On March 10, 2021, the American Rescue Plan Act of 2021 (the Act) was passed by Congress and will be signed by President Biden. The Act provides for direct financial assistance for troubled multiemployer pension plans, as well as some additional relief provisions for all multiemployer plans.  This alert describes relevant provisions of the Act and the need for agency guidance with respect to a key issue.

Multiemployer Plan Relief for Troubled Plans

The Act creates new authority for the Pension Benefit Guaranty Corporation (PBGC) to provide special financial assistance to “eligible multiemployer plans.” The special financial assistance made by the PBGC is:

• not subject to repayment,
• to be made as a single, lump sum payment,
• the amount demonstrated by the plan sponsor on the application for assistance required for the plan to pay all benefits due during the period beginning on the date of payment of the special financial assistance payment and ending on the last day of the plan year ending in 2051,
  • with no cap by the PBGC guarantee amount,
  • with no reduction in a participant’s or beneficiary’s benefits (except for reductions in adjustable benefits adopted prior to the application for special financial assistance), and
  • taking into account the reinstatement of benefits that had been suspended pursuant to the Multiemployer Pension Reform Act of 2014 (MPRA 2014) or that had been reduced on account of plan insolvency,
• to be segregated from other plan assets,
• to be used to pay benefits and plan expenses,
• invested in investment grade bonds or other investments as permitted by the PBGC, and
• determined using an interest rate that is limited to the 3^rd segment rate  used for single-employer plans plus 200 basis points (which would be 5.59% today).

Eligible Plans - A multiemployer plan is an “eligible multiemployer plan” if:

1. the plan is in critical and declining status in any plan year beginning in 2020 through 2022,
2. a suspension of benefits has been approved under MPRA 2014 with respect to the plan as of the date on enactment,
3. in any plan year beginning in 2020 through 2022, the plan is certified to be in critical status, has a funded current liability percentage of less than 40%, and a ratio of active to inactive participants that is less than 2 to 3, or
4. the plan became insolvent after December 16, 2014, has remained insolvent, and has not been terminated as of the date of enactment.

Application Timing - Any application for special financial assistance must be submitted no later than December 31, 2025, and any revised application must be submitted no later than December 31, 2026. Applications will be submitted to the PBGC, and in certain cases, to the Secretary of the Treasury. The Act requires the PBGC (in consultation with Treasury) to issue regulations or guidance setting forth requirements for applications within 120 days of enactment. The PBGC may provide a temporary period no longer than two years after enactment during which applications may be filed only by eligible multiemployer plans that

• are insolvent or likely to become insolvent within 5 years,
• the PBGC projects to have a present value of financial assistance payments that exceeds one billion dollars,
• have implemented benefit suspensions under MPRA 2014, or
• the PBGC determines it appropriate based on other similar circumstances.

Reinstatement of Benefit Suspensions - A multiemployer plan that receives the special financial assistance shall:

1. starting with the first month in which the effective date for special financial assistance occurs, reinstate any benefits that were suspended under MPRA 2014 or benefits that were reduced to PBGC guarantee levels on account of insolvency,
2. provide payments equal to the amount of benefits previously suspended to participants and beneficiaries in pay status as of the effective date of the special financial assistance, payable (as determined by the plan) either
   1. as a lump sum within three months of the effective date, or
   2. in equal monthly installments over a period of five years, commencing within three months of the effective date (with no adjustment for interest).

Miscellaneous Provisions Related to Financial Assistance

There are a number of provisions that apply to a plan that receives special financial assistance. They are summarized as follows:

1. PBGC may impose reasonable conditions relating to increases in benefits, allocation of plan assets, reductions in employer contribution rates, diversion of contributions to other plans, and withdrawal liability,
2. Payments of PBGC premiums continue,
3. The plan is deemed critical until the last plan year ending in 2051, and
4. The plan is not eligible to apply for a suspension of benefits under MPRA 2014.

Cheiron Observation - There is ambiguity in the Act with respect to exactly how the special financial assistance is to be determined. It may be that the assistance will pay for all of the benefits until 2051, and the current assets and future employer contributions will be reserved for post-2051 benefit payments.  On the other hand, the determination of the special financial assistance may require that the current plan assets and future expected contributions to the plan be taken into account in considering the amount of the assistance. The interpretation of the Act with respect to this issue will likely be resolved in the guidance issued by the PBGC and Treasury as they specify the information to be submitted with an application.

Other Provisions Impacting Multiemployer Plans

The Act includes some other relief provisions for multiemployer plans that are similar to relief provided for the 2008 investment losses.  They are summarized as follows:

1. Election to Keep Prior Year’s Status - A multiemployer plan may elect, for an applicable plan year, to have the zone status be the status that was certified for the prior year.  The applicable year is either the first plan year beginning in the period March 1, 2020, through February 28, 2021, or the next following plan year. The election is to be made in the manner and at the time as prescribed by the Secretary of the Treasury.
2. Temporary Extension of Periods - The plan sponsor of a multiemployer plan that is in endangered or critical status for a plan year beginning in 2020 or 2021 may elect to have the funding improvement period or rehabilitation period extended by 5 years.
3. Extended Amortization of Losses Due to COVID-19 - A multiemployer plan that meets the solvency test used for the 2008 net investment losses, but as of February 29, 2020, may amortize losses related to SARS-CoV-2 or COVID-19 over a 30-year period similar to 2008 investment losses. The losses include experience losses related to reductions in contributions, reductions in employment, and deviations from anticipated retirement rates.

The effective date for the extended amortization of losses is the first day of the first plan year ending on or after February 29, 2020, which is 2020 for a calendar year plan. The election is disregarded for purposes of determining zone status for the first plan year beginning after February 29, 2020. Restrictions on benefit increases apply if an election is made for the extended amortization of losses.

The extended amortization of losses due to COVID-19 does not apply to a plan receiving the special financial assistance from the PBGC (as described above).

4. PBGC Premium Increases - The Act increases the flat-rate premium to $52 per individual starting in 2031. It will be indexed thereafter.

Changes Not Made By the Act

There are some significant changes that have been proposed with respect to multiemployer plans, but were not made (including two provisions from the House passed bill that were dropped by the Senate). Accordingly, there has been:

• No change in the amount of the PBGC guarantee benefit,
• No change in the withdrawal liability rules,
• No variable rate premium, and
• No restrictions on the interest rate used to determine the minimum funding requirements.

Cheiron consultants can assist you in understanding the impact of the changes upon your plan.

Cheiron is an actuarial consulting firm that provides actuarial and consulting advice. However, we are neither attorneys nor accountants. Accordingly, we do not provide legal services or tax advice.