PLANSPONSOR - September - October 2023 - 7

tax claims as they emerge and warning
taxpayers, " IRS Commissioner Danny
Werfel said in a statement. " Businesses
and individual taxpayers should seek
advice from an independent and trusted
tax professional
instead of promoters
focused on marketing questionable transactions
that could lead to bigger trouble. "
" The IRS has seen promoted arrangements
using ESOPs that are potentially
abusive, " the agency announced. For
example, the IRS is concerned about
arrangements in which a business creates
a " management " S corporation-the stock
" The SEC has
missed the
mark by forcing
money market
funds to adopt
an expensive
and complex
mandatory fee
on investors. "
of which is wholly owned by an ESOP-
solely to divert taxable business income to
the ESOP.
The IRS identified " numerous " additional
issues related to the plans' compliance,
including validation issues with
employee stock; prohibited allocation
of shares to disqualified personnel; and
failure to follow tax law requirements for
ESOP loans, resulting in prohibited transactions,
the agency reported.
PBGC Looks to Modernize
Actuarial Assumptions
The Pension Benefit Guaranty Corporation
has published proposed changes to the
interest rates, mortality tables and administrative
expenses used to calculate " the
present value of benefits for a singleemployer
pension plan ending in a distress
or involuntary termination. "
The
proposal
explains
that
include foreign stock and real estate investment
trusts.
Some investments that are not
the
PBGC tries to keep its actuarial assumptions
in line with the assumptions and
pricing used by private sector insurers.
The proposal would update the PBGC's
mortality table to be more current, adjust
interest rate assumptions to better reflect
current market conditions and simplify the
administrative expense calculation.
The PBGC is seeking public comment
on the proposal through October 17, which
is 60 days after the proposal was entered
into the Federal Register.
PBGC Clarifies Acceptable
SFA Investments
To address possible confusion among
pension managers,
the Pension Benefit
Guaranty Corporation clarified in an
FAQ what investments qualify as " returnseeking
assets " and " investment-grade
fixed income " for pension funds investing
money received from the Special Financial
Assistance Program.
Multiemployer plans receiving
special financial assistance under the
American Rescue Plan must invest 100%
of the money in investment-grade fixed
income if they applied under the interim
rule of July 2021. If they applied under the
final rule, of July 2022, they may invest up
to 33% in return-seeking assets.
" Investment grade " is defined in the
SFA regulations as " securities for which
the issuer (or obligor) has at least adequate
capacity to meet the financial commitments
... for the projected life of the asset
or exposure, " the FAQ states. Credit ratings
from credit agencies may not be used in
this determination.
Mutual funds, exchange-traded funds
and collective funds may be vehicles for
IGFI, depending on their composition.
Permissible RSAs typically include
common stock registered with the
Securities and Exchange Commission
and offered on a U.S. exchange. This can
permissible as RSAs are stocks traded
over the counter or on foreign exchanges,
funds invested in foreign markets, highyield
bonds, and alternative investments-
e.g., private credit and " direct real estate or
hedge funds and investments with or that
create leverage. "
The PBGC also said it does not
provide " upfront advice " or preapproval
of an investment strategy or asset class.
Certain investments may be found
noncompliant in an audit, though the
agency failed to elaborate.
SEC Updates Rules for
Money Market Funds
The Securities and Exchange Commission
has adopted rule updates that amend
liquidity management requirements for
money market
funds governed by
the
Investment Company Act of 1940. The
new rule requires the funds to keep 25% of
their assets in daily liquid assets, up from
10%, and at
least 50% in weekly liquid
assets, up from 30%.
Jamie Gershkow, a partner in Stradley
Ronon, says money market funds that fall
below these limits may not acquire new
assets until the fund is compliant.
Moreover, if daily net outflows
from institutional prime and tax-exempt
MMFs exceed 5% of the fund's value,
the fund must
impose a liquidity fee
on new redemptions. The fee must be a
good faith estimate of the costs associated
with continuing to satisfy redemptions;
it is intended to mitigate panic sales, as
occurred at the start of the COVID-19
pandemic, Gershkow says.
The amendments, further, disconnected
fees and gates-which had enabled
funds to pause redemptions if liquid assets
fell too low-from a specific liquidity
threshold. And the final rule dropped a
controversial swing pricing mechanism,
aimed at money market funds, from the
original 2021 proposal.
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