On March 11, 2021, President Biden signed into law the $1.9 trillion American Rescue Plan Act of 2021, which includes the Butch Lewis Emergency Pension Plan Relief Act of 2021. This law is designed to forestall the insolvency of approximately 100 multiemployer pension plans that were expected to run out of money necessary to pay vested benefits over the next 20 years. Included among these funds is a particularly large fund that – absent congressional intervention – would have gone insolvent by 2025, leaving millions of retirees without their expected monthly pension.
Several of the law’s provisions make relatively small modifications to the multiemployer program. For example, the law permits plans to temporarily retain their status as endangered, critical, or critical and declining, or delay entering such status. For those plans that are already in endangered or critical status, the law also allows the plan to extend their rehabilitation period by five years. The law also allows multiemployer plans to amortize investment losses over 30 years to spread out losses over time.
The law’s key component, however, is a special financial assistance program for those plans that are expected to become insolvent in the near future. Under the law, the Treasury Department will grant money to the Pension Benefit Guaranty Corporation, 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 law instructs 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 disbursed to each plan in a single, lump-sum payment in the amount sufficient to guarantee benefits, without reductions, through 2051. The Congressional Budget Office estimates that this special financial assistance program will cost approximately $86 billion.
Multiemployer plans that receive financial assistance will be required to reinstate any suspended benefits, and repay the amount of benefits previously suspended.
The original version of the bill the House first passed provided that for 15 years after the fund received the grant, the calculation of an employer’s withdrawal liability would not take into account that subsidy. Thus, for 15 years, if an employer withdrew, it would still owe the same amount as it would have owed had the fund never received the financial assistance.
The bill changed in the Senate, however. The Senate Parliamentarian determined that the change to the withdrawal liability calculation was not about revenue, and thus could not be included in the bill under the Byrd rule. The law President Biden signed is therefore silent as to what this funding does to an employer’s calculation of withdrawal liability.
Notably, the bill does not include structural reforms to the multi-employer program, which many feel are necessary to ensure the long-term viability of these types of plans.
All eyes will now be on the PBGC as it develops and issues regulations to implement this special assistance program.