The American Rescue Plan Act 2021, signed into law by President Joseph Biden on March 11, 2021, provides for significant relief to the most troubled multiemployer pension plans. The extent to which such relief also extends to the employers that contribute to those plans is currently an unanswered question, pending further guidance from the Pension Benefit Guaranty Corporation.
The American Rescue Plan Act 2021 (ARPA) establishes a new Treasury-backed Pension Benefit Guaranty Corporation (PBGC) fund to which eligible plans may apply for special financial assistance. The special financial assistance is not intended to “fully fund” eligible plans. Rather, eligible plans will only be entitled to receive an amount sufficient to pay all benefits through 2051. The financial relief will extend to any benefits previously suspended under the Multiemployer Pension Reform Act of 2014 (MPRA). As a result, plans that previously suspended benefits under MPRA will generally be required to restore those benefit suspensions if they receive financial assistance under ARPA. Special financial assistance will not, however, cover adjustable benefits that have been reduced or eliminated under a rehabilitation plan. The financial assistance will be paid in a single lump sum, without any repayment obligation.
By July 9, 2021, the PBGC is required to issue guidance on the application process and other requirements to receive financial assistance, along with any limitations or conditions attached to the receipt of assistance.
To qualify for financial assistance, a plan must meet both a threshold eligibility test and an economic need-based test.
The threshold eligibility test requires a plan to meet at least one of these four conditions:
If a plan meets one of the four initial eligibility conditions, the amount of financial assistance it will receive depends on whether and how much money it needs under the economic need-based test. Under the need-based test, eligible plans are only entitled to financial assistance in an amount that would allow a plan to pay all benefits (including benefits suspended under MPRA, but excluding adjustable benefits that have been cut under a rehabilitation plan) through 2051. If a plan is not currently projected to be insolvent—that is, unable to pay benefits—by 2051, it is possible it will not qualify for any actual special financial assistance under this need-based test, even though it meets one of the initial eligibility requirements. And the sooner a plan will become insolvent, the more financial assistance it will be entitled to receive.
The new law empowers the PBGC to issue regulations that prioritize the most troubled plans. Regulations may provide that, for up to two years following ARPA’s enactment, an otherwise eligible plan may not file an application unless one of the following conditions is met:
These regulations may resemble the rules the PBGC issued to prioritize “systemically important” multiemployer plans under MPRA. Applications for assistance are due by December 31, 2025.
ARPA provides that a plan that receives special financial assistance may only use the assistance money (and earnings on the assistance money) to make benefit payments and pay plan expenses. Plans that previously suspended benefits under MPRA will generally be required to restore those suspensions as a condition to receiving financial assistance, and must make retroactive payments of the suspended amounts (either in a lump sum or in installments over five years). Plans will also be required to segregate the special financial assistance, as well as any earnings, from other plan assets. The amounts must be in invested in investment-grade bonds or in other investments approved by the PBGC.
The PBGC may impose conditions on plans that receive special financial assistance. Under these conditions, the PBGC may restrict accrual rates, retroactive benefit improvements, reductions in employer contributions, and the diversion of employer contributions—and allocation of expenses—to other plans. In addition, the PBGC may impose special rules relating to the calculation of withdrawal liability for a plan that receives financial assistance and/or impose plan asset allocation requirements. Plans that receive assistance will not be permitted to suspend benefits under MPRA, but the PBGC will not prohibit other benefit reductions (including adjustable benefit suspensions pursuant to a rehabilitation plan).
ARPA’s effect on multiemployer withdrawal liability is currently an open question. Notably, the House version of the bill expressly provided that, for purposes of determining an employer’s withdrawal liability, plans would not be permitted to take into account the financial assistance for 15 years after receipt of the assistance (i.e., the financial assistance the plan received, and the earnings on the assistance, would not be treated as plan assets for purposes of determining a withdrawing employer’s withdrawal liability). If that provision had been included in the final version of the legislation, employers that withdrew from a plan within 15 years after a plan’s receipt of assistance would have generally incurred the same amount of withdrawal liability, whether or not the plan received financial assistance. The final version of the bill removed that provision, but only to avoid a procedural violation under the budget reconciliation process.
The absence of this withdrawal liability provision from the final bill does not necessarily mean that this type of rule, or something similar, will not ultimately apply to withdrawing employers. ARPA specifically permits the PBGC to impose special withdrawal liability rules on plans that receive financial assistance. So, we think it is likely that the PBGC will issue rules or guidance that limits the use of financial assistance when calculating a plan’s unfunded vested benefits for withdrawal liability purposes. If the PBGC does not establish this type of limitation, the aggregate withdrawal liability assessed by a plan that receives assistance would be significantly lower immediately following the receipt of the assistance. This could incentivize employers to withdraw from these plans, further deteriorating the plan’s contribution base. The PBGC could adopt the 15-year period that was stripped from the final bill, or it could require plans to disregard assistance for purposes of calculating withdrawal liability for some other period of time, such as 10 years, analogous to the requirement under current law that plans disregard MPRA suspensions for 10 years.
In any case, for reasons other than withdrawal liability, ARPA could potentially make it less costly and risky for employers to continue to participate in a plan that receives financial assistance. For example, some financially troubled plans that currently impose annual contribution rate increases under rehabilitation plans may ultimately not need to impose additional contribution rate increases in the future. As a result, it is possible that fewer employers will withdraw from plans that receive financial assistance, thereby decreasing the likelihood of a so-called “mass withdrawal” (involving the withdrawal of all or substantially all employers from a plan).
ARPA also provides the following other types of relief to multiemployer pension plans:
Plans that make this election will be restricted from adopting benefit increases for the two plan years following the year of the election. This relief, however, is not available to funds receiving financial assistance.
Finally, ARPA increases the flat-rate multiemployer plan PBGC premium. Beginning in 2031, the premium will increase to $52 per person per plan year. The premium will continue to be indexed to inflation. Note that plans that receive financial assistance must still pay premiums.
As noted above, the PBGC will be issuing guidance on ARPA’s financial assistance program by early July, and we will provide an updated summary once that guidance is issued.