The Special Financial Assistance (SFA) provisions of Sec. 9704 of the American Rescue Plan Act of 2021 (ARPA) provides a needed lifeline to many multiemployer plans facing insolvency in the coming decade. Eligible multiemployer plans will be able to apply for direct financial relief in the form of a single lump sum payment from the PBGC. The exact impact of these provisions will depend upon a multitude of factors, such as PBGC’s interpretation of the Act and how it will measure specific features of each plan, including liability duration, current funded status, and additional contributions expected over the horizon.
The goal of this legislation, roughly speaking, is to forestall insolvency for the next 30 years. While ARPA makes great progress toward this goal, in many cases the forbearance period may be shorter. As an example, under assumptions outlined in this post a 0% funded plan with a 10-year duration liability would be expected to cover over 80% of the liability value while only covering the next 14.0 years of payments.
Even with final rules still unknown, we believe it is useful to understand some of the potential implications for plans. Regardless of the underlying assumptions, the SFA will materially increase the amount of multiemployer benefits that otherwise would not have been able to be paid.
This post will explore the following:
- The feasibility of earning the discount rate indicated in the legislation,
- How current plan funded status and ultimate equity returns may impact the program,
- Implications of different plan durations, and
- Potential implications of alternative rule interpretations.
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