PBGC Issues Final Regulation on Multiemployer Pension Plan Special Financial Assistance

July 21, 2022

The Pension Benefit Guaranty Corporation has issued a Final Rule implementing the special financial assistance provisions of the American Rescue Plan Act to help financially troubled multiemployer pension plans. The Final Rule has significant implications for both eligible pension plans and employers that contribute to these plans.

The American Rescue Plan Act (ARPA), which was passed in 2021, established a new Treasury-backed Pension Benefit Guaranty Corporation (PBGC) fund to which certain severely underfunded multiemployer pension plans may apply for special financial assistance (SFA). For more background and information, read our April 2021 LawFlash, Multiemployer Pension Plans (and Contributing Employers) Look to American Rescue Plan for Relief, as well as our July 2021 LawFlash, Troubled Multiemployer Pension Plans: PBGC Issues Regulation on ARPA Special Financial Assistance.

The Final Rule makes important changes to the SFA program, which are summarized below. The Final Rule was published in the Federal Register on July 8, 2022 and will become effective on August 8, 2022.

The Final Rule includes some changes to the 2021 interim final rule (IFR), as further described below. The Final Rule, however, does not change the IFR’s provisions regarding plan eligibility requirements, which are based on statutory criteria; the basic application process; or the reporting and monitoring requirements that apply to a plan following the approval of an SFA application.

There is a limited 30-day public comment period on the withdrawal liability condition discussed in further detail below.


Two changes—to the interest rate used by all plans, and to the calculation method for plans that have previously suspended benefits under the Multiemployer Pension Reform Act of 2014 (MPRA)—appear likely to increase the amount of SFA for certain eligible plans.

Under the IFR, the interest rate used to calculate the amount of SFA was greater than the amount that the plan could expect to earn when it invested the SFA. This is because the IFR restricted the investment of SFA assets to investment grade fixed income securities. Under the Final Rule, a plan may invest up to 33% of SFA assets in “return seeking assets,” which are discussed in more detail below. The Final Rule recognized that plans will necessarily invest and pay benefits out of both SFA assets and non-SFA assets and that these two separate pools of assets will be invested differently.

Accordingly, the Final Rule imposes two separate interest rate assumptions: one for calculating expected investment returns on non-SFA assets, and a separate interest rate for calculating expected investment returns on SFA assets. To determine the SFA amount:

  • the expected investment return on non-SFA assets is based on an interest rate that is the lesser of the interest rate used by the plan for its pre-2021 zone status certification or the IRS 24-month average third segment funding rate plus 200 basis points; and
  • the expected investment return on SFA assets is based on an interest rate that is the lesser of the interest rate used by the plan for its pre-2021 zone status certification or the average of the three IRS 24-month average segment funding rates plus 67 basis points.

This change aligns the interest rates used to calculate SFA with “reasonable expectations” of future investment returns on a plan’s SFA assets and is only possible in connection with the Final Rule’s related expansion of permissible investment options for SFA assets.

Additionally, the IFR presented certain plans that had suspended benefits under MPRA (a MPRA Plan) with the choice between retaining their current benefit suspensions and foregoing SFA, which would allow the plan to remain solvent beyond 2051, or receiving SFA, restoring previously suspended benefits, and jeopardizing the plan’s long-term solvency. This choice put fiduciaries to these plans in a difficult, if not untenable position. If they chose not to apply for SFA, those participants whose benefits were suspended under MPRA would not get their benefits restored. If the plan applied for and received SFA and restored benefits, the plan was likely to be in a worse financial condition by 2051 (i.e., insolvent). To address this dichotomy, the Final Rule allows a MPRA Plan to choose among the following three options when calculating the SFA to which it is entitled, and the plan can select whichever option results in the highest amount of SFA:

  • The SFA amount for a non-MPRA plan
  • The present value of reinstated benefits (accounting for both make-up payments for previously suspended benefits and payments of the reinstated portion of the benefits expected to be paid through 2051)
  • The amount needed for the plan to project increasing assets in 2051


The Final Rule allows plans to invest up to 33% of its SFA funds in return-seeking assets (RSA), with the remaining 67% restricted to high-quality fixed-income investments. The IFR, in contrast, specified that the entirety of the SFA assets was required to have been segregated from other plan assets and may have only been invested in investment grade fixed-income securities. This change will likely allow plans to achieve a higher rate of return on their SFA assets than under the IFR, and, coupled with the change in the interest rate assumptions discussed above, will better enable plans to remain solvent through 2051 following their receipt of SFA.


Under the IFR, when calculating a plan’s withdrawal liability, SFA monies were immediately taken into account as plan assets. The IFR also required that plans use mass withdrawal interest rate assumptions when calculating an employer’s withdrawal liability (such rates are lower than those otherwise used by many plans for purposes of calculating withdrawal liability) until the later of 10 years after the end of the year in which the plan receives SFA or the time at which it no longer holds SFA monies.

The Final Rule retains the requirement to use the mass withdrawal interest rate assumption, but now requires plans to phase in the amount of SFA that is counted as a plan asset when calculating the plan’s unfunded vested benefits over the SFA coverage period. This begins from the first plan year in which the plan receives payment of SFA and continues through the end of the plan year in which, according to the plan’s projections, it will exhaust any SFA assets. This condition applies for withdrawals occurring after the plan year in which the plan receives payment of SFA. For example, if an employer withdraws in the first plan year in which the plan receives payment of SFA and the plan is projected to exhaust its SFA assets in 20 years, then only one-twentieth of the assets received by the plan in SFA will be counted as plan assets when calculating the plan’s unfunded vested benefits for withdrawal liability purposes. There is a limited 30-day public comment period on this change in the Final Rule.

Additionally, in determining the amortization schedule for withdrawal liability payments, a plan must use the same interest rate that it uses to calculate withdrawal liability. Finally, during the SFA coverage period, a plan must obtain approval from PBGC to settle any withdrawal liability assessment during the SFA coverage period if the present value of the liability settled is greater than $50 million. These conditions apply to withdrawals occurring after the plan year in which the plan receives SFA.


The Final Rule changes certain conditions that will generally apply after a merger of an SFA plan with a non-SFA plan. In particular, the Final Rule provides that a merged plan will not be subject to conditions relating to prospective benefit increases, allocation of plan assets, and allocating expenses. These changes may encourage plan trustees to consider potentially beneficial mergers that would otherwise be unappealing due to the SFA conditions.

There are also general changes for all SFA plans regarding the restrictions on plan benefit increases and reallocation of contributions to other plans, such as a companion health and welfare fund. Under the IFR, a plan was generally prohibited from increasing benefits after being approved for SFA. Retroactive and prospective benefit improvements are now allowed after 10 years with PBGC approval, if the plan can demonstrate that it will still avoid insolvency if the benefit improvements are implemented.

Specifically, the Final Rule allows a plan to request from PBGC an exception from the conditions prohibiting prospective and retrospective benefit increases. With respect to the reallocation of contributions to other plans (such as a companion health and welfare fund), the Final Rule allows plans to seek a limited exception from the general prohibition on allowing for a decrease in the plan’s contribution rate, if a reallocation of contributions to another plan (such as a health and welfare fund) would not endanger the pension plan’s ability to pay benefits.


In the Final Rule, PBGC modified the application process, making changes that should somewhat simplify SFA calculations and the preparation of SFA applications. A plan may now set the SFA measurement date so assumptions can be made in advance. This eliminates the need to rework applications for SFA that have not yet been filed. The Final Rule also changes the SFA measurement date from the last day of the preceding calendar quarter preceding the filing of the application to the last day of the third calendar month preceding the filing of the application. For example, under the IFR, if an application was submitted on July 15, the SFA measurement date was June 30. Under the Final Rule, where an application date is July 15, the SFA measurement date is April 30.


From the perspective of employers that contribute to troubled multiemployer pension plans, the Final Rule’s most direct impact will come from the changes to the withdrawal liability provisions. Under the IFR, contributing employers were expecting significant reductions in their gross withdrawal liability allocations from plans that received SFA. Although those expected reductions in an employer’s gross withdrawal liability allocation may have been illusory due to the application of the “20-year cap” concept under ERISA’s standard withdrawal liability rules, there may have been some instances where employers would have seen an actual reduction in their total effective withdrawal liability.

Under the Final Rule, however, plans that receive SFA will need to phase in the recognition of SFA assets when calculating the plan’s underfunding for withdrawal liability purposes. This required phase-in approach significantly limits any positive impact that SFA assets might have had on an employer’s withdrawal liability.


Given the changes to the interest rate provisions, the calculation of SFA for MPRA plans, and the expansion of permissible investment of SFA assets, eligible plans will, in general, likely receive more SFA under the Final Rule than under the IFR. The provisions of the Final Rule apply to new applications filed on or after August 8, 2022. The provisions of the Final Rule are also available to plans that previously submitted SFA applications under the IFR, if they file a revised or supplemental application on or after August 8, 2022.

Plans that have already received SFA may file a supplemented application to take advantage of changes under the Final Rule. If a plan has already been approved for and received SFA, the permissible investment rules and the new withdrawal liability conditions begin to apply as soon as a supplemented application is filed―even if the application is not approved.

Plans with pending applications may withdraw and submit an application under the Final Rule or continue with their current application under the IFR and, if approved, submit a supplemental application on or after August 8, 2022, and after their application is approved and they receive SFA.

Morgan Lewis will continue to monitor any developments and keep our readers and clients updated as information becomes available.


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 M. Goodman
Daniel R. Salemi

New York
Craig A. Bitman

Amy Pocino Kelly
William J. Marx

Randall C. McGeorge

Washington, DC
Daniel P. Bordoni
Althea R. Day
Donald L. Havermann
James T. Kimble
Timothy P. Lynch
Linda A. Way-Smith
Jonathan Zimmerman