PBGC Issues Interim Final Rule on Multiemployer Bailout Plan

The Pension Benefit Guaranty Corporation (PBGC) has made public its interim final rule for bailing out financially troubled multiemployer defined benefit (DB) pension plans under provisions of the American Rescue Plan Act (ARPA).

ARPA, signed into law earlier this year, allows multiemployer plans that are in critical and declining status to get a lump sum of money to make benefit payments for the next 30 years, or through 2051.

The legislation provides an estimated $94 billion for severely underfunded plans and empowers PBGC to implement a so-called special financial assistance (SFA) program to help the struggling plans. The interim rule explains the information a plan is required to file to demonstrate eligibility for SFA, as well as the formula used to determine how much PBGC will pay an eligible plan. It also prioritizes which plans get help first.

ARPA also addresses the solvency of PBGC’s Multiemployer Insurance Program, which was projected to become insolvent in 2026.

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news. 

“The American Rescue Plan Act provides funding to severely underfunded pension plans that will ensure that over 3 million of America’s workers, retirees, and their families receive the pension benefits they earned through many years of hard work,” PBGC Director Gordon Hartogensis said in a statement. “These benefits are critical to the economic security of so many retirees and their families.”

The interim rule also outlines a processing system to accommodate the filing and review of many applications in a limited amount of time, specifies permissible investments for SFA funds, and establishes certain restrictions and conditions on plans that receive SFA. PBGC has included a 30-day public comment period on the interim rule.

There are four types of multiemployer plans that are eligible to apply for SFA under the PBGC’s regulation:

A plan in critical and declining status as defined by the Employee Retirement Income Security Act (ERISA) in any plan year beginning in 2020, 2021, or 2022.
A plan that had enacted a suspension of benefits approved under ERISA as of March 11, 2021.
A plan certified to be in critical status as defined by ERISA that has a modified funded percentage of less than 40%, and a ratio of active to inactive participants of less than 2:3, in any plan year beginning in 2020, 2021, or 2022.
A plan that became insolvent for purposes of section 418E of the Internal Revenue Code (IRC) after Dec. 16, 2014, when the Multiemployer Pension Reform Act (MPRA) became law, has remained insolvent, and has not terminated under ERISA as of March 11, 2021.

PBGC has prioritized seven groups of plans that qualify for the aid, ranked by the most impacted plans and participants first. The highest priority is given to applications of plans that are projected to become insolvent under ERISA by March 11, 2022, so that they will not have to reduce participant benefits, and to plans that are already insolvent, to help them reinstate benefits, provide makeup payments to participants and beneficiaries, and restore previously suspended benefits.

PBGC’s goal is to accept and process as many applications in the highest priority group as possible before opening the submission process to the next priority group. The agency is currently accepting applications from this group.

The second highest priority goes to plans that have implemented a benefit suspension under ERISA as of March 11, 2021, and plans expected to be insolvent within one year of filing for SFA. This group is eligible to apply for SFA beginning Jan. 1, 2022. The third group, which can apply beginning April 1, 2022, includes plans in critical and declining status that have 350,000 or more participants.

PBGC has yet to specify when the remaining groups can apply for assistance, but it notes that it will be no later than Feb. 11, 2023.

The fourth and fifth groups include plans projected to become insolvent before March 11, 2023 and March 11, 2026, respectively.

The sixth group includes plans for which PBGC computes the present value of financial assistance under ERISA to be greater than $1 billion without SFA assistance, and the seventh group covers additional plans that may be added by PBGC based on other circumstances similar to those described for the first six priority groups.

COLA Freeze Removed from Pension Bailout Plan

Senate Parliamentarian Ruling Keeps Pension Bailout Alive

Tags: American Rescue Plan Act, ARPA, Defined benefit (db) pension plans, Gordon Hartogensis, interim final rule, Multiemployer, PBGC, pension bailout, Pension Benefit Guaranty Corporation, SFA, Special Financial Assistance

Art by Chris Buzelli

The $9 billion Missouri State Employees’ Retirement System (MOSERS) said that after conducting a national search of more than 100 candidates, it has hired TJ Carlson as its new chief investment officer effective Oct. 1.

Carlson will succeed Shannon Davidson, who is retiring Nov. 1 after being CIO for less than two years. He’s worked at MOSERS for over a quarter of a century.

“We look forward to TJ joining the MOSERS team and believe his vast experience in the public pension arena will build on the success of MOSERS’ strong investment program,” Ronda Stegmann, executive director of MOSERS, said in a statement.

Carlson will join MOSERS from the Texas Municipal Retirement System (TMRS) after nearly eight years as CIO, during which time he helped the pension fund grow to $34.5 billion in assets from $23.8 billion. His last day at TMRS will be Sept. 7.

Want the latest institutional investment industry news and insights? Sign up for CIO newsletters. 

“TJ is an experienced and talented investment professional,” TMRS Executive Director David Wescoe said in a statement. “During his seven-plus years with TMRS, TJ’s many accomplishments include building a first-rate investment team.”

Prior to TMRS, Carlson was CIO at the Kentucky Retirement Systems (KRS) for a little over three years, and before that was a primary consultant at investment consulting firm Ennis Knupp. He also served as an infantry sergeant and squad leader in the US Marine Corps and Reserves. He earned a Master of Business Administration from Drake University and a bachelor’s in mass communications from Grand View College.

In 2019 Carlson was named to Chief Investment Officer magazine’s “Power 100” list, in part for transforming TMRS from a 60/40 indexed portfolio with a staff of six to a team of two dozen with members that focused on each asset class. In a 2019 interview with CIO, Carlson said he believed that the only way to earn the pension fund’s 6.75% discount rate was by getting away from traditional equity and fixed income as much as possible. He was named to the list again in 2021.

“Our investment strategy is to be highly diversified and non-siloed with a strong component of private market exposures,” Carlson said in 2019.