Efforts to address the funding crisis facing multiemployer pension plans, as well as provide single employer funding relief, just got a big boost from a key member of Congress.
House Ways & Means Committee Chairman Richard Neal (D-MA) on Jan. 21 introduced the Emergency Pension Plan Relief Act of 2021 (EPPRA), which is an updated version of the Butch Lewis Act and the first piece of legislation Neal introduced in the new 117th Congress, signaling the importance of the issue to him.
“The workers and retirees enrolled in these failing plans did everything right—they put away money year after year to save for their futures, even forgoing pay raises to do so,” Chairman Neal said in a statement announcing the introduction of the legislation.
Approximately 10 million Americans participate in multiemployer pension plans and roughly 1.3 million of them are in plans that are quickly running out of money, which has only been exacerbated by the COVID-19 pandemic. Moreover, without action, these plans threaten to bankrupt the Pension Benefit Guaranty Corporation (PBGC).
Special Partition Program
EPPRA is a standalone version of a provision from the HEROES Act that the House first passed in May 2020 and then passed a revised version in October 2020. One of the key provisions is the creation of a special partition program that would expand PBGC’s existing authority to partition certain troubled multiemployer pension plans, increase the number of eligible plans and simplify the application process.
Like the Butch Lewis Act, eligible plans would include plans in critical and declining status, plans with significant underfunding with more retirees than active workers, plans that have suspended benefits, and certain plans that have already become insolvent. EPPRA would also allow plans to become eligible for the special partition program through 2024.
Under the program, a plan would receive enough financial assistance to keep it solvent and funded for 30 years—with no cuts to the earned benefits of participants and beneficiaries, according to a summary. Plans that previously cut benefits would have to restore them to the retirees who earned them. In exchange for the financial assistance, each plan would have to comply with certain conditions, and would be required to file regular comprehensive reports to PBGC and to the congressional committees of jurisdiction.
Additional provisions in the legislation include:
- Repeal of benefit suspensions for multiemployer plans in critical and declining status (section 102)
- Temporary delay of designation of multiemployer plans as in endangered, critical, or critical and declining status (section 103)
- Temporary extension of the funding improvement and rehabilitation periods for multiemployer pension plans in critical and endangered status for 2020 or 2021 (section 104)
- Adjustments to funding standard account rules (section 105)
- PBGC guarantee for participants in multiemployer plans (section 106)
Neal noted that he’s committed to getting a solution to the multiemployer plan crisis signed into law as quickly as possible and has urged House Speaker Nancy Pelosi (D-CA) to include a multiemployer fix in the next COVID relief legislation the House considers.
“We cannot allow more than a million men and women to lose their hard-earned savings when we have the ability to stabilize these plans. Passing this legislation is simply the right thing to do,” Chairman Neal further emphasized.
This is an issue that has been percolating for the last several years, as members from both parties and both chambers agree that a solution is needed to address the multiemployer funding crisis. But lawmakers, to date, have not been able to agree on a fix. This year may be different, however, as the urgency continues to ramp up and Democrats control Congress and the White House.
Single Employer Plan Relief
Meanwhile, Chairman Neal’s bill also includes relief for single employer pension plans. In light of an ongoing pattern of interest rate and market volatility due to COVID-19, the current law requirement to amortize funding shortfalls over seven years is no longer appropriate, the summary explains.
Accordingly, under the bill, the following rules would apply to all single employer pension plans, effective for plan years beginning after Dec. 31, 2019:
- All shortfall amortization bases for all plan years beginning before Jan. 1, 2020 (and all shortfall amortization installments determined with respect to such bases) would be reduced to zero.
- All shortfalls would be amortized over 15 years, rather than seven years.
Chairman Neal would also extend pension funding stabilization percentages for single employer plans.
Because the earlier relief provided by Congress to smooth interest rates is set to begin phasing out and will soon cease to have much effect, the legislation would provide the following relief to preserve the stabilizing effects of smoothing:
- the 10% interest rate corridor would be reduced to 5%, effective in 2020;
- the phase-out of the 5% corridor would be delayed until 2026, at which point the corridor would, as under current law, increase by 5-percentage points each year until it attains 30% in 2030, where it would stay; and
- a 5% floor would be put on the 25-year interest rate averages.
This provision is effective for plan years beginning after Dec. 31, 2019.