The ARPA legislation states the following: DETERMINATIONS ON APPLICATIONS.—A plan’s application for special financial assistance under this section that is timely filed in accordance with the regulations or guidance issued under subsection (c) shall be deemed approved unless the corporation notifies the plan within 120 days of the filing of the application that the application is incomplete, any proposed change or assumption is unreasonable, or the plan is not eligible under this section. Such notice shall specify the reasons the plan is ineligible for special financial assistance, any proposed change or assumption is unreasonable, or information is needed to complete the application. If a plan is denied assistance under this subsection, the plan may submit a revised application under this section. Any revised application for special financial assistance submitted by a plan shall be deemed approved unless the corporation notifies the plan within 120 days of the filing of the revised application that the application is incomplete, any proposed change or assumption is unreasonable, or the plan is not eligible under this section.
Given the above wording, we are now within days of having the first applications either approved or rejected. Local 138 Pension Trust Fund filed their application on August 23rd, which means that their 120 days are up on December 20th. Furthermore, “Special financial assistance issued by the corporation shall be effective on a date determined by the corporation, but no later than 1 year after a plan’s special financial assistance application is approved by the corporation or deemed approved.” There are several other plans that filed their initial application in September meaning that January is going to be a fairly busy time for the PBGC, which also has the second priority tier eligible plans filing their initial applications, too.
Unfortunately, these plans may be receiving their Special Financial Assistance (SFA) without knowledge of the PBGC’s “Final Final Rules”. As you may recall, the PBGC published its “Initial Final Rules” in July. Many plans and their asset consultants/actuaries are waiting to see if any changes will be made that would impact the size of the government grant or how the SFA assets may be invested. As of now, the SFA assets must be segregated from the plan’s legacy assets and be invested only in investment-grade bonds. There is a provision allowing for a 5% bucket of high yield bonds, but only if they are “Fallen Angels”.
For plan participants in Critical and Declining plans that were granted “relief” under MPRA, the waiting is particularly burdensome. Many of these participants have been struggling with financial hardship due to the draconian cuts to their earned benefits. The expectation was that benefits would be restored to previous levels once the legislation passed. But the waiting continues. Will the PBGC take the full 1-year to provide the grant? I sure hope not! Stay tuned.
Ryan ALM Blog 
Is it December 20th or 21st for local 138?
Good morning, Ray. I’m not sure, sir! I suspect that it is the 21st. I’ll try to find out for you. Have a great day and a wonderful holiday season.
It’s December 21st, I wonder when and how we will hear something on 138? Trust in this program is at stake. I wonder what funds start December 27th?
Good morning, Ray. I hope that you are well today. Thanks for the follow-up question. We know that all plans that cut benefits under MPRA are eligible to file their SFA application as of the 27th. If I remember correctly, there were 18 plans that used MPRA to reduce benefits prior to ARPA. To your point about communication, the legislation states that the PBGC has 120 to notify the plan if there is an issue. Non-notification is an acceptance of the SFA application. They then have 1-year to pay – UGH! “Special financial assistance issued by the corporation shall be effective on a date determined by the corporation, but no later than 1 year after a plan’s special financial assistance application is approved by the corporation or deemed approved.”
https://www.pbgc.gov/news/press/releases/pr21-08
Hey Ray – Thanks for sharing this with me. It is exciting to see some activity. Now will see how quickly the check comes. It will also be interesting to see how they invest the SFA assets. Right now a plan is limited to investment-grade bonds, with a 5% max exposure to HY bonds that have become fallen angels. The 138’s SFA will collect interest while you wait for the proceeds to arrive. Will the fund defease the Retired Lives Liability or will they run the money as a total return fixed income mandate. The former provides far greater security, while the latter could get hurt in a rising interest rate environment. Hope to get an update from the PBGC soon regarding their “final final rules”!!
Idaho next Thursday.
https://www.erisapracticecenter.com/2021/12/arpa-final-rule-expected-in-january/
Thanks for sharing this link, Ray! I hope that you have a great day.
Hey Ray – I just sent a note to Robert. He suggests that the current conservative use of only investment-grade bonds may be expanded once the PBGC releases its final rules as early as January. This may be true, but in my opinion that is far less important than having the PBGC address the discount rate that they are presently using. Altering the discount rate from the 3rd segment plus 200 bps to all three segments under PPA and getting rid of the “plus 200 bps” would be much more impactful as it would greatly enhance the potential SFA received by these plans. Adding more investment options doesn’t guarantee success, but it does guarantee more volatile returns which defeats the purpose of trying to “secure” the promised benefits for some expanded period. Russ
I wonder if they will do what you suggest?
I don’t know the actuarial firm and have only briefly spoken with the plan’s asset consultant a couple of years ago. Given that the plan’s legacy assets are so small, they should do everything they can to secure as many years of benefits as possible. But, I doubt that they will. I’m certainly available to provide education on the topic if you want someone to reach out to me.
American Rescue Plan (ARP) Special Financial Assistance Program Updates
View as a webpage / Share
Pension Benefit Guaranty Corporation – A US Government Agency
PBGC Approves Special Financial Assistance Application
For Immediate Release
December 23, 2021
WASHINGTON, D.C. — The Pension Benefit Guaranty Corporation (PBGC) announced today that it has approved the plan application for the Idaho Signatory Employers-Laborers Pension Plan (Idaho Signatory) in Portland, Ore. The plan covers 682 participants in the construction industry and will receive $13.9 million in special financial assistance, including interest to the expected date of payment to the plan.
The plan was projected to run out of money in 2022. Without the Special Financial Assistance Program, Idaho Signatory would have been required to reduce participants’ benefits to the PBGC guarantee levels upon plan insolvency, which is roughly 15 percent below the benefits payable under the terms of the plan. Special financial assistance will enable the plan to continue to pay retirees’ benefits without reduction for many years into the future.
Pension Benefit Guaranty Corporation website
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Thanks, Ray. Please keep sharing the good news with us! Have a great day.
There’s only 18 plans in group 2, I wonder who are the needy ones. Plus, what difference will one week make for an application? Pbgc references December 27th date for certain plans from priority group 2.
Ray Shorter
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Hey Ray – I’m led to believe that the 18 plans in Tier 2 are the plans that got approval to cut benefits under MPRA. The PBGC doesn’t have the manpower to effectively review all at once the number of applications from plans seeking the SFA. Do they need as much time as they currently have them spaced? WHo knows. They certainly used as much time as they were permitted in deciding on the first two applications.
I’m just wondering who are the plans that will step into the December 27th spotlight. I just don’t see December 27th being better than January 1st or 3rd. Pbgc is so slow, a few days can’t be a game changer.
Hi Ray – I haven’t been able to find a list of the plans eligible for this second priority group other than the 18 plans that were cut under MPRA.
I see 436.
Ray Shorter
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805 and United Furniture.
Ray Shorter
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