July 30, 2019
Multiemployer Pension Loan Assistance Legislation Passes House
On July 24, the House of Representatives passed the Rehabilitation for Multiemployer Pensions Act of 2019 (RMPA) (HR 397).1 The vote was 264–169 with all Democrats and 29 Republicans voting for the bill. On the same day, a similar bill, S 2254, was introduced in the Senate by 37 Democratic Senators.2
The bill, also referred to as the "Butch Lewis Act,"3 was originally introduced in 2017. Action on the bill was suspended early in 2018 after a Joint Select Committee on Solvency of Multiemployer Plans (JSC) was authorized under the Bipartisan Budget Act of 2018 and appointed by Congress. The JSC was charged with making legislative proposals that would significantly improve the solvency of multiemployer pension plans and the Pension Benefit Guaranty Corporation (PBGC), but was not able to reach agreement before its authorization expired at the end of 2018. On January 8, 2019, House Ways & Means Committee Chairman Richard Neal (D-MA) reintroduced the Act as the Rehabilitation for Multiemployer Pensions Act of 2019.
Key Provisions of the RMPA
If enacted into law as passed by the House, RMPA would:
- Establish a new agency, the Pension Rehabilitation Administration (PRA), in the Department of the Treasury (Treasury). The PRA is authorized to make loans to a multiemployer defined benefit (DB) plan that, as of the date of enactment of RMPA, is described in one of the bullets below:
- In critical and declining status; or
- Previously approved for a benefit suspension under the Multiemployer Pension Reform Act of 2014 (MPRA); or
- In critical status, with a modified funding percentage4 of less than 40% and less than 28.6% of participants are active employees; or
- Is insolvent, but only if it became insolvent after December 16, 2014 and has not been terminated.
- Establish a new trust fund, the “Pension Rehabilitation Trust Fund” (PRTF), in the Treasury that is funded by Treasury-issued bonds and repayments of principal and interest on loans made by the PRA.
- Establish a loan program to make 30-year loans to those eligible plans that apply.
- The general repayment period is interest-only for the first 29 years, and principal and interest in year 30.
- Plans may instead choose a loan with a payment arrangement of interest only for 19 years and then principal and interest repaid evenly over the 10-year period starting with year 21.5
- Interest accrues at the rate on 30-year Treasury securities at the time of loan issue. The rate may be somewhat higher to cover administrative costs.
- As an incentive to use the 10-year repayment, the plan interest rate is reduced by 0.5 percentage points.
- If the loan is not sufficient to enable an eligible plan to achieve projected solvency, the plan may also apply for financial assistance from the PBGC.
- PBGC financial assistance would replace a portion of the loan, meaning the amount of the loan would be reduced by the amount of any PBGC financial assistance.
- Unlike the loan, the plan would not be expected to repay PBGC financial assistance.
- The amount of PBGC financial assistance is limited by the amount of PBGC guaranteed benefits that would be paid to the plan if it were insolvent.
- Require loan application demonstrations
- The applicant must demonstrate that the loan will allow the plan to avoid projected insolvency for at least the 30-year loan period or, for a plan already insolvent, that the loan will allow it to emerge from insolvency and avoid insolvency for the remainder of the loan period.
- There also must be a showing that the loan will allow the plan to pay benefits during the period and accumulate sufficient funds to repay the loan.
- In evaluating the application, the PRA must accept all determinations and demonstrations unless it concludes that any demonstration (or underlying assumption) is unreasonable.
- The PRA must approve or deny any application within 90 days, and make the loan promptly after approval.
- Provide loans in accordance with the following requirements:
- The amount of the loan must be an amount needed by the plan sponsor to purchase annuity contracts or to implement a conservative bond portfolio (or a combination of the two) sufficient to provide benefits to participants and beneficiaries in pay status and in terminated vested status at the time of the loan. All loan proceeds must be used in that fashion.
- Annuity contracts must be those of any insurance company licensed by a State and rated “A” or better by a national rating agency. The purchase is subject to the fiduciary standards of the Employee Retirement Income Security Act (ERISA).
- Any portfolio must be cash matching or duration matching using investment grade fixed income investments, including U.S.-denominated public or private debt issued or guaranteed by the U.S. or a foreign issuer, tradable in the U.S. and issued at fixed or zero coupon rates. Alternatively, the Treasury, by regulation, can allow investments with a similar risk profile.
- If the plan has suspended benefits, the loan amount also must include amounts to retroactively pay any benefits suspended under MPRA (and the suspension must cease).
- Require PRA to report annually to Congress and require very detailed annual reports to the PRA by borrowing plans.
- Impose withdrawal liability on a withdrawing employer.
- If an employer withdraws from a plan with an outstanding loan in the 30-year loan period, the employer’s withdrawal liability shall be determined as if there was a mass withdrawal (i.e., no de minimis rule or 20-payment limit, and using the PBGC annuity interest rates under ERISA §4044).
- Special rules apply to account for annuity contracts purchased and the investment portfolios implemented with loan amounts.
RMPA does not include other proposals, such as changes to PBGC premiums or guaranteed benefit levels; changes to funding requirements for plans not facing projected insolvency; or increased employer contributions.
Revenue Provisions in the RMPA
The Congressional Budget Office (CBO) estimates the 10-year budget cost of RMPA as $48.5 billion. RMPA includes revenue-raising provisions. These include “stretch IRA” limitations affecting the beneficiary payout period from IRAs and defined contribution plans. (That provision does not affect DB plans.) In addition, RMPA increases certain filing penalties. These same revenue raising provisions were included in the May 23, 2019 House-passed SECURE Act (Setting Every Community Up for Retirement Enhancement Act).
The disagreements between Democrats and Republicans from the 2018 JSC remain. Although passage of a RMPA/S 2254 bill in the Senate appears to be very unlikely, the events to date can perhaps be viewed as indicating that pieces are coming together that might result in action this year. Published reports indicate that efforts continue in the Senate to develop a “compromise” bill that can pass both the House and the Senate.
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