Five years after the US Congress enacted the American Rescue Plan Act’s Special Financial Assistance (SFA) program, the Pension Benefit Guaranty Corporation (PBGC) has issued new guidance addressing what happens when a plan that received SFA wants to merge with another plan.
Issued as frequently asked questions (FAQs) on June 9, 2026, the guidance does not create new authority but instead provides helpful insight into how the PBGC will evaluate proposed transactions and administer ongoing SFA requirements after a merger.
While the FAQs are framed as compliance assistance, they may also signal an emerging trend. As plans move further from the immediate financial distress that prompted SFA applications, mergers may be seen as a tool for improving a plan’s long-term financial stability.
PBGC Reinforces Existing Merger Standards
A merger involving an SFA recipient plan must satisfy three basic eligibility requirements before PBGC approval will be granted. Specifically, the merger must
- comply with ERISA’s multiemployer merger provisions (found in § 4231(a)-(d) of ERISA);
- not unreasonably increase the PBGC’s risk of loss; and
- not reasonably be expected to be adverse to the interests of participants and beneficiaries of the plans involved in the merger.
SFA Conditions Survive the Merger
A plan’s receipt of SFA will continue to impact plan operations after a merger closes. The FAQs are clear that SFA assets remain subject to the program’s restrictions and conditions, including requiring SFA assets to remain segregated from other plan assets and that they are used only for benefit payments and administrative expenses. Similarly, preexisting investment restrictions that are applicable to SFA assets will also continue following a merger.
In determining withdrawal liability, the PBGC requires merged plans to continue using the PBGC interest assumptions applicable to SFA plans when calculating unfunded vested benefits attributable to the pre-merger SFA plan. These requirements continue until the later of ten plan years after the first year in which the plan received SFA or the projected exhaustion date of SFA assets. If a proposed withdrawal liability settlement exceeds $50 million, the merged plan must seek PBGC approval.
There are a limited number of restrictions for which a merged plan can request a waiver—those include restrictions on retrospective benefit increases for participants in the SFA plan, prohibitions on contribution decreases for employers that contributed to the SFA plan, and limits on reallocating income or contributions away from the SFA-recipient plan where resources are shared with another benefit plan. The PBGC advises that a request for waiver of these conditions should be submitted with the request for merger approval.
A merger does not eliminate or reset a plan’s SFA obligations. Instead, the merged plan effectively inherits the responsibility for ensuring compliance with those requirements, with limited exceptions in the event the merged plan receives a waiver from the PBGC.
Alternative Allocation Methods Available
Recognizing some of the complexities associated with administering a merged plan, the PBGC included an example alternative allocation method that is designed to satisfy the SFA withdrawal liability requirements. However, the PBGC specifically noted that adopting this method does not necessarily mean that the merger satisfies the risk of loss standard necessary for merger approval. Instead, each transaction will be considered based on its own facts to determine whether the merger increases PBGC’s exposure to risk or adversely affects participants.
PBGC Encourages Plans to Reach Out for Help
The FAQs encourage plans to communicate with the PBGC before filing a formal merger application, including for an informal consultation on the method for determining withdrawal liability. Merger approval requests are required to be submitted at least 120 days before the proposed effective date of the merger. This could suggest that the PBGC expects merger reviews involving SFA plans to be highly fact-specific and time-intensive.
What This Could Mean for SFA Plans
SFA attention since 2021 has largely focused on eligibility, application procedures, and investment restrictions. These FAQs address the next phase of the program by looking at how SFA-recipient plans operate and evolve after receiving federal assistance.
With more than $74 billion in SFA grants approved and many plans several years removed from receiving assistance, trustees may increasingly explore new strategies for ensuring the longevity and success of plans. Regardless of whether the FAQs are responding to an increase in proposed mergers or are intended to encourage plans to consider whether a merger is a potential next step, the FAQs make it clear that mergers involving SFA-recipient plans require careful planning and continued adherence to the SFA framework long after the transaction closes.
How We Can Help
Please contact the authors of this article or your Morgan Lewis contacts with any questions or if we can assist in helping navigate the SFA requirements generally or merger considerations specifically.
Law clerk Isabella Wetherington contributed to this piece.