Without congressional intervention, about 100 multiemployer pension plans are expected to become insolvent in the next 20 years, and some much sooner. In other words, for these pension plans, their liabilities to retired employees and current employees with vested benefits far outweigh their assets and incoming contributions. Although the Pension Benefit Guaranty Corporation is intended to provide a backstop to any insolvencies, the sheer number of plans facing insolvency and the total size of unfunded vested liabilities will bankrupt the PBGC’s multiemployer program as well. It is against that backdrop that Congress has added the Butch Lewis Emergency Pension Plan Relief Act of 2021 to the COVID-19 relief bill.
In addition to some revisions to minimum funding standards for community newspaper plans, the proposed law would do five primary things.
First, it would permit plans to temporarily retain their status as endangered, critical, or critical and declining status or delay entering into such status. Under the bill, plans would be permitted to retain their funding zone status for the 2019 plan year in the 2020 or 2021 plan years. These changes are designed to give plans flexibility and reduce administrative burdens given the economic and financial turmoil that arose from the COVID-19 pandemic.
Second, for those plans that are already in endangered or critical status, it would allow the plan to extend their rehabilitation period by five years. These extra years could, in theory, provide plans additional time to increase their contribution rates, enjoy better investment returns, limit benefit accruals, and have more time to attempt to increase funding percentages.
Third, and akin to prior pension reform efforts that allowed multiemployer plans to amortize investment losses from 2008 or 2009 over 30 years (as opposed to the typical 15), this bill would permit a 30-year amortization base to spread out losses over time.
Fourth, the bill would create a special financial assistance program for those plans that are expected to become insolvent in the near future. Under the bill, the Treasury would grant money to the PBGC, which would then disburse it to eligible plans. Eligible plans include (a) those in critical and declining status, (b) those that have approved benefit suspensions, (c) those that are in critical status with a funding percentage of less than 40% with more inactive than active participants, and (d) those plans that are already insolvent. The bill would instruct the PBGC to develop regulations within 120 days for applications and to prioritize applications from plans that are (a) insolvent, (b) likely to become insolvent within five years, (c) have a present value of over $1 billion in unfunded vested benefits, or (d) have already implemented benefit suspensions. The money would be paid in a single, lump-sum payment in the amount sufficient to guarantee benefits, without reductions, through 2051. If a multiemployer plan were to receive financial assistance, it would be required to reinstate any suspended benefits, and repay the amount of benefits previously suspended. Finally, an employer’s withdrawal liability would be calculated without taking into account this assistance for 15 calendar years after it was received.
Fifth, the bill would address single employer plans by permitting any funding shortfalls to be amortized over 15 years rather than seven years. It would also extend the pension funding stabilization percentages for single employer plans.
Just like previous attempts at pension reform, although this legislation has bipartisan support, its fate remains unclear. The anticipated COVID-19 relief package will likely be passed along party lines, meaning that in an evenly divided Senate, all 50 Democratic senators must support the package (Vice President Harris would cast a tie-breaking vote). Moreover, the procedural rules for consideration of the package by way of “budget reconciliation” are complex, and it is not clear whether some proposed COVID-relief proposals will be eligible to be included in a final COVID package. Littler’s WPI will continue to keep you apprised of relevant details as they emerge.