Going through the text of the stimulus bill, section 9705 turns to funding relief for Single Employer plans by returning to the 15 year amortization schedule for minimum funding purposes for 2022 (with optional election for 2019, 2020, and 2021) as if draconian PBGC premiums were not enough in themselves to discourage underfunding.
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.
EPPRA takes a far more direct approach to the problem than prior proposals. Under EPPRA, eligible plans can receive financial assistance from a new Treasury-backed PBGC fund. The available financial assistance will be sufficient for eligible plans to pay all benefits for 30 years. This includes any benefits previously suspended under the Multiemployer Pension Reform Act of 2014 (MPRA), which must be restored by plans that apply for assistance under EPPRA. EPPRA’s special financial assistance will not, however, cover adjustable benefits that have been cut under a rehabilitation plan.
The assistance is payable in a single lump sum without any repayment obligation. To qualify for assistance, a multiemployer pension plan must meet one of four conditions:
1. Be in critical and declining status
2. Have previously imposed a benefit suspension under MPRA
3. Be in critical status, have a modified funded percentage of less than 40% on a current liability basis, and have a ratio of active to inactive participants of less than 2 to 3
4. Be insolvent
The PBGC may prioritize plans that are insolvent, that require more than $1 billion of assistance, or that have suspended benefits under MPRA.
Author(s): Timothy P. Lynch, Daniel R. Salemi, Benjamin T. Kelly
Lawmakers have moved to include in the bill an unrelated $86 billion bailout for bankrupt union pension plans.
And once they’ve done that, it’s going to be even harder for them to argue that they shouldn’t bail out the stricken Social Security trust fund that is actually their responsibility. Social Security’s deficit: $16.8 trillion, or about $50,000 for every person in America.
On the other hand, if Congress tries to weasel out of fully funding Social Security in a few years’ time, this rescue of private sector union pensions is going to look like an outrage.
Legislation to help struggling multiemployer pension funds is to remain in the COVID-19 relief measure headed for a Senate vote this week.
The package also calls for some funding relief for single-employer plans, through extended amortization periods and pension interest rate smoothing changes.
The pandemic relief package was approved by the House along party lines Feb. 27. Its pension provisions were at risk of being stripped until the Senate parliamentarian ruled late Monday that they fit the rules for a budget reconciliation process that allows Democrats to prevail under a simple majority.
On Saturday, a measure to give troubled multiemployer pension plans assistance from the Pension Benefit Guaranty Corporation (PBGC) passed the House of Representatives, as part of a larger $1.9 trillion coronavirus relief package from President Joe Biden.
The federal stimulus package, which includes $1,400 checks for many Americans and increased funding for vaccines, also holds the Emergency Pension Plan Relief Act of 2021 (EPPRA), an update to the Butch Lewis Act. It’s a bill that lawmakers expect will help stabilize the multiemployer pension plans that are in danger of insolvency.
Of the more than 10 million multiemployer plan participants, about 1.3 million are in plans that will soon run out of money.
Contrary to the Feb. 18 editorial “Congress needs to focus its covid relief bill — on covid relief,” multiemployer pension plans have faced significant additional challenges caused by the ongoing global pandemic. It has jeopardized these plans’ ability to deliver hard-earned benefits to more than 1 million enrolled retirees and workers and must be addressed by lawmakers now. The shutdown of the U.S. economy has greatly amplified the financial struggle of these plans. Hundreds of employers are facing bankruptcy and cannot contribute to multiemployer pension funds; employees have lost their jobs; and the sharp drop in interest rates hit plans hard. Senior citizens and essential workers are disproportionately impacted by both the effects of the coronavirus and the multiemployer pension crisis.
As the United States looks to reopen and rebuild, maintaining the solvency of the multiemployer pension system will be key to economic recovery. The National Institute on Retirement Security concluded that the $44.2 billion in private pension benefit payments paid to retirees of multiemployer plans in 2018 supported $96.6 billion in overall economic output in the national economy and an estimated $14.7 billion in total tax revenue. The country can ill-afford a reduction in these revenue streams during the recovery period.
The House Budget Committee approved on Monday a $1.92 trillion bill to carry out President Joe Biden’s coronavirus relief plan, the first step toward likely House passage by the end of the week.
The vote was 19-16. Texas Democrat Rep. Lloyd Doggett voted with Republicans in opposition to the bill but a spokeswoman for him later said he had cast his vote in error and supported the legislation.
Aid to state, local and tribal governments: This would provide money for states and local governments, as well as tribal governments, to offset tax-collection losses and increased spending resulting from the coronavirus pandemic. Price tag: $350 billion.
Multiemployer pension plan aid: The Pension Benefit Guaranty Program would be able to give grants to underfunded pension plans guaranteed by the PBGC. The PBGC revolving fund to help pay full benefits when pensions fall short is set to be exhausted in 2027 under current law. Price tag: $81.5 billion.
Congress is working on a lengthy bill for further COVID relief. One small portion of it is modeled on the union-backed Butch Lewis Act, which passed the U.S. House in 2019 but not the U.S. Senate. Butch Lewis would provide loanscash grants to union-sponsored multiemployer pension plans that are otherwise headed toward insolvency.
About one in 10 multi-employer pension plans are in that situation thanks to stock market losses and declining numbers of active employees in the plans, and the wellbeing of up to 1.3 million union members and spouses is at stake. Butch Lewis would shore up declining pensions and restore benefits that were cut by some pensions in an effort to forestall insolvency.
If Congress does nothing, the Central States Teamster Pension is expected to run out of money in 2025. That would lead the Pension Benefit Guaranty Corporation (PBGC) itself to become insolvent. PBGC is a government insurance agency that guarantees pension benefits.