Outlook for Multiemployer Pension Plan Reform in 2021

Morgan Lewis - ML Benefits
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Morgan Lewis - ML Benefits

The ongoing effort to provide relief for troubled multiemployer pension plans took many twists and turns in 2020, and the year ended once again without an agreed-upon solution. Looking forward to 2021, the incoming Biden administration and the new 117th Congress will continue to grapple with how best to avoid the looming insolvency of both the Pension Benefit Guaranty Corporation’s (PBGC) multiemployer pension insurance program and a growing number of plans in critical and declining status.

Over the past two years, several proposed solutions were put forward. One of the first legislative initiatives to receive congressional support was HR 397, the Rehabilitation for Multiemployer Pensions Act, a federally-backed loan program for ailing plans. Better known as the “Butch-Lewis” Act, HR 397 passed the House of Representatives in July 2019 by a 264-169 vote, including 29 Republican House members. Although there was a companion Senate bill, there was no movement on it because Republican leaders were (and still are) opposed to a program that would provide direct loans to plans.

A competing proposal that allowed failing plans to “partition” their liabilities to the PBGC was eventually included in the House of Representatives’ initiatives to address the COVID-19 pandemic in 2020. Included as part of the $3 trillion “Heroes” Act (HR 6800), the partitioning of liabilities was intended to allow plans to stabilize their financial position by better aligning plan assets with benefit payouts. The same provisions were included in HR 8406, the Heroes Act Part II. Both bills passed the House but were never considered in the Senate.

The proposed partitioning legislation also included language that would allow trustees of multiemployer pension plans to adopt an “alternative plan structure.” These so-called composite plans would have attributes of both a defined benefit plan and a defined contribution plan. Composite plans provide an annuity benefit to plan participants but limit a participating employer’s financial obligation to a fixed negotiated contribution level, without the risk of withdrawal liability.

In December 2020, Senate Finance Committee Chairman Chuck Grassley (R-IA) teamed up with Health, Education, Labor and Pensions (HELP) Committee Chairman Lamar Alexander (R-TN) to introduce the “Chris Allen Multiemployer Pension Recapitalization and Reform Act” (S. 5045). The Grassley-Alexander proposal adopts the partitioning approach but also requires new, more stringent funding rules, plan governance and disclosure rules, and significant increases in PBGC premiums including required additional payments from other multiemployer plan stakeholders including retirees, unions, and contributing employers. The increase in PBGC premiums is designed to shore up the finances of the PBGC’s multiemployer program and help it avoid insolvency.

Looking to 2021, all of the key House members involved in the multiemployer pension issue will retain their seats and positions. Rep. Richard Neal (D-MA) will continue as Chairman of the Ways and Means Committee and Rep. Kevin Brady (R-TX) will be the Ranking Republican. On the Education and Labor Committee, Rep. Robert Scott (D-VA) will continue as Chairman and Rep. Virginia Foxx (R-NC) will continue as the Ranking Republican.

In the Senate, there will be significant changes as a result of the Democrats taking control. Sen. Ron Wyden (D-OR) will replace Sen. Charles Grassley (R-IA) as Chairman of the Finance Committee and Sen. Patty Murray (D-WA) will replace Sen. Lamar Alexander (R-TN) as Chairman of the HELP Committee. On the Republican side, Sen. Mike Crapo (R-ID) will become the Ranking Republican on the Finance Committee and either Sen. Richard Burr (R-NC) or Sen. Rand Paul (R-KY) will be the Ranking Republican on the HELP Committee.

There are several factors that indicate an improved possibility of a solution in the next year or two. First, a Biden administration coupled with Democratic control of the House and Senate will likely result in an agreed-upon solution that can move forward. Second, a Biden administration may see greater urgency in pushing for a solution, given the significant economic fallout that would occur if the PBGC’s multiemployer program were to go insolvent in 2026 (as currently projected), along with several large plans whose retirees and participants are in key battleground states. But the likely solution is somewhat difficult to predict at this point. The competing proposals include the partitioning approach as outlined in the Heroes Act; the “composite” plan initiative; and the loan program under the Butch-Lewis legislation.

We continue to closely monitor developments in this area. 

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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