Compliance December 23, 2021

Student Loan Repayment Freeze Extended Until May

The Department of Education says the extension will allow the Biden administration time to assess the impacts of the Omicron coronavirus variant on student borrowers and provide borrowers with additional time to plan for the resumption of payments.

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President Joe Biden and the Department of Education have announced an extension of the federal student loan payment freeze until May 1, 2022, citing the impact the pandemic is having on the economy.

In a statement announcing the policy extension, the president said that while the current jobs recovery has been one of the strongest ever, he knows millions of borrowers are still coping with the impacts of the pandemic and need some time before repayments begin.

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“Given these considerations, today my administration is extending the pause on federal student loan repayments for an additional 90 days—through May 1, 2022—as we manage the ongoing pandemic and further strengthen our economic recovery,” Biden says. “Meanwhile, the Department of Education will continue working with borrowers to ensure they have the support they need to transition smoothly back into repayment and advance economic stability for their own households and for our nation.”

The extension will allow the administration time to assess the impacts of the Omicron variant on student borrowers and provide borrowers with additional time to plan for the resumption of payments, the Department of Education says.

Borrowers are living through an unprecedented economic period, suggests a Student Debt Crisis survey of more than 33,000 student loan borrowers. Even though over 68% of the survey’s respondents are fully employed, nine out of 10 student loan borrowers report they are not ready to resume payments in February. Respondents say student loan payments will eat a large portion of their income and prevent them from affording bills and such things as rent, car loans and medicine.

The study also found that 27% of respondents say one-third of their income, or more, will go toward student loans when payments resume next year. Some 21% say they will never be financially secure enough to resume payments again.

TIAA’s “2021 Nonprofit Student Debt” survey found that student debt is a significant source of negative emotions. A majority of workers (55%) still worry about their student debt. Three in 10 have only negative feelings about their student loans (31%). 

Over a third of nonprofit and public sector workers (36%) say they will be unable to make their payments from either their take-home pay or savings, TIAA found. Additionally, 11% say they will need to turn to their friends and family for financial assistance. Another 11% say they will reduce or stop their retirement plan contributions, and 10% will have to ask for additional forbearance. The last 4% say they just aren’t sure at all where the money will come from. 

When Biden announced the payment pause extension, he also urged federal student loan borrowers to do their part by taking full advantage of the Department of Education’s resources, which are intended to help ensure they’re prepared for payments to resume, says Jennifer Nuckles, SoFi at Work executive vice president and group business unit leader.

“We recommend employers consider themselves part of this call-to-action and use the next 90 days to consider the ways your organization might help ensure the workers you employ are ready to enter repayment, if you aren’t already doing so,” Nuckles suggests.

The Coronavirus Aid, Relief and Economic Security (CARES) Act included a provision that allows employers to provide $5,250 annually for an employee’s student loan repayment or tuition reimbursement through 2025. This new provision benefits both the employee and employer—the employee gets to avoid paying income tax on the student loan payments, while the employer gets a payroll tax exclusion.

Additionally, some companies have implemented programs that provide a matching contribution to employees’ retirement plans for every payment they make to their student loan debt. This will help to ensure employees aren’t forced to choose between paying off student loan debt today or building their retirement savings for the future.

“President Joe Biden’s decision to extend the pause on student loan repayment an additional 90 days underscores the urgent need for a holistic, employer-driven push for workforce-wide financial literacy in our country,” Nuckles adds. “Nearly every business relies on—and benefits from—the investment employees have made in higher education, whether that’s through obtaining professional certifications and/or earning undergraduate and advanced degrees; yet a majority of employers still don’t offer financial well-being benefits today.”

Compliance December 22, 2021

PBGC Greenlights Funds for First Special Assistance Application

The first approved application is from a multiemployer pension plan that was projected to become insolvent by 2022.

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The Pension Benefit Guaranty Corporation (PBGC) has approved the first multiemployer plan application for special financial assistance, from a pension plan that covers transportation workers, under the Special Financial Assistance (SFA) Program that was created by the American Rescue Plan Act (ARPA) earlier this year.

The approved application is from the Local 138 Pension Plan based in Baldwin, New York, which covers 1,723 participants working in transportation. The pension plan will receive $112.6 million in special financial assistance, including interest to the expected date of payment to the plan.

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“PBGC’s approval of the first application for special financial assistance is a major milestone in implementing the American Rescue Plan Act,” says PBGC Director Gordon Hartogensis. “The SFA program is estimated to protect the benefits of 3 million people in over 250 multiemployer pension plans that are severely underfunded. This is a significant advancement of PBGC’s mission to provide retirement security for America’s workers, retirees and their families.”

Without the special financial assistance, the fund, which was expected to run out of money in 2022, would have been forced to reduce participants’ benefits to the PBGC guarantee levels upon plan insolvency. This would have reduced benefits roughly 20% below the benefits payable under the plan’s terms. The special financial assistance funds will allow the plan to continue making benefit payments without reduction for payees and to pay plan expenses.

“Today more than 1,700 workers, retirees and their families will go to sleep easier knowing the secure retirement they were promised will exist for many years to come,” says U.S. Secretary of Labor Marty Walsh, who also is chair of the PBGC board of directors.

ARPA provides an avenue for multiemployer plans that are in critical or declining status and at risk of running out of money to receive lump-sum funds to make benefit payments three decades out, or until 2051. The bill approved $1.9 trillion in total for coronavirus relief earlier this year, and lawmakers included provisions to assist both single-employer defined benefit (DB) plans and multiemployer plans.

PBGC issued an interim final rule earlier this year that detailed the requirements for the Special Financial Assistance program for multiemployer plans. Plans that receive special funding assistance must monitor the money received and the earnings on those funds separately from other funds. PBGC has also detailed restrictions and conditions on the amounts received, which include the interest rate assumption to be used in calculating a plan’s benefit obligations to be considered when determining the amount of assistance, as well as how SFA assets can be invested.

The agency is accepting applications ahead of its final rule being published and has ensured that any changes will not reduce the benefits a plan may receive. Stakeholders have expressed concerns that permissible investments for the funds received will not earn the rate used for calculation of assistance payments.

The concern is that, at that rate, the SFA will run out of money earlier than the 30 years it is intended to assist plans paying out promised benefits.

Shivin Kwatra, head of liability-driven investing (LDI) portfolio management at Insight Investment, says PBGC made it clear that the rate plans will need to use is the lesser of the third segment rate plus 2.5 basis points (bps), which is roughly 5.5%, or the interest rate the plan used in its Form 5500 filing with the Department of Labor (DOL).

“We were hoping for better alignment with market rates, but that’s not the direction regulators wanted to take,” Kwatra says.

PBGC said that it was only allowing investment-grade bonds as permissible investments for the SFA payments, under the interim final rule.

Some stakeholders that have commented on the interim final rule, including human resources (HR) consulting firm Segal Marco Advisors, have expressed concern that under the existing investment restrictions, plans won’t be able to get enough assistance to reach a 5.5% return.

“Even a high-yield bond today is returning around 3.8%, and that isn’t even contemplated at some durations,” says Sue Crotty, senior vice president and multiemployer practice leader at Segal Marco Advisors. “Investment-grade bonds return around 2%, and there’s no leverage on that, so it’s a problem.”

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