ARPA Update as of June 17, 2022

By: Russ Kamp, Managing Director, Ryan ALM, Inc.

Although it seems like everyone is busy at this time of year, the PBGC bucked that trend with little activity once again. During this past week, there were no SFA applications either approved or denied. Two funds received the SFA payments whose applications had been approved – Management-Labor Pension Fund Local 1730 and ILA Iron Workers Local 17 Pension Fund, which received $110.9 million to help cover the benefits for 2,378 participants. In addition to this activity, I’m pleased to report that two applications were submitted. The Southern California, Arizona, Colorado & Southern Nevada Glaziers, Architectural Metal & Glass Workers Pension Plan (this fund gets an award for the longest name of any SFA application) refiled an application that had been initially submitted to the PBGC in December 2021. This Priority Group 1 plan is seeking $422.5 million in SFA for its plan that covers the benefits for 3,606 participants.

The second plan to file was the Sheet Metal Workers Local Pension Plan out of Massillon, OH, which is a Priority Group 2 plan, seeking $27.9 million in SFA for its 1,649 participants. The PBGC has 120 days from the June 13th filing date to act on this application. Since the inception of the ARPA legislation in July 2021, 26 pension systems have received approval for their SFA applications totaling $6.7 billion in grants, and all but one of these plans have received their payments as of June 17th.

While Nero fiddled Rome burnt. While we await the Final, Final Rules from the PBGC/OMB, the capital markets are plummeting. Will this market action impact the PBGC’s decisions on various aspects of the legislation? Again, I hope not as the ARPA legislation is designed to secure benefits through the SFA payments for as long as possible. The securing of benefits can only occur through either an annuity purchase or a defeasing bond strategy. The Federal Reserve’s tightening action to tame inflation has negatively impacted both bonds and stocks. Given recent comments by Fed officials, it doesn’t seem that they are inclined to pause their pace of increases in the Fed Fund’s Rate. This action will likely continue to weigh on markets until the Fed’s objective is met. What that ultimately means for the market’s performance is anyone’s guess.

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