Following countless years of bipartisan legislative efforts, financially troubled multiemployer pension plans were finally provided much welcome relief through the $1.9 trillion American Rescue Plan Act of 2021 ("ARPA" or the "Act"), PL 117-2, March 11, 2021, 135 Stat 4, signed into law by President Biden on March 11, 2021.1 For years prior to the enactment of ARPA, the Pension Benefit Guaranty Corporation ("PBGC"), which is the federal agency responsible for protecting the retirement security of over 34 million American workers, had been predicting (and warning against) the pending insolvency of its multiemployer reinsurance program. The PBGC reinsurance program is intended to act as the final safety net to cover some fraction of the promised benefits to retirees when a multiemployer plan becomes insolvent and is unable to meet its benefit obligations. The PBGC explained that with numerous underfunded multiemployer pension plans expected to become insolvent in the near future, its insolvency reserves would likely be depleted by 2025 or 2026.2
On July 12, 2021, the PBGC issued interim final rules (the "Regulations" or "Final Rule") on ARPA's Special Financial Assistance Program to provide further guidance for multiemployer plan sponsors on the application process, including the priority in which applications will be reviewed, and the related restrictions and requirements for plans that qualify for relief.3 The Regulations also set forth special rules governing withdrawals of contributing employers from multiemployer plans that receive Special Financial Assistance ("SFA"). The PBGC provided for a 30-day comment period on the Final Rule, which ended on August 11, 2021. We have summarized the key provisions of the Final Rule and ongoing considerations for plans and employers below. For more information, please refer to our companion article in the [Spring 2021] edition of this publication titled American Rescue Plan Saves Financially Troubled Multiemployer Pension Plans.
What Type of Relief Is Provided?
Among other things, ARPA created a $94 billion dollar fund from which the PBGC can make SFA payments to eligible multiemployer pension plans that are severely underfunded.4 In addition, the available funds will help these plans to reinstate benefits suspended under the Multiemployer Pension Reform Act of 2014 ("MPRA") or due to prior insolvency. Eligible multiemployer pension plans will receive a lump sum payment equal to the amount necessary to cover these previously suspended benefits and to pay all benefits due from the date of the SFA payment through the end of the plan year ending in 2051.
What Plans Are Eligible for Special Financial Assistance?
An underfunded multiemployer pension plan is eligible for SFA if it fits within any of the following four categories:
1) the plan is in critical and declining status in any plan year beginning in 2020 through 2022;
2) the plan suspended benefits in accordance with the Multiemployer Pension Reform Act of 2014 ("MPRA") Pub.L. 113-235, Div. O, Dec. 16, 2014,128 Stat. 2773;
3) the plan: (i) is certified by the plan actuary to be in critical status in any plan year beginning in 2020 through 2022; (ii) has a "modified funded percentage" (defined as the percentage equal to a fraction, the numerator of which is current value of plan assets and withdrawal liability due, and the denominator of which is current liabilities) of less than 40%; and (iii) has a ratio of active to inactive participants which is less than 2 to 3; or
4) the plan became "insolvent," as defined under 26 U.S.C.A. § 418E (West), after December 16, 2014, and has remained insolvent and has not been terminated as of March 11, 2021.
While beyond the scope of this article, the Final Rule also sets forth comprehensive rules pertaining to the actuarial assumptions that plan sponsors must use for purposes of determining eligibility for SFA. Generally, these assumptions are based on those used for a plan's zone certification, which measures the funded status of multiemployer pension plans. The standard of deference provided to those assumptions by the PBGC will depend on whether such zone certifications are for the 2020 plan year or later. In addition, to ensure uniformity, the Final Rule specifies that the data reported on by plans on Department of Labor Form 5500 is to be used for purposes of determining eligibility under category "3" above (but each category does not need to be satisfied in the same plan year).
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Footnotes
1. Available at: https://www.congress.gov/117/bills/hr1319/BILLS-117hr1319enr.pdf.
2. Available at: https://www.pbgc.gov/news/press/releases/pr20-06.
3. Available at: https://www.govinfo.gov/content/pkg/FR-2021-07-12/pdf/2021-14696.pdf.
4. Available at: https://www.pbgc.gov/news/press/releases/pr21-05.
Originally published by ABA Tort Trial and Insurance Practice Section's Employee Benefits Law
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