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
Seyfarth Synopsis: On March 11, 2021, President Biden signed into law the American Rescue Plan Act of 2021 (“ARPA”), the $1.9 trillion COVID-19 relief bill. ARPA includes various forms of multiemployer and single employer pension plan relief, as well as certain executive compensation changes under Section 162(m) of the Internal Revenue Code (“Code”), which are discussed further below. Please see our companion Client Alert on the other employee benefit items of interest in ARPA here.
Author(s): Seong Kim, Christina M. Cerasale, Kaley M. Ventura, Alan B. Cabral
Since withdrawal liability represents the excess of the plan’s liabilities over its assets, some employers may expect that this massive influx of cash would reduce or eliminate their withdrawal liability. As of this date, however, the impact of EPPRA on an employer’s ultimate liability is unclear. The law as originally passed by the House of Representatives expressly excluded any financial assistance from the withdrawal liability calculus for a period of 15 years. However, this fund-friendly provision was struck from the bill during the Senate approval process and was not in the bill signed by President Joe Biden. In other words, under current law (e.g., EPPRA) and in the absence of anticipated regulations, an employer’s withdrawal liability could potentially be reduced or eliminated in its entirety. Unfortunately for employers, however, there is a catch.
Under EPPRA, PBGC is authorized to “impose, by regulation or other guidance, reasonable conditions on an eligible multiemployer plan that receives special assistance relating” to both “reductions in employer contribution rates” and “withdrawal liability.” The 15-year provision and the broad and express regulatory authority granted to PBGC by the statute has many practitioners (including the authors) expecting that PBGC will issue guidance similar to the excised provision. The most likely scenario is that an employer’s withdrawal liability will be calculated without regard to any EPPRA “special financial assistance” for a period of 15 years (consistent with the excised provision) or 10 years (the period for which MPRA benefit suspensions are disregarded for withdrawal liability purposes under ERISA Section 305(g)). Until PBGC issues this much-needed guidance, the exact impact of EPPRA on employers will be unknown.
Author(s): Paul Friedman, Robert Perry, David Pixley
In 2018, administrators of the Western Pennsylvania Teamsters and Employers Pension Fund announced it would cut benefits by 30% for 17,000 Pittsburgh-area retirees or their beneficiary survivors. The cut was needed to avoid insolvency and an accompanying collapse of the pension structure. Now, it is expected that those cuts will be restored.
Pension protection is critical, both for its morality and for its necessity. Pensions are a lifeline for older citizens. They should not lose their retirement money at the time they are depending on it — when they are no longer able or intending to work. The alternative reasonably could be poverty.
Were it not for the language in the new federal law, many people who spent decades toiling in union jobs would be in jeopardy of losing their benefits through no wrongdoing on their part. Forces conspired to put their retirement plans at risk. These are plans that were negotiated. These are plans that were promised. Nonetheless, many of the employers have gone out of business and have left their pension liabilities inadequately funded.
It was perhaps inevitable that Congress would bail out multi-employer pensions for the Teamsters and other private unions after doing so for coal miners in 2019. But the Democrats’ spending bill does nothing to fix the structural problems that have made these union pensions funds so sick.
Unions like the plans because workers continue to accrue benefits if they switch employers. If one business goes bankrupt, others must pick up the cost for worker benefits. Workers also don’t lose benefits—at least not immediately—if union-driven costs contribute to putting employers out of business.
But the plans are riddled with perverse incentives that make them risky. Employers award generous benefits and make paltry contributions so they can pay higher wages. Pension funds invest in riskier assets to achieve higher returns to support generous benefits and low contributions, but their investments often underperform. As a result, 430 or so multi-employer plans are now at risk of failing.
Further, under EPPRA, the interest rate used to calculate withdrawal liability for plans receiving assistance is limited. The interest rate used to calculate withdrawal liability would be capped, in part, by subsections of ERISA, plus 2%, which would currently be approximately 5%. Of course, the lower the interest rate used by a plan for this purpose, the higher the resulting employer withdrawal liability.
Importantly, less than 15% of the 1,400 multiemployer pension plans will receive financial assistance. Accordingly, the bulk of employer obligations to multiemployer plans, even those that are significantly underfunded, will be unaffected by EPPRA. With respect to employers who contribute to plans that receive EPPRA assistance, PBGC is expected to issue guidance that would limit (in whole or in part) the benefit of such assistance to employers.
The impact of EPPRA’s special financial assistance on contributing employers will largely depend on PBGC regulations and guidance. Employers who are currently confronted with an immediate decision regarding withdrawal from a multiemployer pension plan (for example, employers in the middle of labor negotiations) likely will need to exercise patience pending the issuance of PBGC guidance.
Author(s): Paul A. Friedman, Robert R. Perry, David M. Pixley
The multiemployer pension crisis was not caused by poor decisions by the pension funds. Factors out of their control: recessions, government decisions, industry deregulation (trucking for example) and quirks in the pension regulation law, ERISA are responsible. Some, including the New York Times blame the pension actuaries for high rates of return assumptions, but for most of their existence, the plans were much more conservatively run than high-flying single corporate plans.
Because of deregulation, bankruptcies of major carriers, and the 8-year policy of the George W. Bush administration to avoid contracting with union carriers, the Central States pension fund did not have enough money to pay Jack. The 2007 financial crash, caused by inadequate government regulation, and the Pandemic recession, further accelerated the expenses in Jack’s pension fund, one of the largest multiemployer plans.
Government regulation also did not move fast enough. Unlike single employer plans where ERISA encourages the PBGC to step in and take over the plans before the sponsors end up in bankruptcy there is no pre-crises help from the government agency, the PBGC, for multiemployer plans. Not acting quickly the aid needed soared. If the aid came 12 years ago the expense would have been much smaller about $10 billion.
Going through the text of the stimulus bill, section 9704 is the meat of the bailout but those 10 pages might be a little hard going so I have added my emphasis.
What struck me on initial reading is that there does not seem to be any cap on those one-time lump sum assistance payments and applicants may be able to value future benefits too. That is, a union with the foresight to sponsor a pension that is almost broke could entice employers to enter their union with the offer of providing their employees with a good pension at a cost that taxpayers will subsidize. Sounds too stupid to be real except if the law were entirely drafted by lawyers for the unions.