Background

The American Rescue Plan Act (ARPA)  authorized the Treasury Department (Treasury) to transfer sufficient funds to the PBGC to allow the PBGC to provide federal grants to certain financially troubled multiemployer pension plans in the form of a one-time, single-sum payment. The SFA must be used to pay benefits and expenses.

As required under ARPA, earlier this month, the PBGC issued an interim final rule (IFR) implementing the SFA provisions of ARPA, including eligibility for, and how to calculate, payments from the PBGC. Read about that IFR in our July 15 insight.

ARPA also required that the DOL, in coordination with Treasury, ensure that after receiving SFA, plans that suspended benefits reinstate those benefits going forward and pay make-up payments for previously suspended amounts. Earlier this month, the IRS addressed related tax issues regarding make-up payments as well as how to treat the SFA for purposes of a plan’s funding rules. We summarized that guidance, Notice 2021-38, in our July 19 insight.

The DOL statement addresses its view on SFA fiduciary issues and notes that it will be issuing future guidance on disclosure issues.

The fiduciary decision to apply for SFA

Plans that have suspended benefits under the Multiemployer Pension Reform Act of 2014 (MPRA) and that receive SFA must unwind the suspension. Also, any plan that receives SFA may not apply for a future MPRA suspension. Some plans might find that SFA, in effect, shortens their projected solvency period because of the PBGC’s interpretation in its IFR of how to calculate the amount of the SFA.

In its statement, the DOL noted:

In the Department of Labor’s view, ARP’s inclusion of plans that suspended benefits under MPRA and the prohibition against a future MPRA suspension for a plan receiving SFA reflects a clear legislative objective to allow plan fiduciaries to restore benefits that were previously suspended and to encourage all eligible plans to apply for SFA without raising potential fiduciary liability concerns about undoing current or precluding future MPRA suspensions.

While this is the DOL’s view, the courts do not have to give any weight to a non-regulatory statement such as the above in considering any participant suits.

What forthcoming DOL guidance will cover

The DOL intends to issue guidance on the following:

• How to address SFA in preparing the annual funding notice
• Disclosures to participants
• The interaction of ERISA suspension with the reinstatement and make-up payment provisions of SFA.

How to address SFA in preparing the annual funding notice

SFA is not included when measuring assets for purposes of the funding rules. The annual funding notice is intended to report to participants the plan’s funding status to give them an idea about the financial health of the plan.

The DOL will have to decide whether it will require special language, and perhaps additional funding percentages, with respect to the impact on the plan of receiving SFA. The DOL statement does not indicate how the DOL will approach this issue.

SPD and SMM disclosures to participants

Whenever significant changes are made to a plan, the plan administrator is required to give participants and beneficiaries a Summary of Material Modification (SMM) followed, eventually, by a revised Summary Plan Description (SPD).

The DOL statement appears to indicate that the DOL believes special guidance is needed for plans receiving SFA to provide information in their SMM and SPD.

The interaction of ERISA suspension with the reinstatement and make-up payment provisions of SFA

“Suspension” has several meanings under ERISA. In addition to the MPRA suspension that is available to financially troubled plans and suspension due to plan insolvency, plans can suspend benefits from a multiemployer plan in certain circumstances where a participant commences retirement benefits but continues to work in the industry. This later suspension results in a forfeiture of benefits that would otherwise have been paid.

The DOL intends to address the interaction of suspendable service with the reinstatement and make-up payment provisions of Treasury’s SFA guidance.

Timing is unclear

The DOL has not provided a schedule for any of this guidance. Nevertheless, plan sponsors may be reassured by the fact that federal agencies are moving fast to publish the necessary guidance on SFA.