Troubled Multiemployer Pension Plans: PBGC Issues Regulation on ARPA Special Financial Assistance

July 19, 2021

The Pension Benefit Guaranty Corporation has issued an interim final rule implementing the special financial assistance provisions of the American Rescue Plan Act to assist financially troubled multiemployer pension plans.

The interim final rule outlines the following aspects of the special finance assistance (SFA), which are discussed in greater detail below.

  • How SFA amounts are calculated
  • How the receipt of SFA will affect the calculation of withdrawal liability
  • The SFA application process
  • How SFA assets must be invested
  • How the receipt of SFA results in restrictions on benefit increases and employer contribution decreases
  • The requirement to reinstate certain benefit cuts in order to receive SFA

The rule was published July 12 and became effective upon publication, although the Pension Benefit Guaranty Corporation (PBGC) indicated that it may revise the rule based on public comments due by August 11, 2021. Based on early feedback to the rule from certain troubled plans and stakeholders to such plans, we believe there is a likelihood that the rule will be revised in certain respects. We will keep our readers and clients updated on developments as information becomes available.

(For more background and information, read our April 2021 LawFlash, Multiemployer Pension Plans (And Contributing Employers) Look to American Rescue Plan For Relief.)


The relief provisions in the American Rescue Plan Act (ARPA) provide assistance to certain multiemployer pension plans through the establishment of a new US Department of the Treasury–backed PBGC fund, to which eligible plans may apply for SFA, issued in a lump-sum payment. The SFA is not intended to “fully fund” eligible plans. Rather, under the statute, eligible plans are entitled to receive an amount “sufficient to pay all benefits” for the next 30 years.

Prior to the rule’s publication, plans, employers, and their advisors were calling for clarification of the statutory meaning of the amount necessary to “pay all benefits.” Many stakeholders argued that this phrase should mean the amount necessary to forestall insolvency through 2051 (but not thereafter), while others contended it should mean the amount needed to pay annual participant benefits for 30 years, independent of the plan’s current assets—allowing most plans to remain solvent beyond 2051.

Notably, the rule adopts the first interpretation—the amount necessary to forestall insolvency through 2051 but not thereafter. Specifically, the rule provides that the amount of SFA to which a plan will be entitled is the difference between the plan’s “obligations” and its “resources.” For these purposes, plan “obligations” are the sum of benefits (including reinstated benefits) and administrative expenses the plan would reasonably be expected to pay through the last day of the plan year ending in 2051. Plan “resources” are the sum of the fair market value of plan assets and the present value of future anticipated contributions, withdrawal liability payments, and other payments expected to be made to the plan (excluding PBGC financial assistance), in each case through the last day of the plan year ending in 2051.

In general, the actuarial assumptions used in calculating plan obligations and resources are to be those in a plan’s Pension Protection Act certification most recently completed before January 1, 2021. But the rule specifies that a plan must use an interest rate assumption that is the lesser of (1) the rate used for funding standard account purposes in the plan’s certification of status most recently completed before January 1, 2021; or (2) the yield on investment grade bonds maturing in more than 20 years, plus 2%.


For months, plan sponsors, contributing employers, and multiemployer practitioners have been eagerly anticipating the effect the SFA would have on a plan’s withdrawal liability. The US House of Representatives version of the initial legislation expressly provided that—for purposes of determining an employer’s withdrawal liability—plans would not be permitted to take into account SFA for 15 years after receipt of SFA (i.e., the SFA the plan received, and the earnings on the SFA, would not be treated as plan assets for purposes of determining a withdrawing employer’s withdrawal liability).

The final version of the legislation removed that provision, but only to avoid a procedural violation under the budget reconciliation process. Despite its removal, ARPA specifically permitted the PBGC to impose special withdrawal liability rules on plans that receive SFA. If the PBGC did not establish some sort of special limitation, the aggregate withdrawal liability assessed by a plan that receives SFA would be significantly lower immediately after the plan’s receipt of the SFA. This could incentivize employers to withdraw from these plans, further deteriorating the plans’ contribution bases.

The rule includes a somewhat-unexpected special withdrawal provision for plans that receive SFA. Instead of adopting the limitation in the original legislation (which would have excluded SFA funds from withdrawal liability calculations for 15 years), the rule makes clear that SFA funds will be taken into account when calculating a plan’s withdrawal liability. However, the rule requires that plans use mass withdrawal interest rate assumptions published by the PBGC when calculating an employer’s withdrawal liability until the later of 10 years after the end of the year in which the plan receives SFA, or until it no longer holds SFA monies. These interest rates approximate the cost of an annuity purchased from an insurer, and are very low (e.g., for July 2021, the applicable interest rate is 2.1%).

While the PBGC’s new withdrawal liability rule may increase withdrawal liability for a plan that currently uses a higher funding rate interest assumption (typically in the 6.5–7.5% range) or a method of blending the current PBGC rates and the plan’s funding rate (the so-called “Segal blend” method), this increase will be offset—either partially or fully—by the amount of the SFA.

Some plans already use the mass withdrawal interest rate assumptions to calculate withdrawal liability. For plans that already use this method, an employer’s total withdrawal liability exposure may decrease after the plan’s receipt of SFA, though it is also possible that an employer’s “effective” withdrawal liability may stay the same if the amount of the reduction will not be paid off under the employer’s 20-year payment schedule.

The rule also requires PBGC approval of certain withdrawal liability settlements with plans that receive SFA. The PBGC approval is required if a withdrawal liability settlement (as assessed, or as discounted to present value using the mass withdrawal liability rates) is greater than $50 million. The PBGC will approve a settlement if it determines that it is in the “best interests of participants and beneficiaries” and “the settlement does not create an unreasonable risk of loss to PBGC.”

Finally, in a surprising footnote to the preamble to the rule, the PBGC has announced it “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.” The lawfulness of the Segal blend and other interest rate assumptions that diverge from a plan’s funding rate assumption has been litigated heavily over the past several years and is currently before the US Courts of Appeals for the Sixth Circuit and DC Circuit. It is possible that a generally applicable PBGC rule will at least attempt to settle the issue with respect to future withdrawals.


Priority Groups for SFA Application

The rule establishes seven “priority groups” for the filing of SFA applications, and plans may begin applying for SFA on the date specified by the PBGC for that group, as detailed in the table below:

Priority Group


Plan May Apply for SFA


Insolvent plans, and plans projected to become insolvent by March 11, 2022

July 9, 2021


  • Plans that have suspended benefits under the Multiemployer Pension Reform Act (MPRA)
  • Plans expected to be insolvent within 1 year of the date an SFA application is filed

January 1, 2022


Plans in critical and declining status that had 350,000 or more participants

April 1, 2022


Plans projected to become insolvent before March 11, 2023

July 1, 2022


Plans projected to become insolvent before March 11, 2026

Date to be specified, with three weeks’ advance notice, no later than February 11, 2023


Plans for which the PBGC computes the present value of financial assistance that would be paid under ERISA 4261 as greater than $1 billion

Date to be specified, with three weeks’ advance notice, no later than February 11, 2023


Other plans as specified by the PBGC

Date to be specified no later than March 11, 2023

Note that a plan in a particular priority group can continue to apply for SFA after the PBGC has opened applications to the next priority group. The PBGC may specify earlier dates than those identified; all such notices of openings in the application process will be published on the PBGC website. The PBGC may also temporarily cease accepting applications if the volume of applications exceeds the PBGC’s ability to process an application within 120 days.

All initial applications must be received by December 31, 2025, and all revised applications by December 31, 2026.

PBGC Review of Applications

The PBGC will accept a plan’s calculations unless it determines that an assumption is “unreasonable.” If a plan wants to change the actuarial assumptions from those used in the status certification most recently completed before January 1, 2021, the plan must include an explanation for the change in its application. The PBGC will accept those changes unless it determines that a proposed change is “individually unreasonable,” or the proposed changed assumptions are “unreasonable in the aggregate.”

The PBGC is statutorily required to take action on any application within 120 days of filing. If the PBGC has not approved or denied the application within 120 days, the application is deemed approved, and the plan will receive the requested SFA.

The PBGC may deny an application for two reasons: (1) the application is incomplete or (2) the PBGC determines an assumption or proposed change in assumption is unreasonable. In either case, the plan may withdraw the application or submit a revised application. (Note, however, that a plan may not withdraw an accepted application.) The PBGC has not limited the number of revised applications a plan may submit before the December 31, 2026 deadline.

In determining whether a plan is eligible for SFA based on its critical or critical-and-declining status, the PBGC will apply two different standards depending on when the plan’s status certification was completed. For plans that have completed a status certification before January 1, 2021, the PBGC will accept that a plan is in critical or critical-and-declining status unless it determines that the plan has used assumptions that are “clearly erroneous.” For plans that have completed a status certification after December 31, 2020, the PBGC will accept eligibility unless it determines that the assumptions are “unreasonable.” The higher standard for later applicants demonstrates the corporation’s concern that a plan may manipulate its status certification to obtain relief.

The rule also makes clear that a plan that has opted to enter critical status is not eligible for SFA.


The rule specifies that SFA must be segregated from other plan assets and may only be invested in fixed income securities. Fixed income securities must be investment grade, as determined by an ERISA Section 3(21) fiduciary. The rule permits up to 5% of investments to be in securities that were investment grade at the time of purchase but are no longer investment grade. Additionally, the rule specifies that a plan that receives SFA must allocate plan assets, including SFA, in fixed income in a manner that will permit the plan to pay for one year of benefit payments and administrative expenses.

The PBGC has specifically requested comments on the restrictions imposed on SFA investments. The rule seeks input from interested parties regarding the investment of SFA assets, including whether plans should be permitted to invest in other vehicles similar to fixed income, or not materially riskier than fixed income.


A plan cannot increase benefits unless it certifies that increases are attributable to employer contribution increases not included in the SFA application. Nor can the plan decrease employer contributions below the rate in effect as of March 11, 2021 (the ARPA enactment date), unless the plan sponsor determines that a decrease lessens the risk of loss to plan participants and beneficiaries. If the reduction will affect contributions over $10 million and over 10% of all employer contributions, the plan must seek PBGC approval. This restriction could mean that employers contributing under a rehabilitation plan that specifies long-term compound rate increases will continue to see higher contribution rates.


Plans that have suspended benefits under the MPRA or that have reduced benefits because of insolvency must reinstate those benefits prospectively and make retroactive payment of the suspended amounts. Reinstatement of prospective benefits is to begin as of the first month the plan begins receiving SFA. Retroactive payment of suspended amounts must begin three months after SFA is paid to the plan, and can be paid either as a lump sum or in equal monthly installments over five years (without an interest adjustment). Notably, the cost of restoring prior benefit suspensions could potentially cause some plans that are otherwise eligible for SFA not to seek such SFA.


We are already working closely with many clients on the impact of the rule and will continue to update our readers as developments occur. Please do not hesitate to reach out to the authors of this LawFlash or your regular Morgan Lewis contact for advice on issues your organization anticipates facing in light of the rule’s enactment.


If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:

Lindsay Goodman
Dan Salemi

New York
Craig Bitman

Amy Pocino Kelly
Bill Marx

Randy McGeorge

Washington, DC
Daniel Bordoni
Althea Day
James Kimble
Timothy Lynch
Linda Way-Smith
Tom Wotring
Jonathan Zimmerman