply to a plan that receives SFA.\3\
---------------------------------------------------------------------------
\3\ Under section 4002(a) of ERISA, PBGC is administered in
accordance with policies established by its Board of Directors,
which is made up of the Secretaries of the Department of Labor, the
Department of the Treasury, and the Department of Commerce.
---------------------------------------------------------------------------
In the July 2022 final rule, PBGC provided for a 30-day comment
period solely on the condition requiring a phased recognition of SFA in
a plan's determination of withdrawal liability in Sec. 4262.16(g)(2).
PBGC invited comments on whether the condition requiring a phased
recognition of SFA in a plan's determination of withdrawal liability
strikes the correct balance among stakeholders, or if a different
condition might work better. Additionally, PBGC expressed its interest
in hearing from stakeholders about what the expected impact of such a
condition is likely to be and whether additional clarification or
guidance would be useful.
PBGC received six comment letters on the conditions relating to the
calculation of withdrawal liability. PBGC received one comment letter
on permissible investments that was not relevant to the request for
comments and, consequently, is not discussed in this document. The next
section of this preamble discusses the conditions under Sec.
4262.16(g), the six comment letters on the conditions relating to the
calculation of withdrawal liability, PBGC's responses to the comments,
and a summary of changes made in this final rule.
Conditions Relating to Withdrawal Liability, Public Comments, and
PBGC's Responses
To ensure that SFA is used to pay benefits and the expenses related
to those benefit payments, 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. These conditions are described in Sec.
4262.16 and include conditions that relate to 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 (UVBs) (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, or as otherwise provided
under section 4211, and (2) annual withdrawal liability payment and
amortization period under section 4219.
Interest Assumptions for Determining UVBs Under the SFA Regulation
Under Sec. 4262.16(g)(1), the interest assumptions used in
determining UVBs for purposes of calculating withdrawal liability under
section 4213(c) of ERISA must be the interest assumptions in appendix B
to 29 CFR part 4044. The prescribed interest assumptions must be used
until the later of: (1) 10 years after the end of the plan year in
which the plan first receives payment of SFA; and (2) the last day of
the plan year by which the plan projects that it will exhaust any SFA
assets as determined under Sec. 4262.4(b) (under which benefits and
expenses are assumed to be paid exclusively from SFA assets until
exhausted), extended by the number of years, if any, that the first
plan year of payment is after the plan year that includes the SFA
measurement date. The beginning of the 10-year period is the last day
of the plan year in which the plan receives payment of SFA. For
example, if a calendar year plan's SFA measurement date is in 2022, the
plan receives payment of SFA in 2023, and had projected that it would
exhaust SFA assets in 2051, the exhaustion year for the plan to use the
prescribed interest assumptions would be 2052 (29 years + 1 year).
Under this example, employers withdrawing before 2054 would have UVBs
determined using the prescribed interest rates. While a plan is not
required to use mass withdrawal interest assumptions beyond the
specified period, the regulation does not preclude the use of
settlement rates thereafter to determine withdrawal liability, as
otherwise permitted by ERISA.
Phased Recognition of SFA Assets
Under Sec. 4262.16(g)(2), a plan that receives SFA is required to
recognize over time the amount of SFA received by the plan for the
purpose of determining the plan's UVBs for calculating withdrawal
liability.
Section 4262.16(g)(2) provides the procedures for determining the
amount of SFA that is phased in for withdrawal liability purposes each
year over the projected life of the SFA assets (determined as if SFA
assets, i.e., SFA and earnings thereon, are exhausted before other plan
assets are used to pay benefits and expenses). The applicable phase-in
period runs from the first plan year in which the plan receives payment
[[Page 4902]]
of SFA through the end of the plan year by which, according to the
plan's projections, it will exhaust any SFA assets. For a plan that
received payment of SFA under the terms of the interim final rule and
files a supplemented application, the first plan year of payment is the
year in which it received SFA under the terms of the interim final
rule. Where a plan's first plan year of payment is not the plan year
that includes the plan's SFA measurement date, the exhaustion year is
deferred by the number of years the first plan year of payment is after
the plan year that includes the SFA measurement date.
To calculate the amount of SFA assets excluded for each plan year
during the phase-in period, the plan must take the total amount of SFA
paid to the plan and multiply that by a fraction, the numerator of
which is the number of years remaining in the phase-in period as of the
date that the UVBs are being determined, and the denominator is the
total number of years in the phase-in period. For a plan that receives
payment of SFA under the interim final rule and receives a supplemental
payment, the total amount (payment under the interim final rule and
supplemental payment) will be included in the phased recognition of SFA
assets in determining UVBs for withdrawals occurring in plan years
after the plan year the supplemental payment is received by the plan.
For withdrawals that occur after the date the supplemented application
is filed and before the plan year after the plan year in which the
supplemental payment is made, only the payment of SFA under the interim
final rule is included in the phased recognition of SFA assets.
As provided in Sec. 4262.16(g)(2)(xv), this condition is
applicable to a plan in determining withdrawal liability for
withdrawals occurring after the plan year in which the plan receives
payment of SFA. However, for a plan that received SFA under the terms
of the interim final rule, this condition will not apply unless the
plan files a supplemented application. If the plan files a supplemented
application, this condition applies to the plan in determining
withdrawal liability for withdrawals occurring on or after the date the
plan files the supplemented application. A plan may choose to file a
supplemented application if it has already received SFA under the terms
of the interim final rule.
Three examples are included in Sec. 4262.16(g)(2) to illustrate
the procedures for the phased recognition of SFA assets.
PBGC determined that requiring phased recognition of SFA as a plan
asset is a reasonable condition under section 4262(m) of ERISA because
SFA does not result from employer contributions, but is a transfer of
taxpayer funds to statutorily eligible financially distressed plans for
the purpose of enabling these plans to pay benefits and expenses. That
purpose is reflected in sections 4262(j)(1) and 4262(l) of ERISA.
Without the condition, the payment of SFA could instead result in
indirect transfers of SFA to withdrawing employers from plans by
reducing their withdrawal liability. For a majority of plans that
receive SFA, all SFA will be recognized as a plan asset for withdrawal
liability purposes within 10 years, and because additional SFA will be
incorporated into the determination of withdrawal liability each year,
the effect of the condition will lessen over time.
The phased recognition of SFA as a plan asset is consistent with
ERISA, the Internal Revenue Code (the Code), and actuarial practice. It
is conceptually similar to the smoothed recognition of plan assets for
purposes of calculating a plan's minimum funding requirements. The
Department of the Treasury regulation at 26 CFR 1.412(c)(2)-1(b)
permits multiemployer plans to ``smooth'' plan asset values when
determining minimum funding by averaging the value of plan assets over
up to 5 years rather than using the current fair market value of plan
assets. It is also roughly comparable to the gradual recognition of SFA
in determining minimum funding. Section 432(k)(2)(D) of the Code
requires that SFA be disregarded in determining required contributions.
Internal Revenue Service (IRS) Notice 2021-38, 2021-30 IRB 155,
provides that SFA is recognized in the plan's funding standard account
over time, in that any benefit or plan expense paid from the SFA
account generates an actuarial gain that is amortized over 15 years.
In response to the July 2022 final rule, three commenters generally
supported the added withdrawal liability condition under Sec.
4262.16(g)(2) or said that the phased recognition of SFA funds as a
plan asset was an improvement over the interim final rule that required
a plan that received SFA to immediately recognize the SFA funds as a
plan asset. One commenter opposed the condition because of separation-
of-powers principles. PBGC disagrees with this comment. As explained in
the July 2022 final rule, Congress chose to expressly delegate
authority in section 4262(m) of ERISA to PBGC to impose reasonable
conditions on a plan that receives SFA relating to withdrawal
liability. This grant by Congress expands PBGC's authority beyond its
existing authority under section 4002(b)(3) and sections 4201 through
4225 of ERISA to regulate withdrawal liability and authorizes PBGC to
provide rules that define how SFA should be treated in the calculation
of withdrawal liability. The condition in Sec. 4262.16(g)(2) reflects
the authority Congress delegated to PBGC to oversee the SFA program and
ensure that SFA is preserved for the payment of benefits and expenses.
One commenter was concerned that the phased recognition of SFA will
not be effective after the first few years following a plan's receipt
of SFA and suggested several ways of strengthening the condition. One
suggestion was to apply the condition to all plans that receive SFA
(including plans that have already applied for and received SFA under
the terms of the interim final rule without requiring that the plan
file a supplemented application) because contributing employers to
these plans should not be treated more favorably in the calculation of
withdrawal liability than employers in plans that have not yet been
able to apply for SFA. Alternatively, the commenter suggested
permitting a plan that received SFA before August 8, 2022, the option
to adopt the condition without having to file a supplemented
application. Another suggestion was for PBGC to affirm that the amount
of excluded SFA should include the investment return on SFA for each
year in the phase-in period. An additional suggestion was to apply the
condition over the full 30-year period that SFA is intended to cover,
but that a compromise might be to amortize the SFA over no fewer than a
stated period of years, such as 20 years.
PBGC considered these suggestions but decided not to adopt them.
PBGC provided a process in the July 2022 final rule for a plan that
receives SFA under the terms of the interim final rule to have the
withdrawal liability condition in Sec. 4262.16(g)(2) apply to the
plan. The condition applies to a plan in determining withdrawal
liability for a withdrawal occurring on or after the date the plan
files a supplemented application. The supplemented application used for
this purpose is not burdensome for a plan to file. Regarding the amount
to be phased-in, PBGC provided examples in the July 2022 final rule
that make it clear that investment returns are not included in the
calculation of the amount excluded. PBGC also considered requiring the
condition to cover a longer period of time, but decided not to adopt
this suggestion. A longer period, such as requiring the condition to
cover 20 or 30
[[Page 4903]]
years, may not be reasonable for plans that receive a small amount of
SFA and the contributing employers to those plans.
Another commenter who supported the phased-recognition of SFA over
the projected payout period recognized that the length of that period
may vary based on characteristics of the SFA-recipient plan. PBGC
agrees with this comment. The condition in Sec. 4262.16(g)(2) is
reasonable and appropriate for plans because it applies only through
the end of the plan year by which each plan projects it will exhaust
SFA assets.
Some of the suggestions made by commenters are beyond the scope of
this rulemaking. For example, one commenter suggested that PBGC impose
a condition so that an employer that has an obligation to contribute to
a plan for work performed in the building and construction industry
that ceases operations or transfers operations outside the jurisdiction
of its collective bargaining unit will incur withdrawal liability.
Under section 4203(b) of ERISA, such employers are not considered to
have withdrawn from the plan.
Two commenters requested that PBGC review the impact on the
assessment of withdrawal liability when a plan that receives SFA is
deemed to be in critical status through 2051. Under the Multiemployer
Pension Reform Act of 2014, critical status plans must ignore certain
contribution increases in calculating UVBs and withdrawal liability.
One of these commenters suggested that PBGC add a condition to require
plans that receive SFA to include contribution increases under a
rehabilitation plan for withdrawal liability purposes. This issue
raises interpretive issues about sections 305(g)(3), 305(d)(1)(B), and
305(f)(1)(B) of ERISA over which the Secretary of the Treasury has
interpretive jurisdiction pursuant to section 101 of Reorganization
Plan No. 4 of 1978 (5 U.S.C. App.). PBGC is continuing to examine these
issues with the Department of the Treasury and, if appropriate, may
issue additional guidance.
Exceptions From Withdrawal Liability Conditions
PBGC received two comment letters requesting exceptions from the
withdrawal liability conditions. One commenter requested an exception
for single-owner professional employers stating that the phase-in of
SFA does not provide sufficient relief from the withdrawal liability
such employers could be assessed. The commenter proposed that PBGC
provide for full consideration of SFA in the calculation of withdrawal
liability for single-owner professional employers and relax the
condition in Sec. 4262.16(g)(1) requiring the use of a specific
interest rate assumption. PBGC declines to add an exception for single-
owner professional employers. The purpose of SFA is to help plans pay
for benefits and plan expenses and not to indirectly subsidize
employers to withdraw from these plans. PBGC is not making this change
because if PBGC provided an exception for a special class, such as,
single-owner professional employers, it would subsidize the withdrawal
of these employers rather than discourage employer withdrawal.
Another commenter requested that PBGC grant exceptions from or
modifications to the withdrawal liability conditions under Sec.
4262.16(g)(1) and (2) for plans that have unique facts and
circumstances, such as a plan that uses an alternative withdrawal
liability allocation method, if applying the condition to the plan
would result in a lower assessment of withdrawal liability, thereby
incentivizing contributing employers to withdraw.
After considering the comment, PBGC determined that adding a
process for a plan to request an exception from the withdrawal
liability conditions in Sec. 4262.16(g)(1) and (2) under narrow
circumstances is reasonable. The conditions on withdrawal liability are
intended to ensure that SFA is preserved for the payment of benefits
and expenses and not used to subsidize employer withdrawals. If
application of the conditions would result in an increase in employer
withdrawals, the plan would be negatively impacted and the purpose of
the conditions would not be met. Accordingly, PBGC is adding Sec.
4262.16(g)(3), which provides a process for a plan sponsor to request
approval from PBGC for an exception from the withdrawal liability
conditions in Sec. 4262.16(g)(1) and (2) under specific circumstances.
Under the exception process, a plan sponsor may request an
exception from the withdrawal liability conditions by demonstrating to
the satisfaction of PBGC that the exception lessens the risk of loss to
plan participants and beneficiaries and does not increase expected
employer withdrawals. The plan sponsor must also demonstrate that the
exception does not increase the amount of the plan's SFA or
unreasonably increase PBGC's risk of loss. A request for PBGC approval
of an exception must be submitted by the plan sponsor or its duly
authorized representative and must contain identifying, actuarial, and
financial information described in Sec. 4262.16(g)(3).
The exception process added by this final rule is separate from the
SFA application process. A request for an exception from the withdrawal
liability conditions may be submitted to PBGC either before the plan's
initial application for SFA is filed or before a revised application is
filed. A plan sponsor requesting an exception is encouraged to have a
pre-submission consultation with PBGC.
When an application for SFA is prepared, a plan is required to take
into account plan assets in determining the amount of requested SFA.
Under Sec. 4262.4(c)(4), this includes withdrawal liability payments
made and expected to be made to the plan during the SFA coverage period
taking into account a reasonable allowance for amounts considered
uncollectible. Accordingly, if a plan sponsor submits a request for an
exception from the withdrawal liability conditions, the plan's
application for SFA must take the exception into account in the
determination of the withdrawal liability payments expected to be made
to the plan and the amount of requested SFA.
Compliance With Rulemaking Guidelines
Administrative Procedure Act
As described in the July 2022 final rule, PBGC's adoption of a
condition requiring a phased recognition of SFA in a plan's
determination of withdrawal liability under Sec. 4262.16(g)(2) is
consistent with PBGC's statutory authority to impose reasonable
conditions on plans that receive SFA under section 4262(m) of ERISA. It
is also more effective, along with the other conditions, for achieving
the intended purposes of that statutory authority--to help enable plans
that receive SFA to pay benefits due through 2051 and to preclude or
disincentivize plans and employers from taking actions that have the
potential to accelerate plan insolvencies. This condition was adopted
after consideration of comments received on the withdrawal liability
condition requiring the use of specified interest assumptions included
in the interim final rule. PBGC provided for a comment period of 30
days on the new withdrawal liability condition in Sec. 4262.16(g)(2)
because it is an area of complexity that PBGC recognized may benefit
from additional public comment. PBGC noted this additional opportunity
for public comment on the condition would allow PBGC to assess the
effectiveness of the withdrawal liability
[[Page 4904]]
condition, consider adjustments or changes, and determine whether more
clarification is needed regarding the condition or the mechanics of
implementation. The preamble to the July 2022 final rule provided that
to the extent PBGC determines that adjustments or changes to the
withdrawal liability condition are appropriate and authorized, or that
further clarification is needed, PBGC would revise the condition
accordingly.
As discussed earlier in the preamble, in response to this comment
solicitation, PBGC received comments on the phase-in condition in Sec.
4262.16(g)(2) as well as on the condition requiring the use of
specified interest assumptions in Sec. 4262.16(g)(1). Following
consideration of these comments, PBGC determined that it would be
appropriate to provide a process for plans to apply for an exception to
the conditions in Sec. 4262.16(g)(1) and (2), that would be available
where application of the conditions would result in an increase in
employer withdrawals. Enabling a plan to apply for an exception from
the withdrawal liability conditions based on the specific facts and
circumstances of the plan will provide flexibility to ensure that the
statutory purposes of SFA to pay for benefits and administrative
expenses, as described earlier in this preamble, are met.
The Administrative Procedure Act provides at 5 U.S.C. 553(b) 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.'' As
described in PBGC's interim final rule and July 2022 final rule,
Congress expressed a clear urgency for PBGC to implement an SFA program
to get appropriate assistance to eligible plans as quickly as possible.
Congress authorized PBGC to prioritize the filing of applications for
eligible plans with the greatest need, during the first 2 years after
March 11, 2021, and PBGC provided for such a process. PBGC is receiving
and processing applications filed by these plans. Under this final
rule, a plan eligible for SFA may apply for an exception to the
withdrawal liability conditions before the plan files its SFA
application. It is in the interest of a plan eligible to apply during
the priority period to be able to determine if the plan should apply
for an exception to the withdrawal liability conditions. Any delay in
the effective date of the final rule would be contrary to the interests
of the plan's participants and beneficiaries and could cause a delay in
the submission of the plan's application and the plan's receipt of SFA.
Accordingly, PBGC has determined that the public interest is best
served by issuing this final rule expeditiously, without further
opportunity for notice and comment, and that good cause exists for
making the exception process set forth in this amendment effective less
than 30 days after publication.
PBGC is making this rule effective on January 26, 2023.
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 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.
Because of the urgent need for the SFA program to distribute
appropriate financial assistance to eligible plans quickly, PBGC has
determined that this final rule must take effect January 26, 2023. As
described earlier in the preamble, this effective date allows eligible
plans to apply for an exception from the withdrawal liability
conditions and apply for SFA without unnecessary delay. Under the
circumstances, PBGC has determined that public interest is best served
by making this final rule effective on January 26, 2023. PBGC does not
want to unduly delay providing financial assistance to plans.
Regulatory Impact Analysis
(1) Relevant Executive Orders and 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 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 the final rule.
(2) Estimated Impact of Regulatory Action
As discussed earlier in the preamble, PBGC published a final rule
on July 8, 2022, to modify its regulations under part 4262, which
implement the requirements under ARP. It is through this program that
PBGC is providing SFA to eligible multiemployer pension plans from a
fund established by ARP for SFA purposes and credited with transfers
from the general fund of the Department of the Treasury.
In the Regulatory Impact Analysis of the July 2022 final rule, PBGC
provided estimates of the transfer amounts of the SFA program using
Multiemployer Pension Insurance Modeling System (ME-PIMS), PBGC's
stochastic modeling tool. The aggregate SFA was estimated to be
approximately $82.3 billion in assistance payments paid to
approximately 200 plans and $150 million to PBGC to administer the SFA
program. PBGC further estimated that plans that received financial
assistance from PBGC under section 4261 of ERISA
[[Page 4905]]
in the form of loans will repay PBGC in aggregate approximately $385
million.
The addition of Sec. 4262.16(g)(3), to provide plans with an
exception process for the withdrawal liability conditions is expected
in rare circumstances to impact the assumptions selected by the plan
for projecting future withdrawal liability payments and ongoing
employer contributions for purposes of determining the SFA amount in
the plan's application. In the absence of an exception process under
Sec. 4262.16(g)(3), some plans may expect an increase in employer
withdrawals and a decrease in employer contributions following receipt
of SFA. Consequently, without the exception, these plans would be
expected to incorporate these anticipated employer withdrawals into
their withdrawal liability payment assumption, which could increase the
SFA requested in their applications. Although this circumstance would
be expected to be limited to very few plans, PBGC estimates that the
addition of Sec. 4262.16(g)(3) could decrease overall SFA program
transfers by $1 to $2 billion.
As discussed earlier in the preamble, PBGC considered regulatory
alternatives based on the public comments provided during the 30-day
comment period on the withdrawal liability condition in Sec.
4262.16(g)(2) included in the July 2022 final rule. Under one such
regulatory alternative, PBGC considered extending the period of time
for the phased recognition of SFA in a plan's determination of
withdrawal liability. PBGC decided not to adopt this suggestion because
a longer period, such as requiring the condition to cover 20 or 30
years, may not be reasonable for plans that receive a small amount of
SFA and for the contributing employers to those plans. PBGC also
considered leaving the withdrawal liability condition unchanged.
However, it was decided that the addition of a narrow exception process
under Sec. 4262.16(g)(3) will enhance the ability of plans, based on
their specific facts and circumstances, to retain employers and
minimize the likelihood that the receipt of SFA could induce employers
to withdraw from these plans.
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
With this final rule, PBGC is submitting changes to the collection
of information, previously approved under control number 1212-0074, 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">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.
Under Sec. 4262.16(g)(3), PBGC is adding a request for a
determination from PBGC for approval of an exception from the
withdrawal liability conditions under Sec. 4262.16(g)(1) and (2). PBGC
estimates that, beginning in 2023, it will receive an average of only
one request per year with an average annual hour burden of 8 hours and
an average annual cost burden of $25,000. In addition, under the
circumstances described in Sec. 4262.16(d), (f), and (h), a plan
sponsor may file a request for a determination from PBGC for approval
of an exception from SFA conditions relating to reductions in
contributions, transfers or mergers, and settlement of withdrawal
liability. PBGC estimates that beginning in 2023, PBGC will receive an
average of 2.2 requests per year for these additional determinations.
PBGC needs the information required for a request for determination to
determine whether to approve an exception from each of the specified
conditions of receiving SFA. PBGC estimates that, beginning in 2023,
PBGC will receive an average of 3.2 requests per year for all
determinations. PBGC estimates an average annual hour burden of 15.6
hours and average annual cost burden of $44,000.
The estimated aggregate average annual hour burden for the next 3
years for the information collection in part 4262 is 878.6 hours for
employer and fund office administrative, clerical, and supervisory
time. The estimated aggregate average annual cost burden for the next 3
years for the information collection request in part 4262 is
$2,130,400, for approximately 5,326 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.
List of Subjects in 29 CFR Part 4262
Employee benefit plans, Pension insurance, Pensions, Reporting and
recordkeeping requirements.
For the reasons set forth in the preamble, PBGC is amending 29 CFR
part 4262 as follows:
PART 4262--SPECIAL FINANCIAL ASSISTANCE BY PBGC
0
1. The authority citation for part 4262 continues to read as follows:
Authority: 29 U.S.C. 1302(b)(3), 1432.
0
2. In Sec. 4262.16, add paragraph (g)(3) to read as follows:
Sec. 4262.16 Conditions for special financial assistance.
* * * * *
(g) * * *
(3) Request for exception. The plan sponsor of a plan eligible for
special financial assistance may request approval from PBGC for an
exception from the conditions under paragraphs (g)(1) and (2) of this
section by demonstrating to the satisfaction of PBGC that the exception
lessens the risk of loss to plan participants and beneficiaries and
does not increase expected employer withdrawals. The plan sponsor must
also demonstrate to the satisfaction of PBGC that the exception does
not increase the amount of the plan's special financial assistance or
unreasonably increase PBGC's risk of loss. A request for PBGC approval
of an exception must be submitted by the plan sponsor, or its duly
authorized representative, either before an initial application or
before a revised application for special financial assistance is filed
by the plan, and must contain all of the following identifying,
actuarial, and financial information:
(i) Name, address, email, and telephone number of the plan sponsor
and the plan sponsor's authorized representatives, if any.
(ii) The nine-digit employer identification number (EIN) assigned
to the plan sponsor by the IRS and the three-digit plan identification
number (PN) assigned to the plan by the plan sponsor, and, if
different, the EIN and PN last filed with PBGC. If an EIN or PN has not
been assigned, that should be indicated.
(iii) Most recent plan document or restatement of the plan document
and all subsequent amendments adopted (if any) and most recent
Declaration of Trust.
(iv) Administrative manuals and other documents governing the
plan's assessment or administration of withdrawal liability.
(v) A copy of the most recent actuarial valuation performed for the
plan before the date of the plan's submission of a request for approval
under this paragraph (g)(3), and the actuarial valuation performed for
each of the 2 plan years immediately preceding the most recent
actuarial valuation.
[[Page 4906]]
(vi) A copy of the plan actuary's most recent certification under
section 305(b)(3) of ERISA, including a detailed description of the
assumptions used in the certification, and the basis under which they
were determined. The description must include information about the
assumptions used for the projection of future contributions, withdrawal
liability payments, and investment returns, and any other assumption
that may have a material effect on projections.
(vii) A statement of whether the plan sponsor is requesting an
exception from the condition under paragraph (g)(1) or (2) of this
section or both and a demonstration of how the proposed exception
lessens the risk of loss to plan participants and beneficiaries and
does not increase expected employer withdrawals. The statement must
also include a demonstration that the exception does not increase the
amount of the plan's special financial assistance or unreasonably
increase PBGC's risk of loss.
(viii) A list of employers contributing greater than 5 percent of
plan contributions in a plan year.
(ix) A certification by the plan's actuary that the amount of
special financial assistance that will be requested in the plan's
application for special financial assistance will be determined
assuming the exception will be approved.
(x) A detailed statement certified by an enrolled actuary of the
effect of the proposed exception, and a demonstration for 30 years that
the estimated withdrawal liability payments and contributions with the
proposed exception exceed the estimated withdrawal liability payments
and contributions without the proposed exception. The demonstration
must show an aggregate of all withdrawal liability payments and an
aggregate of all contributions for each year in the 30-year period and
include representative examples of employer withdrawal liability
payments and contributions. An individual employer's withdrawal
liability assessment reflecting the proposed exception must be no less
than what would be assessed without the proposed exception.
(xi) Any additional information PBGC determines it needs to review
a request for approval of a proposed exception.
* * * * *
Issued in Washington, DC.
Gordon Hartogensis,
Director, Pension Benefit Guaranty Corporation.
[FR Doc. 2023-01415 Filed 1-25-23; 8:45 am]
BILLING CODE 7709-02-P
</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>Indexed from Federal Register on January 26, 2023.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.