Multiemployer Pension Provisions in the American Rescue Plan

Background

On February 27, 2021, the budget reconciliation bill, “The American Rescue Plan Act of 2021,” (Rescue Plan) passed the House of Representatives. The Rescue Plan is a $1.9 trillion stimulus package that is largely supported by Democrats. The Rescue Plan includes COVID-19 relief measures and also includes relief for troubled multiemployer defined benefit (DB) pension plans and funding relief for single-employer DB pension plans.

The multiemployer pension plan relief as provided under the Rescue Plan is expected to total $86 billion. To offset some of the costs of that relief, the Rescue Plan would reduce contribution requirements for single-employer pension plans and freeze benefit and compensation cost-of-living increases after 2030 for non-collectively bargained plans.

Outlook

The Rescue Plan will be considered by the Senate under the budget reconciliation process beginning the week of March 1, 2021. The reconciliation process allows the Senate to limit debate and pass the bill with 50 favorable votes (plus Vice President Harris’s tie-breaking vote, if necessary).

Legislation that is moved through the reconciliation process is subject to review by the Senate Parliamentarian to determine whether it has a significant impact on federal spending or revenue. Bills, or parts of them, that are incidental to spending or revenue, or that involve discretionary spending, cannot move through the reconciliation process.

The Senate Parliamentarian has ruled that multiemployer and single-employer plan relief provisions are appropriately included in the Rescue Plan. These provisions, however, remain subject to amendments and points of order (objections to the provisions).

The Senate is expected to amend and pass the Rescue Plan sometime  later this week or early next week, and will then send it back to the House for it to pass the Senate version. Once the House and Senate pass identical reconciliation bills, the engrossed bill goes to President Biden for signature. The President is expected to sign it before special unemployment compensation benefits expire on March 14, 2021.

Segal is monitoring the progression of the reconciliation bill and we will provide updates as they become available.

About the summary of provisions

This summary is for information purposes only and does not constitute legal, tax or investment advice. You are encouraged to discuss the issues raised here with your legal, tax and other advisors, in addition to your Segal consultant, before determining how the issues apply to your specific situation. Provisions of this summary are subject to change as we become aware of future developments.

The House-passed bill remains largely the same as previous versions of the Rescue Plan as amended by House committees except that it adds a new §432(k) to the Internal Revenue Code providing the Treasury Department (Treasury) a role in the special financial assistance relief aimed at helping troubled multiemployer plans.  It also removes “Butch Lewis Emergency Pension Plan Relief Act of 2021” as the short title for the multiemployer and single-employer pension provisions that appear under Subtitle H of the Relief Plan.  

Sec. 9701. Temporary Delay of Designation of Multiemployer Plans as in Endangered, Critical or Critical and Declining Status

A plan may elect that the plan’s zone status for the first plan year beginning on or after March 1, 2020 and ending on February 28, 2021, or for the next succeeding plan year (in either case, the designated plan year) be the same status as for the plan year prior to the designated plan year.

If the plan was in endangered or critical status for the plan year preceding the designated plan year, the plan is not required to update its funding improvement plan, rehabilitation plan or schedules until the plan year following the designated plan year.

Sec. 9702. Temporary Extension of the Funding Improvement and Rehabilitation Periods for Multiemployer Pension Plans in Critical and Endangered Status for 2020 or 2021

Plans that are in endangered or critical status for a plan year beginning in 2020 or 2021 (determined after application of Sec. 9701) may elect to have the funding improvement or rehabilitation period be extended by 5 years.

Sec. 9703. Adjustments to Funding Standard Account Rules

If, as of February 29, 2020, the plan is projected to have sufficient assets to pay expected benefits and anticipated expenditures over the amortization period (taking into account changes in the funding standard account), the plan may:

• Smooth investment losses over a period of up to 10 years in one or both of the two plan years ending after February 29, 2020 when determining the actuarial value of assets; and
• Amortize experience losses, attributable to investment losses and other losses related to the pandemic (including experience losses related to reduction in contributions, reductions in employment and deviations from anticipated employment rates) in one or both of the two plan years ending after February 29, 2020 over a period, generally, of up to 30 years.

Treasury must rely on plan sponsors’ calculations of plan losses unless calculations are clearly erroneous. Restrictions (as described under current law) on plan amendments that increase benefits apply.

Sec. 9704. Special Financial Assistance Program for Financially Troubled Multiemployer Plans

Federal funds to Pension Benefit Guaranty Corporation (PBGC)

Federal funds are to be transferred from the Treasury to PBGC in the amount necessary to pay the costs of special financial assistance and administrative expenses to eligible plans. Funds may not be transferred from Treasury to PBGC after September 30, 2030.

Special financial assistance from PBGC

The Rescue Plan adds a new §4262 to the Employee Retirement Income Security Act (ERISA) authorizing PBGC to provide special financial assistance to eligible plans. Special financial assistance is provided in the form of a grant that does not need to be paid back.

The four types of plans that are eligible for special financial assistance are those:

• Certified to be in critical and declining status for a plan year beginning in 2020-2022
• With an approved suspension under the Multiemployer Pension Relief Act of 2014 (MPRA) as of the date of enactment
• That as of 2020-2022 have been certified to be in critical status and are under 40% funded on a current liability basis and have an active/inactive ratio which is less than 2 to 3
• That became insolvent after December 16, 2014 and have remained insolvent but have not terminated as of the date of enactment.

Application for special financial assistance

PBGC is required, within 120 days of enactment of the Rescue Plan, to issue regulations or guidance detailing the requirements for special financial assistance. Additionally, PBGC may, after consulting with Treasury, prioritize applications during the first two years following enactment so that only certain eligible plans may file an application, including plans that:

• Are insolvent or likely to be insolvent within five years of enactment
• PBGC projects have a present value of financial assistance under ERISA §4261 (current provision on financial assistance) that exceeds $1 billion if special financial assistance is not provided
• Have implemented a suspension as provided under the Multiemployer Pension Relief Act (MPRA)
• PBGC determines appropriate to review.

Plans with an approved MPRA suspension are required to submit an application to PBGC and Treasury as are other plans applying for priority consideration. Applications must be submitted no later than December 31, 2025 (any revised application is required to be filed by December 31, 2026).

Actuarial assumptions for determining eligibility for special financial assistance

PBGC must accept the assumptions used by the plan to determine that it is in critical or critical and declining status for certifications completed before January 1, 2021, unless the assumptions are clearly erroneous. For zone certifications completed after December 31, 2020, a plan must determine whether it is in critical or critical and declining status by using the assumptions it used in its most recently completed zone certification before January 1, 2021, unless assumptions (excluding the plan’s interest rate) are unreasonable.

Amount of special financial assistance as determined by plans

Interest rate and other assumptions

In determining the amount of special financial assistance needed, plans must use the interest rate and other assumptions used in its most recent zone certification completed before January 1, 2021. However, the interest rate used cannot exceed the “interest rate limit,” defined as the 3rd segment bond rate of the 24-month average yield curve (without applying the 25-year corridor) for the month in which the application is filed or the preceding 3 months plus 200 basis points.

A plan may change prior assumptions in its application if use of one or more of those assumptions is unreasonable, subject to review by PBGC. Plans are precluded from changing the interest rate required to be used to determine eligibility and the amount of special financial assistance.

Determination of amount

The plan sponsor must use deterministic projections to determine the amount of special financial assistance needed to pay plan-level benefits due through 2051, with no reduction in participants’ benefits (except for the reduction of adjustable benefits already in place under a rehabilitation plan).

PBGC determination on applications

PBGC has 120 days to make a determination on an application or the application is deemed approved. Revised applications also are subject to a 120 day review period. Once approved, payments of special financial assistance are made in a single, lump-sum payment.

Reinstatement of benefit suspensions

For plans with suspended benefits, to receive special financial assistance the plan sponsor must reinstate benefits that were suspended (effective as of the first month following the date special financial assistance is provided). Benefit suspensions refer to benefits reduced in accordance with an approved MPRA suspension application or benefits reduced in accordance with current provisions that apply to ongoing insolvent plans. For plans with a MPRA suspension, PBGC is required to consult with Treasury regarding the proposed method for reinstating suspended benefits.

Plans may choose whether participants receive retroactive payment of suspended benefits as a single lump sum issued within three months of the effective date of the special financial assistance, or over five years (without interest) commencing within three months of the effective date of the special financial assistance.

Withdrawal liability

Amounts received as special financial assistance are not included (i.e., do not count as plan assets) in withdrawal liability calculations for 15 years after the effective date of the special financial assistance.

Restrictions on use of special financial assistance

Amounts received as special financial assistance (and earnings on those amounts) must be segregated from other plan assets and invested in investment-grade bonds or as otherwise permitted by PBGC. Special financial assistance is also not taken into account for purposes of minimum funding requirements.

Conditions on receiving financial assistance

For plans that receive special financial assistance, PBGC, in consultation with Treasury, is permitted by regulation to put restrictions on future accrual rates, retroactive benefit improvements, allocation of plan assets, reduction in contributions, diversion of contributions to other benefit plans, and withdrawal liability rules. PBGC is not permitted to impose conditions related to reduction in plan benefits, plan governance or funding rules. Plans must continue to pay PBGC premiums.

Plans are considered to be in critical status until 2051 and may not seek a MPRA benefit suspension. If a plan becomes insolvent after receipt of special financial assistance, the plan would be subject to the current rules (i.e., financial assistance is provided as a loan and benefits are required to be reduced to the PBGC guarantee).  

PBGC premium rate increase

The flat-rate premium, paid on a per-participant basis, is increased to $52 (indexed) for plan years beginning in 2031.