Struggling Multiemployer Pension Plans Have a Funding Lifeline
On March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 (ARPA) into law. While it is only the third round of relief passed since the start of the COVID-19 pandemic, there are many opportunities for businesses and individuals through expanded tax savings, economic stimulus payments, extended unemployment, updates to the Paycheck Protection Program (PPP), and even funding for schools, local government agencies, and targeted industries. A little-known but significant change implemented through ARPA was a new $86B Special Assistance Fund to help financially troubled multiemployer pension plans (MEPPs) cover both benefit payments and certain plan expenses. In addition, there were also several other changes to help those facing short-term funding concerns. To help clients, prospects, and others, JLK Rosenberger has provided a summary of the key details below.
Special Assistance Fund (SAF)
The SAF, which is managed by the Pension Benefit Guaranty Corporation (PBGC) provides immediate financial relief to MEPPs on the verge of insolvency and offers access to funds through 2051, as needed. In order to participate, a plan must meet one of the following criteria:
- A MEPP must be in critical and declining status for any plan year starting in 2020 through 2022.
- The Treasury Department has previously approved cuts to benefits prior to the date of ARPA enactment.
- Any MEPP that was insolvent after December 16, 2014, have remained insolvent and have not terminated as of the date of ARPA enactment,
- Any plan year starting with 2020-2022, a MEPP certified to be in critical status, uses a modified funding percentage of less than 40% and has a ratio of active to inactive participants less than two to three.
Additional Reasonable Conditions
The ARPA also empowers the PBGC to apply additional reasonable conditions on funding recipients, including, but not limited, to:
- Imposing limitations on future accrual rates, regulate asset allocations, change employer contribution rates and withdrawal liabilities.
- Placing prohibitions on diverting special financial assistance funds to offset withdrawal liabilities.
The PBGC is not allowed to impose conditions on reductions in plan benefits, governance, service provider selection, and other funding rules related to the program.
Since the ARPA was recently passed, the PBGC has not yet had enough time to provide detailed guidance. However, the PBGC has 120 days from March 11 to publish guidelines, including materials that should accompany an application and the date of fund transfer if the applicant is approved. It is important to note the ARPA provides the PBGC discretion to limit application in the first two years of the program. This means that plans projected to become insolvent in the next 5 years or have already implemented benefit suspension may be given preferential treatment. The PBGC is required to approve an application unless the applicant is otherwise notified within 120 days of application submission. All applications must be submitted prior to December 31, 2025.
Total Amount Available
The ARPA requires the PBGC to provide enough funds to applicants to pay all benefits due from application approval through 2051. Whatever the amount received, a MEPP will not be subject to the PBGC guarantee amount and will not require benefit cuts. The interest rate used to determine qualifying amounts will be equal to the rate used in the most recent certification. Actuarial assumptions made in the most recent certification will be accepted unless deemed unreasonable. The funds will be paid in a one-time, lump-sum payment.
Program participants are not required to repay the amount of financial assistance received. While the money can only be spent on benefits and plan expenses, the PBGC can implement rules that require payback in cases of non-compliance. It is important to note that plans are not relieved from making PBGC premium payments applicable to underfunded plans.
We’re Here to Help
The new funding program for multiemployer pension plans is a welcome relief for those facing dire funding concerns. Although only broad program details are currently available, it is expected that more comprehensive guidance will be published soon. If you have questions about the information outlined above or need assistance with your benefit plan audit, JLK Rosenberger can help. For additional information, call us at 972-931-6803 or click here to contact us. We look forward to speaking with you soon.