This article discusses considerations for trustees of plans that have received SFA:

• Rehabilitation plan updates
• Investment strategy
• Actuarial assumptions review
• Participant records
• Accrual rate increases
• Variable benefit designs
• New employer engagement
• Small benefit cash-outs
• Plan mergers

Brief background on the need for and creation of SFA

Just five years ago, the multiemployer pension system was facing a solvency crisis. Nearly 200 plans were projected to go insolvent within the next 20 years. Many plans were projected to become insolvent much sooner than that, and some were already insolvent. When a multiemployer plan is headed toward insolvency (or is already insolvent), its trustees have limited options for changing the plan’s trajectory. The PBGC’s multiemployer insurance program was also projected to go insolvent — by 2026, according to the White House.

The American Rescue Plan Act of 2021 provided a lifeline to struggling multiemployer plans through special financial assistance (SFA), averting near-term insolvency of the PBGC’s multiemployer program.

Plans and participants helped by SFA

Based on PBGC’s list of SFA applications, as of August 15, 2025, a total of 130 plans have received over $73 billion in SFA from PBGC. These plans cover over 1.5 million participants and beneficiaries.

Without SFA, these retirees and their families would have faced severe reductions in their hard-earned pension benefits. Now, their benefits have been secured for the long term — originally projected through at least 2051, the statutory intent of SFA.

Rehabilitation plan updates

Under federal law, SFA plans are deemed to be in critical status (the red zone) through 2051. Over that period, SFA plans will need to maintain a rehabilitation plan, a requirement for all plans in critical status. Federal law also requires trustees to review the rehabilitation plan each year and update it as needed.

Before receiving SFA, many plans operated under a rehabilitation plan with annual standards that targeted relatively short-term solvency. After receiving SFA, trustees may consider updating the rehabilitation plan’s annual standards to target longer-term solvency.

For example, some SFA plans have updated their rehabilitation plan to target solvency through 2051, consistent with the statutory intent of SFA, or earlier to allow for adverse experience over that time. Other plans decided to target for solvency beyond 2051, or perhaps eventual emergence from critical status.

As part of the annual zone certification, the plan actuary must certify whether the plan is making scheduled progress in meeting the standards of the rehabilitation plan. Excise tax penalties may apply if there are three consecutive certifications that the plan is not making scheduled progress toward the rehabilitation plan standards. Therefore, when updating the rehabilitation plan annual standards, it is important to make them realistic, since establishing an aggressive target will make it more challenging for the plan to make scheduled progress each year.

In addition, when updating the rehabilitation plan, trustees should consider whether to incorporate other changes to investments, benefits and other rules that are being made after receiving SFA.

Investment strategy

Recent strong investment returns and interest rate shifts allow some SFA plan trustees to consider an investment policy aiming for solvency past 2051, or even indefinitely.

Most SFA plans are demographically mature and have significant negative cash flows, making them vulnerable to investment volatility. Consider, for example, an SFA plan that pays out 8 percent of its assets each year to cover benefits and expenses. A plan in this situation could be sent into a spiral toward insolvency if it must sell assets to pay benefits at a market low.

SFA plans can implement strategies to minimize their investment risk while complying with applicable PBGC regulations. Our article on the benefits of pension de‑risking discusses short-term cash-flow matching and longer-term immunization, both of which could play a significant role in a successful investment strategy for an SFA plan. Keep in mind that because SFA plans are deemed to be in critical status through 2051, they are prohibited from engaging in pension risk transfers or purchasing annuities.

As trustees of SFA plans evaluate different investment strategies to prolong solvency, it is crucial to have the investment consultant and actuary working together. An investment strategy that focuses only on plan assets without considering benefit obligations and cash flows is less likely to succeed than one that does.

Actuarial assumptions review

When developing a strategy to minimize investment volatility risk and achieve long-term solvency, consider non-investment risk factors as well. Participant longevity, retirement patterns, contribution levels and administrative expenses can all affect a plan’s ability to remain solvent and pay promised benefits.

To help manage these non-investment risk factors, it may be appropriate for the plan actuary to perform a review of key actuarial assumptions based on recent plan experience and future expectations. Consider that many of the actuarial assumptions used in the plan’s application for SFA may have been based on the last zone-status certification completed before 2021, in accordance with PBGC regulations and guidance. Other assumptions that were updated for the SFA application may have been reasonable for that purpose but might not reflect the latest plan experience. In either case, actuarial assumptions may need to be updated, which could affect long-term solvency projections.

Participant records

In addition to reviewing and possibly updating actuarial assumptions, trustees may wish to consider additional efforts to improve the quality of participant records. As part of the SFA application process, the plan had to submit to an independent death audit by PBGC relying on the Social Security Death Master File (DMF). Years may have passed since that independent death audit, and plan sponsors do not currently have access to the full DMF. Therefore, trustees will need to assure their plan administrators will have reasonable systems in place to continue to track participant deaths in a timely manner.

An issue that is receiving increased scrutiny from federal agencies is whether plan sponsors can locate participants who are close to or past their required minimum distribution date. For many years, the required distribution date was based on age 70½, but the SECURE 2.0 Act permitted plan sponsors to increase it to age 73, and up to 75 in 2033. (See our January 4, 2023 insight.)

The SFA application process highlighted that some plans have significant numbers of terminated vested participants who are past their required minimum distribution dates. Trustees should work with their plan administrator to locate these participants to put them into pay status. Managing participant data by tracking participant deaths and those who should be in pay status allows for more precise valuations and solvency projections.

Accrual rate increases

SFA plans must comply with various rules and conditions, including restrictions on benefit improvements. For example, SFA plans cannot adopt a “retrospective” improvement on past service benefits for 10 years after receipt of SFA. After 10 years, PBGC approval is required for any retrospective benefit improvement.

SFA plans are, however, permitted to adopt a “prospective” increase in the accrual rate, provided the plan actuary certifies the increase is paid for with contributions that were not considered in the SFA application. Some SFA plans are using this rule by adopting a higher future accrual rate that applies to contribution-rate increases. Such a change could encourage employers to increase contribution rates, thus strengthening plan solvency.

There are many factors to consider when designing and implementing an accrual rate increase, including the restrictions that apply to plans in critical status in general.

Variable benefit designs

Some boards of trustees of multiemployer plans are considering adopting a variable benefit design to mitigate investment risk. Most variable designs implemented by multiemployer plans over the past decade-plus have been a type of variable annuity pension plan (VAPP) design, where accrued benefits automatically increase or decrease each year based on plan investment returns.

For SFA plans, the decision to adopt a variable benefit design comes with complications that may not apply to a non-SFA plan. For one, if changing to a variable design represents a benefit improvement, PBGC regulations require it to be paid for with a contribution-rate increase. As noted above regarding accrual increases, a variable design will apply only to future service benefits earned by active participants. For a plan that is demographically mature (as most SFA plans are), future service benefits will represent only a small percentage of total benefit obligations, thus reducing the potential risk mitigation of a VAPP design.

For these reasons, implementing a VAPP design might not have the same advantages for an SFA plan as for a non-SFA plan. That said, in certain situations, SFA plans may find significant value in adopting a VAPP design — for example, if it would help attract new employers that would like to provide a defined benefit plan for their employees with relatively low risk of generating unfunded liability.

Actuarial modeling of possible variable benefit designs and their effect on long-term funding levels can help plan trustees make an informed decision.

New employer engagement

Many SFA plans are in industries that are declining, making it unlikely that a new employer would join the plan. Some SFA plans, however, may have a legitimate opportunity to enroll new employers, given the plan’s strengthened projected funding and solvency levels.

As noted above, providing higher benefit accruals could help attract new employers. Because exposure to withdrawal liability is often the main deterrent to a new employer participating in a multiemployer plan, trustees may also wish to adopt a “two-pool” withdrawal liability allocation method.

Before receiving SFA, plans typically had very large unfunded liabilities that would be proportionately assessed to a withdrawing employer. Even after receiving SFA, withdrawal liability is not immediately diminished for these plans due in large part to the delayed recognition of SFA assets in the calculations as required under PBGC regulations.

Under a two-pool method, new employers are insulated from legacy withdrawal liability. Alternative withdrawal liability allocation methods like these must be approved by PBGC. (Unfortunately, under current law, alternative allocation methods are not available to plans in the construction industry.)

For an SFA plan to succeed in getting new employers to participate, communication is key. Prospective employers need to understand the strength of the plan’s funding and solvency levels after receiving SFA. They will also need to understand the protections that would be provided to them by any alternative withdrawal liability allocation method approved by PBGC. And, importantly, their employees will need to appreciate the advantages of having a defined benefit pension.

Small benefit cash-outs

Because SFA plans are deemed to be in critical status through 2051, in general, they are prohibited from paying benefits in a lump sum. However, plans in critical status are still permitted to cash out participants with small benefits up to the automatic threshold. Given the current interest rate environment and to save on plan administration costs, trustees of SFA plans may wish to consider expanding their automatic cash-out rules for small benefits. The SECURE 2.0 Act increased the maximum automatic cash-out of small benefits present value threshold from $5,000 to $7,000.

In addition to amending the plan to increase the automatic cash-out threshold, trustees may wish to consider cashing out terminated vested participants after a defined break in service rather than at commencement. Making these changes could produce significant long-term savings on PBGC premiums and other administration costs.

For more information, see our article on automatic small benefit cash-outs. Expanding automatic small benefit cash-out rules could be particularly attractive to many SFA plans. Many SFA plans have lower actuarial interest rate assumptions, which would reduce the cost of cashing out small benefits — or perhaps even produce savings. In addition, SFA plans often have a higher percentage of participants who are terminated vested, resulting in greater savings on PBGC premiums and other administration costs by cashing out those participants with small benefits.

Plan mergers

After receiving SFA, some trustees may consider a merger with another plan, either an SFA plan or a non-SFA plan. Possible advantages to a merger could include a stronger contribution base, administrative efficiencies and more options for trustee succession planning. In addition, some SFA rules and conditions under PBGC regulations are relaxed in a merger situation.

When evaluating a possible merger, there are many issues to consider. As with any merger, it is important to address any significant differences in funding levels, accrual rates and contribution rates among the plans involved. It is also important to keep in mind that, in addition to the general merger requirements under section 4231 of ERISA, additional requirements apply including PBGC approval, which is required for a merger involving an SFA plan.

In 2024, PBGC temporarily paused review of proposed mergers involving SFA plans. Based on recent informal communications with the agency, it is our understanding that PBGC is once again accepting requests to review and approve mergers involving SFA. We also understand that PBGC seeks pre-merger discussions with plans and is particularly interested in the merged plan‘s proposed withdrawal liability allocation rules, taking into account applicable SFA requirements.

Annual statement of compliance

Under applicable regulations, plans that have received SFA are required to file an annual statement with PBGC certifying that they are complying with the various rules and conditions. Many of the possible actions we’ve outlined would require some documentation in the annual statement of compliance.

For more information on compliance rules for plans that have received SFA, refer to this resource we created in June 2024: Your Plan Has Received SFA. What Happens Now?

Moving forward after receipt of SFA

When a multiemployer plan receives SFA, it not only restores the plan to longer-term solvency, it also provides its trustees with many new opportunities they did not have before. There are many more considerations for managing solvency through 2051 and beyond than for managing solvency for just the next few years.

We encourage trustees of all SFA plans to work with their plan professionals to develop a strategy to effectively manage long-term solvency while ensuring compliance with PBGC regulations.