Pension plans nationwide are taking advantage of Special Financial Assistance (SFA) funds granted to eligible recipients by the Pension Benefit Guaranty Corporation (PBGC) – a federally chartered corporation created by the Employee Retirement Income Security Act (ERISA) to encourage the continuation and maintenance of pension plans and funds. The program was created to rescue severely underfunded multiemployer pension plans who are projected to be insolvent prior to 2051, to ensure that the millions of retirees and families who are counting on these funds, will in fact receive them.

PBI recently brought together experts in the field, Ellen Kleinstuber, Brigen Winters, Josh Shapiro and Jim Nolan, in a webinar to discuss who these funds apply to, best practices for applying and working with the PBGC and ultimately how these funds can be best utilized.

Apply sooner than later

Many plan sponsors are wondering when to apply for funding as they consider how their current financial standing will affect their application. “With the recent downturn in the market and the change in interest rates, there’s been a lot of tactical looking to see if one month is better than the other,” Jim Nolan notes. “But right now, because the market declined and now might be starting to come back or at least leveling out, it seems that applying as early as possible is prudent. The fact that interest rates are rising quickly, it just makes it more advantageous to have your measurement date in the past than waiting to see what would happen.”

The PBGC has defined a plan’s SFA measurement date as “the last day of the third calendar month immediately preceding the date the plan’s initial application is filed.” For example, if the plan’s initial application was filed on March 15, 2023, its SFA measurement date would be December 31, 2022.

As part of the application process, plan sponsors also need to communicate what their current population looks like with assumptions about mortality or longevity, and ultimately how that impacts the life and solvency of the fund.

The PBGC has established specific priority categories based on plan size, financial condition and other attributes to indicate when plan sponsors may apply, so refer to these categories when developing your application. On March 11, applications will be open to all plans that are eligible for relief.

Bring together the right team

According to Nolan, “the most important steps you could do is gather with your other fund professionals to assess what steps you’re going to do in the application process, and then read through the application documents.” Decide together what parts of the application you are going to pursue.

Actuaries and ERISA lawyers are critical to the process. “In a majority of cases,” Josh Shapiro adds, “the people that you’re going to need to put together the application are probably already in place. Actuarial firms typically have a pretty good grasp of the process and what’s needed. The bulk of the work is actuarial in nature, and in my experience, all of the ERISA attorneys who practice in the multiemployer area are also well-versed in this and may be especially helpful to smaller organizations that don’t have ERISA specialists in-house.”

Partner with the PBGC

Nolan points out that there are multiple documents on the PBGC website. “Go through them and formulate your questions,” he advises as the PBGC is eager to partner with plan sponsors. He says, that “the PBGC is more than welcoming to questions prior to the application process, so you can make things go a lot smoother if you submit your questions ahead of time.” While the PBGC has yet to formally decline an application, they have asked for additional information or detail and will make it clear if they think an application should be withdrawn or amended.

If it does become clear in the application process that you don’t have a strong case and may need to withdraw, make sure you have a contingency plan, along with resources and team members to back you up.

Ensure your participant information is accurate

Everything you can do to show due diligence in maintaining plan participant data will go a long way in demonstrating accurate plan census data. The PBGC does require that there be a death audit performed and asks trustees to identify the vendor that they used with a copy of the audit results.

Ellen Kleinstuber shares that, “a lot of the outside search firms like PBI have a more robust formula that they use, their secret sauce so to speak, beyond the Death Master File that can help catch and capture additional information. The Death Master File used to be something that was very easy for people to tap directly into but has become much more difficult to utilize with some of the privacy and cybersecurity concerns. It’s worth investing and using an outside search partner for that, to ensure you get robust reporting that you can provide to the PBGC which will look good as part of the application.”

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Contributors:

Ellen Kleinstuber, Principal & Chief Actuary, Bolton, has more than 30 years of experience delivering comprehensive employee benefit plan consulting, actuarial and plan administration services to a wide variety of plan sponsors, including publicly traded and privately held companies, multinational corporations, not-for-profit organizations and governmental entities. She is a nationally recognized expert in ERISA compliance and actuarial consulting, actuarial professionalism and trends in retirement plan design and the market forces affecting them.

Jim Nolan, Vice President & Actuary, Segal, oversees the work of other analysts, provides insight into
funding regulations and withdrawal liability requirements and assists in the development of funding strategies for various clients. During his tenure at Segal, Jim has gained a great deal of experience calculating and valuating funding requirements governed by ERISA, pricing benefit improvements, performing asset liability modeling studies, reviewing demographic experience and developing funding
strategies for multiemployer pension plans.

Josh Shapiro, Senior Actuarial Advisor, Groom Law Group, focuses on the design, funding and administration of multiemployer, single-employer and governmental retirement plans. He has worked with a wide range of organizations to ensure that their retirement programs meet their financial and human resources objectives while complying with the applicable laws and IRS, Pension Benefit Guaranty Corporation (PBGC) and Department of Labor regulations.

Brigen Winters, Principal, Chair Policy Practice, Groom Law Group, counsels employers, plan administrators, financial institutions, insurers, trade associations, and coalitions on retirement, health and welfare, tax, executive compensation, regulatory, and legislative matters. Brigen helps clients achieve compliance and obtain favorable outcomes through amendments from Congress and regulatory guidance from the IRS and Departments of Treasury, Labor, and Health and Human Services. He counsels clients on all aspects of tax-qualified and individual retirement plans, including plan design and administration, tax and ERISA, and pension plan funding issues.