PBGC to administer $ 94 billion in financial assistance to multi-employer pension plans
Multi-employer pension plans are back in the news following the enactment of the American Rescue Plan (ARP) Act of 2021 on March 11, 2021. The Rescue Plan creates approximately $ 94 billion in funding for more than 200 eligible multi-employer pension plans that are severely underfunded. The Pension Benefit Guaranty Corporation (PBGC) announced a new Special Financial Assistance Program (SFA) under ARP in an interim final rule published on July 9, 2021. This article addresses the key features of the PBGC program.
The 2021 Rescue Plan follows years of legislative effort to support multi-employer plans known to be in financial distress. The Multiple Employer Pension Reform Act of 2014 (MPRA), for example, allowed plans in “critical and declining” status to be applied to the Treasury Department for a suspension of benefits.
How a Multiple Employer Plan Qualifies for Special Financial Assistance
A multi-employer plan must meet one of the following criteria to qualify for financial assistance under the American Rescue Plan.
1. Plans that are in “critical and declining” status in any plan year from 2020 through 2022. Under the Multiple Employer Pension Reform Act (MPRA), the term critical and declining status means that expects the plan to have insufficient funds from funds to pay for all benefits within the next 20 years.
2. A suspension of benefits was approved for the plan under the MPRA effective March 11, 2021.
3. In a plan year beginning in 2020 through 2022, the plan is in critical condition, has a “modified funding percentage” (as defined by law) of less than 40 percent, and has an active participant ratio. and less than two to three inactive (you do not need to meet the requirements for the same plan year).
4. Bankruptcy plans that reached this condition after December 16, 2014 and that had not been terminated as of March 11, 2021.
How PBGC Will Process and Prioritize Financial Assistance Applications
The PBGC will accept requests for financial assistance in prioritized groups based on its estimated ability to handle requests within a 120-day period. There are six priority groups, as described below with the plan descriptions. The deadline by which plans can apply for assistance is indicated in parentheses.
1. Already insolvent or expected to be before 3/11/2022 (expected application date 7/9/2021).
2. Implemented MPRA benefit suspensions prior to 3/11/2021 or are expected to be insolvent within one year from the date the application was filed (1/1/2022).
3. More than 350,000 participants (4/1/2022).
4. You are expected to be insolvent before 3/11/2023 (7/1/2022).
5. You are expected to be insolvent before 03/11/2026 (02/11/2023).
6. Present value of financial assistance in excess of $ 1 billion (11/2/2023).
As noted above, the PBGC only accepts Priority 1 submissions at this time. The PBGC expects that once an application is approved, SFA payments will be made within 60 to 90 days and in any event no later than September 30, 2030.
How much special financial assistance will the PBGC pay to qualifying plans
The PBGC will pay eligible multi-employer plans the amount required to fund all benefits owed beginning on the date of the SFA payment and ending on the last day of the 2051 plan year. The PBGC will consider all assets, income and plan obligations when calculating payment.
Increased benefits for the participant and beneficiary will be considered as of March 11, 2021. If a plan previously suspended or reduced benefits, the plan may receive SFA to reinstate suspended benefits or provide certain compensatory payments.
SFA funds and associated earnings must be separated from other plan assets. Additionally, SFA funds must be invested in investment grade bonds or other permitted investments as authorized by PBGC.
According to the Federal Register notice, “Unlike financial assistance provided under section 4261 of ERISA, which is in the form of a loan and is provided in periodic payments, a plan that receives SFA under section 4262 is not required to repay SFA, and PBGC must pay SFA in the form of a one-time lump sum payment. “
Background on multi-employer pension plans
The “multiple employer” plan should not be confused with the “multiple employer pension plan” (MEPP). “Multi-employer plans” are 401 (k) plans, so there is no role for PBGC and no potential liability for PBGC.
A multi-employer pension plan is established through a collective agreement between two or more employers and a union. These plans are also known as Taft-Hartley plans. Each plan is administered by a board of trustees, which contains an equal number of employer and union trustees.
The transportation, construction, retail, manufacturing, hospitality and entertainment industries, which rely on a large base of employees who tend to move from one employer to another within the industry, account for the largest number of plans multiple employers.
In 2021 alone, the Department of Labor’s Employee Benefits Security Administration reports the receipt of 28 new “critical and declining status” notices, 40 “critical status” notices, and 19 “compromised status” notices received to Beginning July for multi-employer plans in distressed.
Prior to the enactment of the American Rescue Plan, the PBGC’s 2020 Annual Report indicated that its Multiple Employer Insurance Program was severely underfunded with a net negative position of $ 63.7 billion and will likely become insolvent in 2026.
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