Even before COVID-19 changed everything, unions and participating employers held out hope for federal assistance for severely underfunded multiemployer pension plans, which threatened the payment of retirement benefits across the country. Varying forms of relief have been raised in Congress to address the issue in recent years, including H.R. 397 (i.e., the Butch-Lewis Act), which passed the House in July 2019 and, if enacted, would have offered loans to certain severely underfunded multiemployer plans.

As the problem of underfunded multiemployer pension plans worsened due to the pandemic and the related economic fallout, Congress agreed to meet the demands for relief in the latest pandemic relief package. On March 11, 2021, President Biden signed into law the American Rescue Plan Act of 2021 (the “Act”). The Act in part sets aside $86,000,000,000 for the bailout of severely underfunded multiemployer plans to fund at-risk benefits and to take the corresponding looming pressure off the Pension Benefit Guaranty Corporation (the “PBGC”).

Although not detailed in this SW Benefits Update, the Act also provides other forms of temporary relief for multiemployer plans, including: (1) relief regarding the designation of a plan in endangered, critical, or critical and declining status; (2) a five-year extension to the funding improvement period or rehabilitation period for multiemployer plans that are in endangered or critical status for a plan year beginning in 2020 or 2021; and (3) adjusted funding standard account rules.

Eligibility for Financial Assistance

Eventually, any multiemployer plan will be eligible to apply for financial assistance if the plan falls under one or more of the following four categories: (1) the plan is in critical and declining status in a plan year beginning in 2020, 2021, or 2022; (2) a suspension of benefits has been approved for the plan as of the date of enactment (i.e., March 11, 2021); (3) the plan (a) is certified by an actuary to be in critical status, (b) has a modified funded percentage (as defined in the Act) of less than 40 percent, and (c) has a ratio of active to inactive participants that is less than 2-to-3, in a plan year beginning in 2020, 2021, or 2022; or (4) the plan (a) became insolvent after December 16, 2014, (b) has remained insolvent, and (c) has not been terminated as of the date of enactment (i.e., March 11, 2021).

However, the Act permits the PBGC to limit applications during the first two years of the program to certain multiemployer plans with larger and/or more imminent needs, including but not limited to: (1) plans that are insolvent or likely to become insolvent within five years of enactment (i.e., before March 11, 2026); (2) plans that need financial assistance in excess of $1,000,000,000, as projected by the PBGC; and (3) plans that have implemented benefit suspensions as of the date of enactment (i.e., March 11, 2021).

Timing of Financial Assistance

Applications for financial assistance should be available in the next few months, as the Act requires the PBGC to issue guidance within 120 days of enactment (i.e., March 11, 2021). Plans may then submit applications for financial assistance no later than December 31, 2025 or, for revised applications, no later than December 31, 2026. Financial assistance will be paid as soon as practicable upon the PBGC’s approval of the application and no later than one year after a plan’s application is approved, or deemed approved, by the PBGC. No assistance will be paid after September 30, 2030.

Amount of Financial Assistance

The Act calls for financial assistance in the amount necessary for a plan to pay all benefits during the period beginning on the date the financial assistance is paid and ending on the last day of the plan year ending in 2051. The financial assistance will be paid in a single lump sum payment to each eligible multiemployer plan, and plans are not required to repay the financial assistance.

Conditions to Receiving Financial Assistance

In addition to allowing the PBGC to impose conditions on receiving assistance, the Act designates other conditions with which multiemployer plans receiving financial assistance must comply, including the following:

• Plans must continue to pay PBGC premiums (which were increased by the Act);
• Plans are deemed to be in critical status until the last plan year ending in 2051;
• Plans may only use financial assistance to make benefit payments and pay plan expenses;
• Plans must segregate financial assistance assets from other plan assets and these segregated assets must be invested in investment-grade bonds or other investments permitted by the PBGC; and
• Plans must reinstate certain benefits previously suspended and pay those benefits in a lump sum or installments over a five-year period.

Conclusions

Conditions aside, this special financial assistance program and its non-repayable lump sum relief will likely be welcomed by the unions and employers participating in severely underfunded multiemployer plans. As required by the Act, we expect to see additional guidance and regulations detailing the terms of the program issued in the coming months.