On June 15, 2026, the Pension Benefit Guaranty Corporation (PBGC) issued a proposed rule that would, if enacted, update, clarify, and make technical corrections to regulations related to the restrictions and conditions for multiemployer defined benefit (DB) plans that receive special financial assistance (SFA). Comments on the proposed rule are due by August 17, 2026.

The American Rescue Plan Act of 2021 (ARPA) established the PBGC-administered SFA program to provide one-time cash payments to eligible financially distressed multiemployer DB plans. Plans that receive SFA are subject to certain conditions and restrictions, some of which are described in PBGC’s final rule issued in 2022. This article summarizes PBGC’s proposed changes to the final rule.

PBGC clarifies permissible investment-grade fixed-income securities and derivative use for SFA plans

Up to 33% of the SFA may be invested in return-seeking assets. The remaining SFA must be invested in investment-grade fixed-income securities and cash. PBGC says it has received questions about which fixed-income investments qualify as permissible SFA investments and the types of derivative exposure that are allowed. In response, they propose several clarifications and amendments to the investment rules.

Commonly held fixed-income investments. The definition of permissible investment-grade fixed-income securities would be clarified to specify that eligible investments include bonds and other debt securities that pay a fixed amount of interest, a fixed rate of interest over the period the security is held, or interest determined in advance under a specified schedule. In addition, a security convertible into equity would still be treated as a debt security, and thus could qualify as a permissible investment, if conversion could occur only through action by a federal agency or another regulator.

Investments exempt from registration. PBGC proposes clarifying that SFA funds may be invested in investment-grade bonds or other debt securities that are exempt from registration under sections 3(a)(2) or 3(a)(4) of the Securities Act of 1933, including certain securities issued by banks and nonprofit organizations. PBGC notes that these securities are common in pension portfolios and bond indexes, and that verifying registration status can be difficult and burdensome for plans.

Permissible derivative exposure. Under the current SFA regulation, derivatives and leverage may not be used to increase investment risk beyond the risk of a comparable unleveraged investment, and derivative exposure outside a permissible investment-fund vehicle generally must be backed by liquid U.S. dollar cash or cash equivalents. PBGC is proposing to amend the rule to clarify, consistent with its FAQ, that derivatives are generally impermissible except for limited short-term use to closely replicate permissible securities when those securities are not immediately available. Derivatives may not be used to change a plan’s risk exposure based on potential future market events.

PBGC clarifies rules for withdrawal liability settlement approval

During the SFA coverage period,¹ any proposed settlement of withdrawal liability over $50 million requires PBGC approval. The $50 million threshold is determined by taking the lesser of the employer’s share of unfunded vested benefits calculated under ERISA section 4211, or the present value of the employer’s assessed withdrawal liability payments, discounted using the interest rates PBGC prescribes for mass withdrawal liability.

PBGC is proposing to set the determination date for calculating the present value of withdrawal liability payments as the last day of the plan year preceding the plan year in which the withdrawal occurs. This approach aligns with the date the employer’s withdrawal liability is determined.

PBGC would repeal exception for reallocation of contributions to health plans

PBGC’s SFA regulation generally prohibits plans receiving SFA from shifting income away from the plan or shifting more expenses onto it when resources are shared with other benefit plans. The regulation provides a process by which plans can request an exception for circumstances arising after March 11, 2021 that are outside the control of the plan sponsor and bargaining parties, such as significant health benefit cost increases caused by changes in federal law. PBGC is proposing to repeal this exception because it is inconsistent with the statute’s intent that SFA be used for the benefits and expenses of SFA plans. PBGC also believes the exception conflicts with its mission to support private pension plans and ensure timely, uninterrupted benefit payments.

Preparing for potential changes to SFA rules

The proposed rule would affect how plans invest SFA, evaluate withdrawal liability settlements, and coordinate pension and health plan funding. Multiemployer plan trustees and service providers should determine whether changes to investment policies, settlement practices, or contribution allocation arrangements are needed if the proposal is finalized.

¹ The SFA coverage period begins on the plan’s SFA measurement date and ends on the last day of the plan year ending in 2051.