PBGC Releases New Guidance for Pension Plan Mergers Involving Federal Relief Funds

The Pension Benefit Guaranty Corporation (PBGC) on Wednesday released new guidance for multiemployer pension plans considering a merger where at least one of the plans has received federal aid. The new rules, published as a series of frequently asked questions (FAQs), clarify key considerations, requirements, and procedural steps for plans that have received Special Financial Assistance (SFA) under the American Rescue Plan Act of 2021. The guidance addresses a growing need for clarity as more financially distressed pension plans, stabilized by federal funds, explore mergers as a path to long-term solvency. It provides a more detailed roadmap for navigating the approval process, calculating withdrawal liability for employers, and managing post-merger restrictions. The SFA program was a core component of the 2021 American Rescue Plan, designed to allow the PBGC to use taxpayer funds to rescue severely underfunded multiemployer pension plans. The assistance enables these plans to continue paying full benefits to retirees through at least 2051. The program has been a significant lifeline, with the PBGC paying out billions in financial assistance, including $6.2 billion in fiscal year 2025 alone, according to a report from Bloomberg Law. The influx of these federal funds, however, introduced new complexities for potential plan mergers, prompting calls from industry stakeholders for clearer regulatory direction. In its announcement, the PBGC stated the guidance is part of its ongoing compliance assistance efforts to increase transparency and support the pension community. "By facilitating responsible mergers that address financial challenges within the multiemployer system, PBGC aims to promote the long-term stability of pension benefits for workers and retirees," the agency said. “We heard our stakeholders about the need for guidance in this area, and we delivered,” said PBGC Director Janet Dhillon in a statement. “PBGC will continue working with the pension community to provide clarity and help safeguard the hard-earned pension benefits of the millions of Americans who depend on us.” The new FAQs detail the specific criteria the PBGC will use to evaluate proposed mergers involving SFA-recipient plans. According to the guidance, any such merger must first comply with the general merger requirements outlined in Section 4231(a)-(d) of the Employee Retirement Income Security Act (ERISA). Beyond that, the proposed merger must satisfy two critical conditions: it cannot unreasonably increase the PBGC’s risk of loss, and it must not be reasonably expected to threaten the overall interests of the participants and beneficiaries of any of the plans involved. The agency noted that each merger will be considered on its own terms to determine whether these standards are met. For example, the PBGC suggested that the merger of a large, better-funded plan with a smaller SFA-recipient plan may often satisfy the risk criteria, while a merger of two SFA-recipient plans could present a greater risk of loss to the agency. The guidance also establishes a clear procedural timeline. Plans seeking to merge must submit a formal request for approval to the PBGC at least 120 days before the proposed effective date of the merger. The agency strongly encourages plan administrators to schedule an informal consultation with its multiemployer program staff before preparing and submitting a formal request. This pre-filing consultation is intended to help plans discuss available options and address potential issues early in the process. The FAQs provide new details on several technical aspects of these mergers. The guidance clarifies that plans can request waivers for certain SFA-related conditions, such as restrictions on retrospective benefit increases or decreases in employer contributions. However, any request for a waiver must be submitted concurrently with the request for merger approval. Similarly, if the merging plans wish to adopt an alternative method for allocating assets and liabilities, that request must also be submitted with the merger application. The PBGC has provided an example of an approvable "two-pool" alternative allocation method on its website to guide plans through this complex calculation. While the PBGC's new guidance provides a welcome measure of clarity, it also underscores the immense complexity involved in merging pension plans, especially when federal rescue funds are in the mix. For the small and mid-sized businesses that participate in these multiemployer plans, the stakes are incredibly high. A poorly structured merger can lead to unforeseen increases in withdrawal liability or jeopardize the long-term stability of employee retirement benefits. The detailed requirements for risk assessment, allocation methods, and waiver requests are not simple checkboxes; they demand sophisticated financial modeling and strategic foresight. In our experience, navigating these regulations requires a deep understanding of both ERISA and the specific financial dynamics of the plans involved. This is precisely the kind of intricate transaction where expert guidance is essential. For companies facing these challenges, the team at C&S Finance Group LLC provides specialized mergers and acquisitions advisory services to ensure the process is managed effectively and protects our clients' interests. Business owners can learn more at csfinancegroup.com. With this formal guidance now available, pension plan trustees and their advisors will be scrutinizing the details to assess potential merger opportunities. The industry will be closely watching the PBGC's initial approvals under these new rules to see how the agency interprets and applies its risk standards in practice. The release could spur a new wave of consolidation discussions among multiemployer plans seeking greater financial stability for their members.