Multiemployer Pension Recapitalization and Reform Plan 

Senate Republicans introduced their own multiemployer pension reform plan, the Multiemployer Pensions Recapitalization and Reform Plan (MPRRP), on November 20, 2019. The plan, authored by Senate Finance Committee Chairman Chuck Grassley (R-IA.) and Health, Education, Labor and Pensions Committee Chairman Lamar Alexander (R-Tenn.), was published in the form of a white paper and technical explanation. The key components of the proposal included the following: 

• Expanded PBGC Partition Authority: The MPRRP proposes to expand the Pension Benefit Guarantee Corporation's (PBGC) existing partition authority by establishing a "special elective partition program" that provides a 12-month window in which an expanded class of multiemployer pension plans may request a partition order from the PBGC. If approved, the plan may shift certain pension benefit liabilities to the PBGC that are attributable to participants who have been "orphaned" by employers who previously withdrew from the plan, if certain requirements are met. 
• PBGC Multiemployer Insurance Guarantee Increase: Under current law the PBGC guarantee covers 100% of the first $11 of a participant's monthly pension benefit, plus 75% of the next $33 of the participant's monthly pension benefit. The MPRRP proposes to increase the guarantee to 100% of the first $56 of a participant's monthly pension benefit and set a minimum monthly benefit of $250. For an individual with 30 years of service, the increased guarantee would take the participant's guaranteed maximum benefit from $12,870 per year to $20,160 per year. 
• PBGC Multiemployer Plan Flat-Rate Premium Increase: The sponsor of a multiemployer pension plan pays a flat-rate premium to the PBGC for insurance coverage, which is payable with respect to every participant with a benefit under the plan. In 2019, the annual flat-rate premium was $29 per participant. The MPRRP proposes to raise the current flat-rate premium from $29 per participant to $80. 
• Addition of Multiemployer Plan Variable-Rate Premium: The MPRRP proposes to add a new variable-rate premium that would be paid by multiemployer plans. The premium rate would be equal to 1% of the plan's current unfunded liabilities divided by the number of participants in the plan. The variable rate premium is capped at the lesser of: (1) $250; or (2) the plan’s average benefits reported in the plan's most recent Form 5500, calculated as the total benefits distributed in the plan year divided by the participants and beneficiaries in pay status. 
• Addition of "Stakeholder" Copayments: Under the MPRRP, a monthly $2.50 fixed rate co-payment would be imposed on each union and participating employer in relation to all active employees covered under the plan pursuant to a collective-bargaining agreement. Plans are responsible for collecting the co-payments and transmitting them to PBGC on a monthly basis.
• Addition of Retiree Copayment: Under the MPRRP, plans would be required to withhold co-payments from retirees equal to a fixed percentage of benefit payments (ranging from 3% to 10% of the participant's benefit) and transmit the premiums to the PBGC on a monthly basis, with the co-payments waived for certain beneficiaries. The retiree co-payment rates are based on the plan's zone status, and on whether the plan received a partition. Disabled retirees are not subject to the monthly co-payment, and co-payments for participants or beneficiaries are phased out beginning at age 75 and eliminated for those over the age of 80.
• Changes to Method for Estimating Plan Liabilities: Multiemployer plan trustees and actuaries generally employ a discount-rate assumption based on a long-term assumed rate of return on plan assets (the average discount rate assumed by multiemployer plans is 7.13%, according to the PBGC). This approach results in reported funding obligations that frequently appear lower than those reported by single-employer plans, which are required to use a more conservative discount-rate assumption. The MPRRP proposes to regulate the assumed discount rate by requiring the application of a discount rate equal to the lesser of the actuary's best estimate of the future investment experience, or a statutory cap that is equal to the lesser of (1) a 24-month average of the third segment of the yield curve used for single-employer plan purposes plus 2%; or (2) 6%. The discount rate cap would be phased in over five years. Changes in the plan's unfunded obligations solely attributable to the required decrease in the interest rate and change in the valuation of assets would be amortized over 30 years. 
• New Funding Zone Status Categories and Zone Status Measurements: The MPRRP proposes to modify the existing zone status framework to include new upper-tier zones for very healthy plans and provide incentives for plans to improve their funding status, imposing fewer restrictions on such plans so long as they continue to demonstrate financial health and ability to weather potential financial "shocks" and protect participant benefits. 
• Modified Withdrawal Liability Calculation: Under the proposed plan, the annual withdrawal liability an exiting employer would be required to pay would be equal to 100% of the employer's highest contribution base units (usually measured in hours of work) the employer had in the last 20 years, multiplied by its highest contribution rate in the last 10 years, subject to a minimum that is equal to the highest dollar amount of contributions made by the employer over the previous 20 years. The payment schedule for a withdrawing employer is based on the plan's funded percentage (e.g., if the plan is 140% or more funded no withdrawal liability is due, and if the plan is between 90% and 139% funded, the employer owes five years of withdrawal liability payments). The maximum payment schedule is 20-years unless the plan is terminated or in declining status. If the plan is terminated or is in declining status the maximum payment schedule is 25-years.
• Elimination of Mass Withdrawal Liability: the MPRRP would eliminate the concept of mass-withdrawal liability. No additional liability would apply upon a mass withdrawal or other termination other than the regular withdrawal liability described above.
• Multiemployer "Composite Plans": The MPRRP would authorize multiemployer plan sponsors to establish a new type of retirement plan commonly referred to as a "composite" or "hybrid" pension plan on a prospective basis. Under this type of plan design, the plan sponsor pools employer contributions for investing, but only provides benefits to participants based on the contributions and any associated gains on their investment. Employers establishing a new composite plan would be relieved of withdrawal liability for benefits in the new plan. In addition, plans and participants would not pay premiums to the PBGC.
• Incentives for Mergers among Multiemployer Plans: The MPRRP proposes an elimination of the MPRA requirement to restore benefit suspension between a "Stable Zone" or higher plan and a "Critical Zone" plan (as redefined under the proposal). The proposal extends the PBGC's current authority to include fiduciary relief if the PBGC determines that a merger between plans satisfies certain safe harbors. The PBGC would be required to provide regulations regarding withdrawal liability methods that permanently insulate employers in a Stable Zone or higher plan that merges with a declining plan from withdrawal liability attributable to the unfunded liabilities of a declining plan at the time of the merger. Additionally, the proposal eliminates the MPRA requirement that financial assistance in a facilitated merger be necessary for the merged plan to remain solvent before PBGC may provide such assistance.