The Pension Benefit Guaranty Corporation (PBGC) was granted authority under the American Rescue Plan Act of 2021 (ARP) to impose reasonable conditions on plans receiving special financial assistance (SFA), including conditions related to withdrawal liability. In this Multiemployer Review, we will:

1. Review the key changes to the withdrawal liability rules applicable to plans that receive SFA (SFA plans), as described in the PBGC’s 2022 final rule and American Rescue Plan Act FAQs.
2. List the required annual disclosures SFA plans must make to the PBGC with respect to withdrawal liability.
3. Summarize the outcome of a recent court case challenging the PBGC’s prescribed handling of SFA for withdrawal liability purposes.

ARP established the SFA program to provide financial support to financially distressed multiemployer defined benefit plans. Eligible plans can apply to the PBGC for SFA to help pay all benefits and plan expenses through the plan year ending in 2051. The SFA is funded by transfers from the U.S. Treasury, rather than from the PBGC multiemployer insurance program funded by premiums. The PBGC estimates that the SFA program will pay about $80 billion to 198 plans.¹ As of November 1, 2024, 98 plans have been approved for $69.3 billion in SFA.

Changes to withdrawal liability rules for SFA plans

When an employer withdraws from a multiemployer pension plan, it may be assessed withdrawal liability to cover its share of the plan's unfunded vested benefit liability (UVB). The UVB is the difference between the actuarial present value of the plan's vested accrued benefits (i.e., benefits that participants have earned and are entitled to) and the value of the plan's assets.

For plans that received SFA or filed for supplemented SFA² after August 8, 2022, the effective date of the PBGC’s final rule, the following conditions apply with respect to withdrawal liability.

Interest assumption

The interest rates used to determine an SFA plan’s UVB and withdrawal liability payment schedule must be those prescribed in Appendix B to 29 Code of Federal Regulations (CFR) part 4044 (ERISA 4044), the same interest rates used to calculate mass withdrawal liability for plans that terminate by mass withdrawal. They are required beginning with the first UVB date following receipt of SFA (or after the date an SFA plan filed for supplemented SFA), and remain in effect for the UVB date through the later of:

• The end of the 10th plan year after the first plan year SFA is received.
• The last day of the plan year SFA assets are projected to be exhausted, using the same methodology that was used in the SFA application to project SFA assets. If SFA is received after the plan year that includes the plan's SFA measurement date, then the exhaustion year is deferred by the difference between the SFA payment year and the plan year that includes the SFA measurement date.

This means the new assumptions apply for purposes of assessing withdrawal liability for withdrawals during the first year after receipt of SFA through at least the next 10 years.

Example: A calendar-year plan applies for SFA using an SFA measurement date in 2022. The plan applies for SFA in 2024 and receives SFA in 2025. In its application, the plan projected that SFA assets will be exhausted in 2033. The end of the 10th plan year after the plan receives SFA is December 31, 2035 (2025 + 10 years). The last day of the plan year the plan projects SFA assets will be exhausted is December 31, 2036 (2033 + [2025 – 2022]). In this example, the plan will be required to use the ERISA 4044 interest rates from December 31, 2025, through December 31, 2036 (for withdrawals during 2026 through 2037).

The ERISA 4044 interest rates are also to be used to determine the amortization schedule for the employer’s withdrawal liability payments. The PBGC has posted an example in Excel illustrating how this calculation works.

In the interim final rule, the PBGC said that “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.” This 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 PBGC recently changed how the ERISA 4044 interest rates are structured. The two components, select and ultimate interest rates, that have been in place since November 1993³ have been replaced by a yield curve beginning with valuation dates on or after July 31, 2024. The PBGC change in the methodology for ERISA 4044 interest rates “is intended to be consistent with actuarial practices of group annuity providers (insurers) for determining benefit liabilities in settlement situations.”⁴

Phased recognition of SFA

The amount of SFA recognized for withdrawal liability purposes is phased in beginning with the plan year-end after SFA is received through the plan year-end that the plan’s SFA assets are projected to be exhausted. If SFA is received after the plan year that includes the plan's SFA measurement date, the exhaustion year is deferred by the difference between the SFA payment year and the plan year that includes the SFA measurement date. This phased recognition is “to ensure that SFA is not used to subsidize employer withdrawals rather than to make benefit payments and pay plan expenses.”

The final rule does not allow plans to reflect SFA in the calculation of UVB until it is received. Therefore, plans may not reflect a receivable in anticipation of obtaining the payment. The FAQs note that the phased recognition of SFA may not reduce the value of plan assets below zero.

Once SFA is received, then its current market value is reflected in the plan’s total assets as of each plan year-end, but the phase-in offset is based on the initial SFA amount received.

Example: This example is based on Example 1 in the final regulation. A calendar-year plan applies for SFA using a measurement date in 2023 and receives $1 million of SFA in 2024. In the SFA application, the SFA is projected to be exhausted in 2028. For withdrawal liability purposes, the exhaustion year is 2029 (2028 + [2024 - 2023]). The SFA assets will be phased in over six years (December 31, 2024, to December 31, 2029, inclusive) by reducing total assets by the offset shown in Figure 1.

For plans that received SFA under the PBGC’s interim final rule, and then subsequently filed for SFA under the final rule,⁵ the first phase-in year is the plan year in which SFA was received under the interim final rule. For withdrawals that occur after the application for supplemented SFA is filed and before the plan year the supplemented SFA is received, only the initial SFA is phased in. After the plan year the supplemented SFA is received, and the total SFA (initial plus supplemented) is phased in. An example of how SFA is phased in for a plan with supplemented SFA is shown in the Appendix.

SFA plans that suspended benefits under the Multiemployer Pension Reform Act of 2014 (MPRA) or due to insolvency were required as a condition to receive SFA to reinstate those benefits and pay makeup payments either as a lump sum, or in equal monthly payments over a five-year period. According to the FAQs, when calculating UVB any makeup payments made should be excluded from the SFA assets before applying the phase-in fraction. This applies even if the plan elected to use non-SFA assets to pay the makeup payments. An example of how SFA is phased in for a plan that reinstated MPRA benefit suspensions is shown in the Appendix.

Settlement approval

Proposed settlements of withdrawal liability exceeding $50 million during the SFA coverage period⁶ must be approved by the PBGC. The final rule states that this “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 the PBGC.”

Exception to the withdrawal liability conditions

On January 26, 2023, the PBGC issued a separate final rule establishing a process for SFA plans to request an exception from the withdrawal liability calculation conditions if the exception reduces the risk to plan participants and does not increase expected withdrawals. For example, a plan may use an alternative withdrawal liability allocation method that would result in lower withdrawal liability if the ERISA 4044 interest rates and SFA phase-in were used, thereby potentially incentivizing employer withdrawals. The request for the exception must be submitted before the plan’s initial application for SFA or before a revised application is filed, and the trustees would need to provide detailed actuarial analyses demonstrating that the exception would lessen the risk of loss to plan participants and beneficiaries, mitigate the risk of employer withdrawals, and not increase the plan’s SFA amount or the PBGC’s risk of loss.

Withdrawal liability for SFA plans that merge with another plan

If an SFA plan subsequently merges with another non-SFA plan, the PBGC final rule requires the merged plan to use the ERISA 4044 interest rates and apply the phase-in of SFA when calculating the initial UVB before the date of the merger for employers that participated in the SFA plan. The ERISA 4044 rates and phase-in need not be continued after the merger date. However, the final rule does not address the potential situations where all merged plans received SFA before the merger, or where the SFA plan is the successor plan. Withdrawal liability settlements for the entire merged plan that exceed $50 million must also receive PBGC approval.

Withdrawal liability for SFA plans that repaid some of the assistance

SFA plans generally do not have to repay the SFA they received. However, early SFA applications were found to have included deceased participants who were not identified by the plan’s independent death audit, requiring plans to recalculate their SFA after receiving the initial payment. Commercial vendors that perform these death audits do not have access to the Social Security Administration’s Full Death Master File, limiting their ability to conduct an accurate review. The SFA application procedures were modified effective November 1, 2023, to require all current and prospective applicants to submit their census data to the PBGC for the agency to perform a death audit against the Social Security Administration’s Full Death Master File.

The PBGC is reviewing SFA applications that were approved before the new procedures were in place and recalculating the SFA for those plans where applicable. Any excess payments are to be repaid to the PBGC. As of November 1, 2024, 23 plans have repaid $150 million in SFA. As of the date of this writing, there is no guidance about how these recalculations are to be reflected in withdrawal liability calculations.

Annual compliance statement

SFA plans must file an annual statement of compliance with the PBGC within 90 days after the end of each plan year, beginning with the plan year the plan received SFA⁷ through the plan year ending in 2051. Among other requirements, the statement must include responses to the following questions related to withdrawal liability:

• During the plan year, did the plan determine UVB for employers that withdrew in a year after the plan year that SFA was received? If yes, then all the relevant withdrawal liability calculations must be provided.
• If withdrawal liability was calculated for the year, did the plan use the required PBGC interest rate assumptions when determining UVB? If not, include an explanation of why—either that the condition has expired for the plan, or the plan was not compliant, and descriptions of any corrective action taken.
• If withdrawal liability was calculated for the year, did the plan use the required phase-in of SFA when determining UVB⁸? If not, include an explanation of why—either that the condition has expired for the plan, or the plan was not compliant, and descriptions of any corrective action taken.
• During the plan year, did the plan settle any withdrawal liability amounts? If yes, then all the relevant settlement agreement(s) must be provided.
• Did any settlements of withdrawal liability made during the plan year exceed $50 million? If so, did the plan receive prior PBGC approval? If not, include an explanation that the plan was not compliant, and descriptions of any corrective action taken.

The same questions are asked of plans that merged with an SFA plan. However, aside from the settlement questions, they apply only to withdrawal liability for employers that participated in the SFA plan prior to the merger.

The annual compliance statement also requires updated cash flow projections that include projected withdrawal liability payments.

PBGC withdrawal liability calculation upheld in court

In the case of In re Yellow Corporation, the U.S. Bankruptcy Court for the District of Delaware upheld PBGC regulations that mandate phased recognition of SFA for calculating withdrawal liability and exclude SFA from being considered plan assets until it is received. The court found these regulations to be within the PBGC's statutory authority and not arbitrary or capricious, emphasizing that they align with ARP's directive to use SFA funds solely for benefit payments and plan expenses.

 

Trustees of SFA plans should work with their service providers to navigate the new withdrawal liability rules and to remain compliant with all SFA conditions, requirements, and restrictions that apply during the SFA coverage period.

Please contact your Milliman consultant to discuss how these rules may impact your plan(s).

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Appendix: Withdrawal liability examples for plans with supplemented SFA or reinstated MPRA benefit suspensions

Supplemented SFA: This example is based on Example 2 in the final regulation. A calendar-year plan applies for SFA as follows:

• Under the interim final rule, the plan files for SFA using a measurement date in 2022 and receives $1 million in SFA in 2022. This SFA is projected to be exhausted in 2028.
• Under the final rule, the plan files for supplemented SFA in 2023 and receives an additional $100,000 of SFA in 2024. This application shows that SFA assets are projected to be exhausted in 2030.
• If an employer withdraws in 2024, after the plan filed for supplemented SFA, then the UVB as of December 31, 2023, is the basis for withdrawal liability. The $1 million SFA is phased in over seven years (2022 to 2028 inclusive), beginning in 2023.
• The phase-in period is different for employers that withdraw after the supplemental SFA is received. The exhaustion year has been extended to 2030, so the phase-in period is now nine years (2022 to 2030 inclusive). The SFA assets will be phased in over nine years, as shown in Figure 2.

Reinstated MPRA benefit suspensions: If, in the previous example, MPRA makeup payments of $50,000 were made in each year from 2023 through 2027, then the SFA assets are phased in as in Figure 3.

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¹ PBGC (2023). FY 2023 Projections Report. Retrieved October 30, 2024, from https://www.pbgc.gov/sites/default/files/documents/fy-2023-projections-report.pdf.

² SFA plans that were approved for SFA under the PBGC’s interim final rule may submit a supplemented application on or after August 8, 2022, to recalculate their SFA using the assumptions outlined in the final rule.

³ The full text of the PBGC final rule is available at https://www.govinfo.gov/content/pkg/FR-2024-06-06/pdf/2024-11819.pdf.

⁴ PBGC. White Paper: PBGC's Valuation Methodology: Derivation of ERISA 4044 Yield Curve. Retrieved October 30, 2024, from https://www.pbgc.gov/sites/default/files/documents/4044-final-rule-white-paper.pdf.

⁵ Plans that received SFA under the interim final rule, but which do not apply for supplemented SFA, continue to calculate withdrawal liability under the rules outlined in the interim final rule.

⁶ The SFA coverage period is the period beginning on the plan’s SFA measurement date and ending on the last day of the plan year ending in 2051.

⁷ If the plan receives SFA with six months or fewer remaining in the plan year, the first compliance statement must cover from the date of SFA receipt through the end of the following plan year.

⁸ The phase-in of SFA does not apply to SFA plans that were approved under the interim final rule.