We are just days away from the end of the PBGC’s American Rescue Plan Act (ARPA) comment period on the “Interim Final Rules”. We hope that the PBGC takes seriously the comments received related to the calculation of the Special Financial Assistance (SFA), as there is a strong likelihood that the current calculation will leave many of the plans receiving a grant insolvent prior to the 2051 period and certainly beginning with 2052. We believe that the intent of the legislation was too “secure” the funds necessary to meet the future benefits and expenses for the next 30-years. The ONLY way for these benefits and expenses to be secured is to defease those liabilities through a cash flow matching investing program.

Furthermore, the legislation currently calls for the SFA proceeds to be invested in investment grade bonds. We believe strongly that refusal on the part of the PBGC to address the discount rate (3rd segment under PPA plus 200 bps) will creates a shortfall in the amount of funds needed to fully fund liabilities for 30+ years. This will tempt plan sponsors to seek more yield and more risk into the SFA portfolio. Injecting more risk into the SFA portfolio would be imprudent given the goal of securing benefit payments, so amending the discount rate to include all three segments under PPA and eliminating the additional 200 bps makes the most sense. In this revised scenario an appropriate level of SFA needed to fund benefits is received, the proceeds can then be invested through a cash flow matching strategy securing those promises, and plans may just make it to the 2051 target.

It would be a travesty to finally get help for these struggling multiemployer plans only to have the implementation doomed to failure before the program even begins.