The Pension Benefit Guaranty Corporation (PBGC) released an interim final rule on July 9, 2021 which offered guidance on the Special Financial Assistance (SFA) program as established under the American Rescue Plan Act (ARPA).

The purpose of the SFA program is to provide relief to plans in financial distress.  The SFA program is expected to assist plans covering more than 3 million participants and is expected to provide funds for make-up payments to restore previously suspended benefits under the Multiemployer Pension Reform Act of 2014 that total approximately $550 million.

A plan that receives SFA must reinstate any benefits that were suspended and provide payments to certain participants (or beneficiaries) to make up past benefits that were previously suspended.  The plan sponsor has the flexibility to pay make-up amounts as single lump sums to be paid within three months of the payment date of SFA, or in monthly installments to be paid over a period of five years beginning within three months of the payment date of SFA.  Further guidance is to be issued by the Treasury Department and the IRS.

To address the possibility that a plan may implement changes that could entitle it to more SFA than was intended, the amount of SFA is limited to the amount that would have been determined if certain events had not occurred.  These events include, but are not limited to, mergers, transfers of assets or liabilities (including spinoffs), increases in accrued benefits, and/or reductions in contribution rates.  This limitation applies to events that occur between July 9, 2021 and the SFA measurement date. 

There is an exception to this rule – a possible benefit increase could occur from the restoration of benefit suspensions of retirees and beneficiaries in pay status.  This restoration of benefits can be adopted at any time.  The restoration of benefit suspensions will be taken into account in determining the amount of SFA regardless of when the restoration occurs. 

Partitioned plans also have benefit suspensions.  These suspensions must be reinstated if the plan is approved for SFA and make-up payments must be provided to participants and beneficiaries to restore previously suspended benefits.

The plan sponsor will be required to furnish a notice of benefit reinstatement to eligible participants and beneficiaries whose benefits were previously suspended and then reinstated.  More information regarding the notice content requirements and reinstatement instructions are available on the PBGC’s website at www.pbgc.gov.