March 22, 2019
H.R. 397 (116th Congress), the Rehabilitation for Multiemployer
Pensions Act
In the 116th Congress, H.R. 397, the Rehabilitation for
Selected Details of Loan Program
Multiemployer Pensions Act, would provide financial
H.R. 397 would establish the Pension Rehabilitation
assistance to financially troubled multiemployer defined
Administration (PRA), an agency within the U.S.
benefit (DB) pension plans that meet specified criteria. The
Department of the Treasury. The PRA would make loans to
financial assistance would consist of loans with a 30-year
multiemployer plans that
repayment term and, if the loan were insufficient to restore
a plan to solvency, additional financial assistance. H.R.
were in critical and declining status, including plans
4444, the Rehabilitation for Multiemployer Pensions Act,
with approved applications for the suspension of
and S. 2147, the Butch Lewis Act, were nearly identical
benefits under the Multiemployer Pension Reform Act
bills that were introduced in the 115th Congress. S. 2147 has
of 2014 (MPRA; P.L. 113-235), or
not been reintroduced in the 116th Congress as of March 11,
2019.
became insolvent after December 16, 2014.
The Congressional Budget Office’s (CBO’s) preliminary
Plans that have been approved for benefit suspensions
analysis of S. 2147 in the 115th Congress indicated that
under MPRA would be required to apply for loans. The
budgetary effects were highly uncertain because of
loan program is to be established no later than April 30,
difficulty in projecting how the loan proposal would be
2019, although the PRA could make loans prior to this date
implemented. CBO indicated that the bill would probably
if the loan would be necessary to avoid the suspension of
increase deficits by $100 billion but that it could be
participants’ benefits.
substantially less if few plans qualified for loans and
assistance under the bill. CBO also noted that it had been
Loan Terms
working with congressional staff on variations of the
The terms of the loan would include
proposal (see https://www.cbo.gov/system/files/2018-
10/s2147.pdf). Senator Sherrod Brown indicated that CBO
a 30-year loan term, with the payment of interest for the
estimated that the Butch Lewis Act would cost $34 billion
first 29 years and the loan principal in the 30th year;
(see https://www.brown.senate.gov/newsroom/press/
release/butch-lewis-act-costs-less-than-half-the-price-of-
a prohibition on increasing participants’ benefits or
propping-up-).
reducing employer contributions throughout the loan
term; and
Multiemployer pension plans are sponsored by more than
one employer and are maintained as part of a collective
the restoration of any benefits reduced (1) as required by
bargaining agreement. In DB plans, participants receive
plans in financial distress (called a rehabilitation plan)
regular monthly benefit payments in retirement (which
or (2) when an insolvent plan received PBGC financial
some refer to as a traditional pension). Although employers
assistance.
are required to make annual contributions to the plans in
which they participate, about 10% to 15% of multiemployer
Loan Application
DB plan participants are in plans that are projected to
In its loan application, a plan would be required to
become insolvent within 20 years. See CRS Report
demonstrate that
R45187, Data on Multiemployer Defined Benefit (DB)
Pension Plans.
the loan would enable the plan to avoid insolvency for at
least 30 years or, in the case of an already insolvent
When a multiemployer DB pension plan becomes insolvent,
plan, the loan would allow the plan to emerge from
the Pension Benefit Guaranty Corporation (PBGC) provides
insolvency; and
financial assistance to the plan to pay participants’ benefits.
However, PBGC will likely become insolvent by 2025. The
the plan would be reasonably expected to pay benefits to
federal government has no obligation to provide assistance
participants, pay interest on the loan, and accumulate
to PBGC. In the absence of enactment of legislation to
sufficient funds to repay the principal when due.
address the insolvency of multiemployer plans or the
PBGC, participants in insolvent multiemployer DB plans
The plan would have to provide information necessary to
likely face large benefit reductions, likely receiving less
determine the loan amount and to stipulate whether the plan
than $2,000 per year.
is also applying for (or is already receiving) financial
assistance from PBGC.
https://crsreports.congress.gov
H.R. 397 (116th Congress), the Rehabilitation for Multiemployer Pensions Act
Loan Amount
Repayment of PBGC Financial Assistance
The loan amount would be the plan amount needed to pay
Plans that remain solvent might have to repay any PBGC
the full lifetime benefits of plan participants who are
financial assistance they receive. Because PBGC currently
receiving plan benefits at the time of the loan (also called
provides financial assistance to multiemployer pension
participants in pay status).
plans only when a plan is insolvent, the financial assistance
is almost never repaid. H.R. 397 would provide PBGC
Loan Default
financial assistance to multiemployer plans while they are
If a plan were unable to make any payment on the loan,
still solvent but does not indicate whether the financial
then the PRA would negotiate revised loan terms for
assistance would be repaid.
repayment. These revised terms could include installment
payments over a period of time and forgiveness of a portion
Loan Up Front Versus Over Time
of loan principal.
The PRA would provide a loan as a lump sum for the
amount of the plan’s current liabilities (e.g., to participants
Withdrawal Liability and Funding Rules
in pay status). However, there could be other ways to
If an employer withdraws from a multiemployer plan before
provide the loan. For example, the loan could be provided
the end of the 30-year loan repayment period, the plan’s
on an annual basis for the amount of each year’s benefit
withdrawal liability would be calculated as if it were a mass
payments to those in pay status when the loan was
withdrawal (which occurs when all or substantially all of
approved.
the employers in a multiemployer DB plan leave the plan).
Withdrawal liability is the amount of money an employer
Plan Obligations Would Not Change
owes when it leaves a plan.
The loan provisions would not decrease the financial
obligations of a plan that receives a PRA loan. A PRA loan
The annuity contracts and investment portfolios created by
would replace a certain amount of plan funding obligations
the loan proceeds would not be taken into account to
with an obligation to repay the loan. The loan would shift
determine either withdrawal liability or how much
the timing of when those obligations are due from the near
employers are required to contribute to a plan (minimum
future to (1) each year that interest payments would be due
required contributions).
and (2) the 30th year of the loan term when the loan
principal would be due. Plan obligations could decrease if
Interest and principal payments would be taken into account
PBGC financial assistance was not required to be repaid.
to calculate required minimum contributions and required
contributions would increase if the loan portfolio were to
Because a plan’s overall financial obligations would remain
experience investment losses and were unable to fully
unchanged (except for the annual interest payments), it is
satisfy the benefits it was meant to cover.
likely that PRA loans would be insufficient to restore some
plans to solvency and would require additional financial
Concurrent Applications for PBGC Financial
assistance to become solvent. H.R. 397 would not require
Assistance
any changes that might return plans to solvency, such as a
Plans would be able to file joint applications for PBGC
reduction in plan liabilities, increases in employer
financial assistance and for a PRA loan if the plan were to
contributions, or incentives for new employers to join
demonstrate that without PBGC financial assistance the
existing plans.
receipt of a PRA loan would not prevent the plan’s
insolvency within the 30-year loan term. The amount of
Investment of Loan Proceeds Allowed
PBGC assistance would be the plan amount needed to
Although the plan would receive all of the loan proceeds
remain solvent if the plan also received a 30-year loan.
upon approval, participants would receive loan-supported
Participants’ benefits receiving PBGC financial assistance
benefit payments for several years into the future. The plan
would not be reduced (currently plans receiving PBGC
would be able to invest the loan proceeds and use the
financial assistance must reduce participants’ benefits if
investment income as part of the annual interest payments.
they are above a specified amount).
However, if the income from investments was less than
expected, employers in the plan would have to make up the
Policy Considerations
shortfall.
Some proponents view federal financial assistance to
multiemployer plans as fulfilling part of a promise made to
Greater Benefit to Certain Employers
workers. Opponents argue that no precedent exists for the
Certain employers (e.g., United Parcel Service and Kroger)
federal government to bail out private-sector pension plans.
have promised to top up the benefits of some retired former
employees in certain plans if the benefits were reduced as a
Participants Would Receive Full Benefits
result of PBGC financial assistance or MPRA. Because the
Participants in multiemployer plans that receive PRA loans
proposals would not reduce participants’ benefits, these
would not see any reductions in their benefits. By contrast,
employers could benefit financially by not having to make
under current law, there are a number of scenarios in which
the top-up payments.
participants could see benefit reductions if their plan
experienced financial distress. Benefit reductions that were
John J. Topoleski, Specialist in Income Security
approved under MPRA would be restored in plans that
received PRA loans, including a retroactive payment of
IF11144
benefits that were reduced.
https://crsreports.congress.gov
H.R. 397 (116th Congress), the Rehabilitation for Multiemployer Pensions Act
Disclaimer
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https://crsreports.congress.gov | IF11144 · VERSION 1 · NEW