The American Rescue Plan Act of 2021 (ARPA) was signed into law in March 2021. While the primary focus of the bill was to help the United States recover from the COVID-19 pandemic, it also provided a special financial assistance (SFA) program for certain multiemployer pension plans. This financial relief is intended to help severely underfunded multiemployer plans fund benefit payments through 2051 by setting up a Treasury-backed fund managed by the Pension Benefit Guaranty Corporation (PBGC).

The PBGC released an interim final rule that, among other updates, provided information regarding the size of the special financial assistance, how proceeds can be invested by pension plans, and general terms and conditions expected of plans receiving assistance.

In this article, we will focus on considerations for managing SFA funds through a liability-centric approach. For more information on the special financial assistance program, please see our article, American Rescue Plan Act: Three Key Considerations for Multiemployer Plans.

The PBGC’s method for determining the amount of special financial assistance available to each plan incorporates the future obligations and benefit payments of the plan. SFA payments will be delivered as a lump sum for the plan sponsor to manage to fund benefits through 2051. If assets fall short, there is no additional assistance included as part of this program. To this end, incorporating a disciplined approach to investing SFA assets, reflecting plan liabilities and benefit payments, can help increase the likelihood of making benefit payments through 2051 and beyond.

Several potential questions arise when reviewing the interim guidance from the PBGC. Importantly, the PBGC requests feedback and input on restrictions for investments of SFA. Currently, investment of SFA assets are restricted to investment grade fixed income. Any changes to these restrictions could significantly change future investment strategies and further guidance is being closely monitored. As plan sponsors await additional guidance, we offer our thoughts on several important aspects related to the investment of SFA assets.


Customization of the investment grade fixed income will be a critical factor in the success of SFA investments. We believe a separate account, comprised of individual securities, (as opposed to a commingled strategy, like a mutual fund or collective trust) is likely the most appropriate type of investment vehicle for these funds. A separate account allows for the unique expected benefit payments and expenses specific to the plan to guide the choice of bonds for the portfolio. This has several benefits over a commingled bond strategy:

  • Matching expected benefit payments with a bond ladder can provide buy and hold flexibility for the securities.
  • The long-term nature of the benefit payments will require the purchase of longer dated securities. These securities have the added benefit of creating additional yield for the portfolio while providing the right level of liquidity at the right time.
  • Beyond structural alignment with the liabilities, a plan sponsor can customize the credit quality and exposures within the separate account to suit their needs and risk appetite.

Customization is much more feasible for a sponsor that uses a separately managed account rather than collective trusts or mutual funds.

Chart 1: Projected Benefit Payments for a Hypothetical Plan

The above projections are hypothetical in nature, do not reflect actual plan results, and should not be relied upon for any purpose. Source: PNC

View accessible version of this chart.

Active Management

We believe active management of the bond portfolio will likely lead to better outcomes for the pension. Active management allows for the structural alignment of the bond portfolio cash flows with the expected benefit payments liabilities.

The PBGC’s interim final guidance requires all purchased bonds to be investment grade at the time of the transaction. PBGC allows 5% of the portfolio to be downgraded to junk status. Active portfolio management and robust credit analysis allows managers to anticipate downgrades and sell securities opportunistically, rather than forcing them to sell due to the PBGC’s regulatory constraints.

Active management also facilitates customized strategic exposures for the portfolio, considering the pensions assets are separately invested from the SFA.

Holistic Portfolio View

Active management can enable the sponsor to develop strategic target allocations that may be different from the broad universe of investment grade securities. The relative size of the existing plan assets compared to SFA funds may be a key driver in the desired exposures within the segregated fixed income investments. Within the context of the overall asset allocation, active custom portfolio management can provide:

  • Downside protection and potential alpha generation through security selection and sector rotations.
  • Flexibility. According to current guidance, sponsors can use either SFA or existing assets to make benefit payments and pay expenses. Depending on the source of funds selected, the overall allocation for the pension may shift significantly over the time horizon, and flexibility regarding underlying exposures can help sponsors target the appropriate level of risk in the portfolio.

The holistic portfolio view may be the aspect of investing for multiemployer plans most impacted by additional guidance from the PBGC; a wider opportunity set for investment would mean more flexibility in managing plan assets.

Three Key Questions to Ask Before Implementing a Customized Bond Portfolio

As the pension landscape has evolved, plan sponsors have increased access to effective risk management strategies. Custom bond strategies guided by the expected benefit payments and plan liabilities can help multiemployer pension plans meet future benefit obligations. With that said, not all custom liability strategies are equally effective. When considering implementation, there are three important questions to consider.

1) Do the trustees and/or current investment advisor have the capability and resources necessary to implement an effective liability-centric approach?

A liability-centric approach is a framework that considers the plan’s current state and develops a path to reach the plan sponsor’s desired future state. Implicit in this approach is the necessity for highly active management. This means the team in charge of creating and executing the approach needs to have the tools and experience, along with decision-making authority/investment discretion, to implement the investment strategy in real-time. Working with an investment advisor with experience creating liability-centric approaches to pension management can help maintain plan health.

2) Regarding implementation, can bond funds or collective trusts effectively meet sponsor’s needs?

Unfortunately, no. We believe a fund or collective trust approach is likely to be less impactful than a fully customized approach. In a commingled structure:

  • Cashflows from the bond portfolio cannot be structured to match the payment profile of the liability.
  • There is little to no ability to adjust the underlying exposures to fit a potential wide variety of needs for a plan that may have an evolving asset allocation to preserve benefits to the fullest extent.

3) What other factors should plan sponsors consider?

Beyond the effectiveness of custom strategies, consider:

  • The size of the SFA fund and diversification within the bond portfolio. If the SFA fund is less than $10 million, a custom strategy may not be sufficiently diversified.
  • Fees and cost transparency
  • The PBGC requires special annual reporting for sponsors receiving SFA. A custom bond portfolio should be transparent to satisfy ongoing reporting requirements.


The SFA program is a unique opportunity for multiemployer pension plans to make up lost ground. Against a challenging investment backdrop, it is crucial that the financial assistance is managed well to provide the intended relief to plans and their members. To achieve success, we recommend working with an investment advisor who can help plans strategize and execute on a liability-centric approach to manage SFA funds in the context of current pension assets and future benefit payment liabilities.

For more information, please reach out to your PNC Representative.

Accessible Version of Chart

Chart 1: Projected Benefit Payments for a Hypothetical Plan 

  Years 1-10 Years 10-20 Years 20+ Total
Duration 1.8 Years 4.7 Years 7.0 Years 13.5 Years
Portion 14% 35% 51% 100%