ARP: “Actuarial Equivalent of a Guillotine”

Excerpt:

Right now on the American Rescue Plan (ARP) website:

Status of Applications [.xls] – Coming Soon

Until those spreadsheets start popping up we have no clue as to why, by whom, and how these bailout applications are being made but, before seeing any numbers, one thing bothers me.

A footnote on that ARP website reads:

**MPRA plans can restore benefits under 26 CFR 1.432(e)(9)-1(e)(3) at any time, including before applying for SFA.

So why aren’t plan participants like Carol Podesta-Smallen in the MarketWatch story not having their monthly pension amounts restored to pre-MPRA levels and getting large checks to make up for past reductions? It would reduce asset values in those plans but isn’t that a good thing when applying for bailout money?

Author(s): John Bury

Publication Date: 31 August 2021

Publication Site: burypensions

‘I’ll be robbed twice in one lifetime’: Retirees fearing financial disaster wait for pension rescue

Link: https://www.marketwatch.com/story/ill-be-robbed-twice-in-one-lifetime-retirees-fearing-financial-disaster-wait-for-pension-rescue-11630018883

Graphic:

Excerpt:

A law passed in Congress earlier this year promised to reverse some of that damage by offering taxpayer-funded financial assistance to certain troubled pension plans like Podesta-Smallen’s, allowing them to restore benefits to retirees who suffered cuts. But the implementation of the rescue plan has been met with a barrage of criticism from plan trustees, participants and members of Congress who say it’s too tight-fisted with the financial assistance and could leave some plans in a worse financial position than they are in now.

….

When the American Rescue Plan was signed into law in March, many of these struggling plans and retirees with sharply reduced benefits thought their troubles were over. The law is expected to provide about $94 billion to eligible multiemployer plans through a financial assistance program designed to stabilize the plans for decades to come and reinstate previously reduced benefits.  

The sense of relief was short-lived, plan trustees and participants say. The Pension Benefit Guaranty Corp., the federal agency charged with protecting the retirement incomes of participants in private-sector defined-benefit pension plans, in early July released regulations detailing the formula for calculating the financial assistance for troubled plans.

In interviews and more than 100 comment letters to the PBGC, plan trustees, consultants, participants and lawmakers say that the rule’s stringent approach to calculating financial assistance means that many plans receiving the assistance won’t make it through the next 30 years as Congress intended, and some won’t even get enough money to cover the benefits they must restore as a condition of getting the cash.

Author(s): Eleanor Laise

Publication Date: 30 August 2021

Publication Site: Marketwatch

PBGC Issues Interim Final Rule on Multiemployer Bailout Plan

Link: https://www.ai-cio.com/news/pbgc-issues-interim-final-rule-on-multiemployer-bailout-plan/

Excerpt:

There are four types of multiemployer plans that are eligible to apply for SFA under the PBGC’s regulation:

A plan in critical and declining status as defined by the Employee Retirement Income Security Act (ERISA) in any plan year beginning in 2020, 2021, or 2022.

A plan that had enacted a suspension of benefits approved under ERISA as of March 11, 2021.

A plan certified to be in critical status as defined by ERISA that has a modified funded percentage of less than 40%, and a ratio of active to inactive participants of less than 2:3, in any plan year beginning in 2020, 2021, or 2022.

A plan that became insolvent for purposes of section 418E of the Internal Revenue Code (IRC) after Dec. 16, 2014, when the Multiemployer Pension Reform Act (MPRA) became law, has remained insolvent, and has not terminated under ERISA as of March 11, 2021.

PBGC has prioritized seven groups of plans that qualify for the aid, ranked by the most impacted plans and participants first. The highest priority is given to applications of plans that are projected to become insolvent under ERISA by March 11, 2022, so that they will not have to reduce participant benefits, and to plans that are already insolvent, to help them reinstate benefits, provide makeup payments to participants and beneficiaries, and restore previously suspended benefits.

Author(s): Christine Giordano

Publication Date: 14 July 2021

Publication Site: ai-CIO

ASB Approves Third Exposure Draft of ASOP No. 4

Link: http://www.actuarialstandardsboard.org/email/2021/ActuarialStandardsBoard-aug-9-2021.html

Excerpt:

The Actuarial Standards Board of the American Academy of Actuaries recently approved a third exposure draft of a proposed revision of Actuarial Standard of Practice (ASOP) No. 4, Measuring Pension Obligations and Determining Pension Plan Costs or Contributions. The standard provides guidance to actuaries when performing actuarial services with respect to measuring obligations under a defined benefit pension plan and determining periodic costs or actuarially determined contributions for such plans. The standard addresses broader measurement issues, including cost allocation procedures and contribution allocation procedures. The standard also provides guidance for coordinating and integrating all of the elements of an actuarial valuation of a pension plan.

The comment deadline for the third exposure draft is Oct. 15, 2021. Information on how to submit comments can be found in the exposure draft.

Link to draft: http://www.actuarialstandardsboard.org/asops/measuring-pension-obligations-and-determining-pension-plan-costs-or-contributions-third-exposure-draft/

Publication Date: 9 August 2021

Publication Site: Actuarial Standards Board

PBGC Multiemployer Pension Bailout – The Weeds

Graphic:

Excerpt:

The Pension Benefit Guaranty Corporation (PBGC) on July 9, 2021 announced an interim final rule implementing a new Special Financial Assistance (SFA) Program for financially troubled multiemployer defined benefit pension plans.

What struck me:

…..

It is expected that over 100 plans that would have otherwise become insolvent during the next 15 years will instead forestall insolvency as a direct result of receiving SFA. Section 9704 of ARP amends section 4005 of ERISA to establish an eighth fund for SFA from which PBGC will provide SFA to multiemployer plans under the program created by the addition of section 4262 of ERISA. The eighth fund will be credited with amounts from time to time as the Secretary of the Treasury, in conjunction with the Director of PBGC, determines appropriate, from the general fund of the Treasury Department. Transfers from the general fund to the eighth fund cannot occur after September 30, 2030. (page 6)

Unlike the financial assistance provided under section 4261 of ERISA, which is in the form of a loan and provided in periodic payments, a plan receiving SFA under section 4262 has no obligation to repay SFA, and PBGC must pay SFA in the form of a single, lump sum payment. (page 7)

Author(s): John Bury

Publication Date: 10 July 2021

Publication Site: burypensions

PBGC to Provide Special Financial Assistance to Troubled Multiemployer Plans

Link: https://www.pbgc.gov/news/press/releases/pr21-05

Released rule pdf: https://www.pbgc.gov/sites/default/files/sfa/4262-ifr-final-posted.pdf

Excerpt:

WASHINGTON, D.C. — The Pension Benefit Guaranty Corporation (PBGC) today announced an interim final rule implementing a new Special Financial Assistance (SFA) Program for financially troubled multiemployer defined benefit pension plans.  

“The American Rescue Plan provides funding to severely underfunded pension plans that will ensure that over three million of America’s workers, retirees, and their families receive the pension benefits they earned through many years of hard work,” said PBGC Director Gordon Hartogensis. “These benefits are critical to the economic security of so many retirees and their families.” 

The American Rescue Plan (ARP) Act of 2021 (P.L. 117-2) — a historic law passed by Congress and signed by President Biden on March 11, 2021 — contains provisions to provide an estimated $94 billion in assistance to eligible plans that are severely underfunded. Additionally, it assists plans by providing funds to reinstate previously suspended benefits. ARP also addresses the solvency of PBGC’s Multiemployer Insurance Program, which was projected to become insolvent in 2026.  

The interim final rule sets forth what information a plan is required to file to demonstrate eligibility for SFA and the formula to determine the amount of SFA that PBGC will pay to an eligible plan. ARP authorizes PBGC to prioritize SFA applications of plans in specified groups, and the interim final rule identifies the priority order in which such plans are permitted to apply. The interim final rule also outlines a processing system, which will accommodate the filing and review of many applications in a limited amount of time. In addition, it specifies permissible investments for SFA funds and establishes certain restrictions and conditions on plans that receive SFA. 

The interim final rule is posted on PBGC’s website today, July 9, 2021. The rule is also on public inspection today at FederalRegister.gov and is scheduled for publication in the Federal Register on July 12, 2021. PBGC has included a 30-day public comment period in this rulemaking from the date of publication in the Federal Register. All interested parties may submit their comments, suggestions, and views on the rule’s provisions here: reg.comments@pbgc.gov or https://www.regulations.gov

Additional information, including Frequently Asked Questions, is available at PBGC.gov/arp

Author(s): PBGC press release

Publication Date: 9 July 2021

Publication Site: PBGC

PBGC Rules on Multiemployer Pension Bailout

Excerpt:

The Pension Benefit Guaranty Corporation (PBGC) today announced an interim final rule implementing a new Special Financial Assistance (SFA) Program for financially troubled multiemployer defined benefit pension plans.

Pertinent excerpts coming over the weekend but, for now, it looks like the bailout number moved from $86 billion to $94 billion per the PBGC press release:

Author(s): John Bury

Publication Date: 9 July 2021

Publication Site: burypensions

Update On The Multiemployer Pension Plan Bailout: New Regulations Finally Unveiled

Link: https://www.forbes.com/sites/ebauer/2021/07/11/update-on-the-multiemployer-pension-plan-bailout-new-regulations-finally-unveiled/?sh=29d66f215bb2

Excerpt:

The PBGC’s decisions here are not what organizations such as the NCCMP would have liked, although, clearly, it is the PBGC’s job to interpret the law, not to try to fix a poorly-written law.

At the same time, no multiemployer pension plan is worse off with this legislation than without it, even if it isn’t as generous as they would have liked. And nothing prohibits those plans from boosting contributions and using additional contributions to fund future accruals — which would mean that pension plans which express their contributions as fixed dollar amounts, rather than a percentage of pay, will be better positioned to provide for existing employees as well as retirees. What’s more, the calculation of future contributions is based on a one-time open group projection, without being revised from year to year, so that, in principle, if more workers join a plan, the plan will be better off. (Of course, if the projection is too optimistic about the number of future workers, the opposite will be true.)

But, of course, this is $86 billion that could have been spent for other needs, or not spent at all. And, however much advocates profess that they still hope for a more comprehensive revision of funding rules for multiemployer pensions, the poorly-conceived nature of this bailout makes it less, rather than more, likely that both sides of the aisle will come together to repair multiemployer pensions and prevent future bailouts.

Author(s): Elizabeth Bauer

Publication Date: 11 July 2021

Publication Site: Forbes

UNITE HERE Launches Website for Beneficiaries of Pension Plans Taken Over by Athene

Link: https://www.businesswire.com/news/home/20210503005554/en/UNITE-HERE-Launches-Website-for-Beneficiaries-of-Pension-Plans-Taken-Over-by-Athene

Excerpt:

As Athene takes control of pension plan assets, it seeks to profit by earning more from investment returns than it is required to pay out to recipients. Athene uses Bermuda-based reinsurance subsidiaries to reinsure most deposits. Apollo manages most of Athene’s assets in exchange for fees. Apollo invests some of Athene’s assets in loans and structured debt products originated or securitized by Apollo affiliates.

Apollo Global Management created Athene in 2009 and has managed its assets since its inception. On March 8, Apollo announced its plan to acquire and merge with Athene.

UNITE HERE’s new website will provide information and resources to the beneficiaries of plans taken over by Athene. It includes facts about the recent JCPenney transaction, links to reporting on Athene’s investment practices, and contact information for relevant regulatory agencies. Beneficiaries can use the site to sign up for updates.

Publication Date: 3 May 2021

Publication Site: Businesswire

Your Pension Board Thinks It’s Smarter Than Warren Buffett—It’s Not

Link: https://www.forbes.com/sites/edwardsiedle/2021/05/01/your-pension-board-thinks-its-smarter-than-warren-buffett-its-not/?sh=b3fdc2611302

Excerpt:

Buffett has a consistent history of blasting Wall Street firms for charging high fees for actively managed investments and has recommended pensions invest in low-cost passively managed index funds.

You might think that underfunded pensions struggling to pay benefits would heed Buffett’s advice and seek to cut the fees they pay Wall Street.

Embrace austerity. Tighten their belts. Trim the fat. 

In fact, every forensic investigation I’ve ever undertaken has exposed that the nearer a pension is to insolvency, the higher the fees and the greater the risks the pension takes on.

Author(s): Ted Siedle

Publication Date: 1 May 2021

Publication Site: Forbes

Banks resist racial-equity audits, but they shouldn’t

Link: https://www.startribune.com/banks-resist-racial-equity-audits-but-they-shouldn-t/600049751/

Excerpt:

By lunchtime Tuesday we should know whether the Wells Fargo & Co. shareholders adopted a proposal to have the company conduct a racial-equity audit, an idea championed by a pension fund shareholder affiliated with the Service Employees International Union.

Wells Fargo and other big banks have recommended shareholders vote down these racial-equity audit proposals, a feature of this year’s annual shareholder meeting season.

The banks are likely to have the votes, but hopefully they don’t put the whole idea into a file and forget about it.

Author(s): Lee Schafer

Publication Date: 24 April 2021

Publication Site: Star Tribune

Pension Reform in our Time? What Butch Lewis Means for Multiemployer Plans and Participating Employers

Link: https://www.seyfarth.com/dir_docs/publications/Webinar-Deck-Pension-Reform-Butch-Lewis-032421.pdf

Graphic:

Excerpt:

Conditions on Relief
• Special Financial Assistance funds (and earnings thereon) can be used to make
benefit payments and pay plan expenses
• Must be segregated from other plan assets; invested only in investment-grade
bonds or other investments as permitted by PBGC
• Deemed to be in critical status until the last plan year ending in 2051
• Plans that become insolvent after receiving relief subject to rules for insolvent
plans
• Must reinstate any previously suspended benefits under the MPRA
– Either as lump sum within 3 months or monthly equal installments over 5 years (to
begin within 3 months)
• Not eligible to apply for a new suspension of benefits under the MPRA

Author(s): Alan Cabral, Jim Hlawek, Seong Kim, Ron Kramer

Publication Date: 24 March 2021

Publication Site: Seyfarth