The Congressional Budget Office (CBO) It expects the PBGC’s Special Financial Assistance (SFA) program to cost $90 billion in the next decade.
This omission was included in a report the CBO sent to Rep. Virginia Fox (R-NC), a member of the House Education and Labor Committee, and Rep. Jason Smith (R-Missouri), managing director of the House Budget Committee, in response to their request for Information about the final rule you issued on the program. PBGC has issued it Final rule on July 7, 2022which sets out requirements for SFA applications, limitations, and related conditions pursuant to the 2021 American Salvation Plan Act (ARPA) issued in March 2021.
The CBO based its initial estimates in relation to the consolidated financial agreement on its expectations that the PBGC will implement the ARPA. The interim final rule issued by the PBGC in July 2021 was in line with those expectations.
The final rule introduced a variety of changes to the temporary rule, which the CBO outlined in the letter to Foxx and Smith. Most notable of these changes include the following.
the accounts. The final rule changes the method used to calculate the SFA, including the assumed rate of return. It also changed the type of assets that SFA retirement plans might invest in, changing the expected rate of return and the risk profile of those investments.
In February 2021, the CBO projected the costs of the SFA in an estimate of the House Committee on Reconciliation of Methods and Means Recommendations. A single discount rate was used in those forecasts and in subsequent baseline forecasts. PBGC has set a single rate in the July 2021 interim final rule.
In the final rule, the PBGC revised the SFA calculation method, the CBO notes. The rule directs the use of a projection approach that calculates estimated assets in each year through 2051. Qualified pension plans will now receive the minimum SFA necessary to end each plan year through 2051 with zero or positive assets.
The final rule also changed the interest rate used in SFA accounts, which the CBO says increases the total amount of the aid. ARPA determines the interest rate that will be used to determine the amount of assistance. In the interim final rule, the PBGC concluded that it did not have the authority to allow plans to use a “different rate or split the legally imposed interest rate”, but in the final rule concluded that it could allow a different rate for SFA assets, provided the plans use the required rate. For non-SFA assets.
investments. The July 2022 final rule also allows pension plans more flexibility in the SFA investment they receive, says the CBO, which is expected to result in higher expected investment returns and additional investment risk. With higher SFA amounts and higher expected investment returns, the CBO says, it expects the plans to remain viable for longer than they would have enjoyed under the interim final rule. However – the CBO adds that its SFA estimate is not affected by the expected return or investment risk on actual plan investments, because the SFA is calculated based on specific rates of return.
Providing additional benefits to MPRA Plans. The final rule for July 2022 increases the amount of special financial assistance given to pension plans — often called MPRA plans — that have suspended benefits under the Multiple Employer Pension Reform Act of 2014. Although these plans are allowed to reduce benefits to avoid bankruptcy, they must be brought back to the its previous status. Benefits in order to qualify for an SFA.
Under the final rule, MPRA plans receive “greater than: (i) the amount of SFA calculated for a plan that is not an MPRA plan [the standard calculation described above]; (ii) the lowest amount of SFA sufficient to ensure that the Plan will extinguish the incremental assets at the end of Plan year 2051; and (3) the amount of the SFA is equal to the present value of the reinstated benefits.”
Final Rule Effects
The CBO told Foxx and Smith that it expects the final rule to have the following effects.
SFA amounts. It expects that changes to the final rule will increase the total amount of SFA that plans will receive. He estimates that the total amount of aid will be $90.4 billion over 2022-2032 – $4.5 billion, or 5% – more than the $85.9 billion estimated in the CBO’s May 2022 base budget forecast, which was based on projections aligned with July 2021. provisional final rule.
SFA receipt plans. She predicts that the final rule will increase the number of pension plans that receive SFA. Under the May 2022 baseline — which used the specifications in the interim rule — 333 will receive SFA pension plans in at least one of 500 simulations, and 203 will receive assistance in at least half of the simulations. Using those baseline expectations and specifications in the final rule, the CBO says, you’ll receive 336 assist plans in at least one of 500 simulations, and 213 will receive that in at least half of the simulations.
Effects on the assets and responsibilities of the plan. The CBO expects that with (i) larger SFA amounts and (ii) higher expected investment returns under the final rule, on average, plans will contain more assets, but their total liabilities will not change.