American Rescue Plan Offers New Life to Multiemployer Defined Benefit Pension Plans Facing Insolvency

For years, experts and legislators have debated what to do about several large multiemployer defined benefit pension plans facing insolvency because of investment losses during the Great Recession and the decline of contribution bases over decades of industry changes. Finally, Congress has given these plans new life through its passage of the American Rescue Plan Act.

The Pension Benefit Guaranty Corporation (PBGC) will specify many of the details of the special financial assistance available to these plans by this summer. The following is a summary of some of the major elements of this important part of the ARPA.

Background. Multiemployer defined benefit pension plans cover more than 10 million active and retired workers in organized private-sector industries like construction, hospitality, retail food, and transportation, where employees often work for more than one employer over the course of their careers. While the majority of multiemployer plans are well funded, a number of large plans were predicted to run out of money to pay monthly benefits in the next five to 10 years. If not addressed, these insolvencies would have bankrupted the PBGC’s multiemployer pension plan insurance program, and more than 1 million active and retired workers would have lost most – perhaps even all – of their pensions.

Nature of the special financial assistance. The ARPA will provide one-time grants to eligible plans to cover their projected shortfalls through 2051 for current pension benefits and expenses, including restored benefits suspended under the Multiemployer Pension Reform Act of 2014 or MPRA. Recipient plans must keep these grants separate from other plan assets and invest them conservatively.

Eligible plans. Four kinds of distressed multiemployer plans can apply for special financial assistance:

Plans that are or will be certified in critical and declining status in one or more of the 2020-2022 plan years under the Pension Protection Act of 2006, as amended (PPA).
Plans that are or will be certified in critical status in one or more of the 2020-2022 plan years which also are less than 40 percent funded on a current liability basis and have active-to-retired participation ratios of less than 2 to 3.
Plans that have suspended benefits under MPRA.
Plans that became insolvent after December 16, 2014, but have not yet terminated.

Application process/criteria. Eligible plans must file their applications for assistance no later than December 31, 2025. The PBGC is supposed to issue guidance within 120 days of the ARPA’s enactment regarding such applications. The PBGC guidance will address issues such as what should happen with contributions, benefits, asset allocations, and withdrawal liability after the payment of the special financial assistance.

PBGC premiums. Eligible plans still will have to pay PBGC premiums. All plans will see an increase of their PBGC premiums from $31 to $52 in 2031. PBGC premiums will be indexed to inflation thereafter.

Other relief. Other multiemployer defined benefit pension plans with funding challenges can take advantage of certain relief under the ARPA. This includes electing to stay in their current PPA status for a year, extending their funding recovery periods under the PPA by five years, and spreading their investment and/or other experience losses due to the coronavirus pandemic over a longer period of time.

Next steps. Trustees of multiemployer defined benefit pension plans should consult with their actuaries and lawyers as soon as possible to see what impact this legislation has on their plans. Willig, Williams & Davidson’s employee benefits attorneys are happy to address any questions that trustees may have.

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