Updated July 19, 2019
H.R. 397 (116th Congress), the Rehabilitation for Multiemployer
Pensions Act
In the 116th Congress, H.R. 397, the Rehabilitation for
have a funded percentage (calculated using the interest
Multiemployer Pensions Act, would provide financial
rates that fall within a specified range of 30-year
assistance to financially troubled multiemployer defined
Treasury securities) of 40% or less and have a ratio of
benefit (DB) pension plans that meet specified criteria. The
active to inactive participants of less than 2 to 5; or
financial assistance would consist of loans with a 30-year
repayment term and, if the loan were insufficient to restore
became insolvent after December 16, 2014, and have
a plan to solvency, additional financial assistance. H.R. 397
not been terminated.
has been reported out of the House Education and Labor
and House Ways and Means Committees. In the 115th
Plans that have been approved for benefit suspensions
Congress, two nearly identical bills—H.R. 4444, the
under MPRA would be required to apply for loans. The
Rehabilitation for Multiemployer Pensions Act, and S.
loan program is to be established no later than September
2147, the Butch Lewis Act—were introduced in the House
30, 2019, although the PRA could make loans prior to this
and Senate. A Senate version of the proposal has not been
date if the loan would be necessary to avoid the suspension
reintroduced in the 116th Congress as of July 19, 2019.
of participants’ benefits.
The Congressional Budget Office’s (CBO’s) preliminary
Loan Terms
estimate of H.R. 397 indicated that the bill would increase
The terms of the loan would include
the deficit by $64.4 billion over 10 years. CBO’s
preliminary analysis of S. 2147 in the 115th Congress
a 30-year loan term, with the payment of interest for the
indicated that budgetary effects were highly uncertain
first 29 years and the loan principal in the 30th year;
because of difficulty in projecting how the loan proposal
would be implemented.
a prohibition on increasing participants’ benefits or
reducing employer contributions throughout the loan
Multiemployer pension plans are sponsored by more than
term; and
one employer and are maintained as part of a collective
bargaining agreement. In DB plans, participants receive
the restoration of any benefits reduced (1) as required by
regular monthly benefit payments in retirement (which
plans in financial distress (called a rehabilitation plan)
some refer to as a traditional pension). About 10% to 15%
or (2) when an insolvent plan received PBGC financial
of multiemployer DB plan participants are in plans that are
assistance.
projected to become insolvent within 20 years.
Loan Application
When a multiemployer DB pension plan becomes insolvent,
In its loan application, a plan would be required to
the Pension Benefit Guaranty Corporation (PBGC) provides
demonstrate that
financial assistance to the plan to pay participants’ benefits.
However, PBGC will likely become insolvent by 2025. The
the loan would enable the plan to avoid insolvency for at
federal government has no obligation to provide assistance
least 30 years or, in the case of an already insolvent
to PBGC. In the absence of enactment of legislation to
plan, the loan would allow the plan to emerge from
address the insolvency of multiemployer plans or the
insolvency; and
PBGC, participants in insolvent multiemployer DB plans
may face large benefit reductions, likely receiving less than
the plan would be reasonably expected to pay benefits to
$2,000 per year.
participants, pay interest on the loan, and accumulate
sufficient funds to repay the principal when due.
Selected Details of Loan Program
H.R. 397, as reported out of the House Education and Labor
The plan would have to provide information necessary to
and House Ways and Means Committees, would establish
determine the loan amount and to stipulate whether the plan
the Pension Rehabilitation Administration (PRA), an
is also applying for (or is already receiving) financial
agency within the U.S. Department of the Treasury. The
assistance from PBGC.
PRA would make loans to multiemployer plans that
Loan Amount
are in critical and declining status, including plans with
The loan amount would be the plan amount needed to pay
approved applications for the suspension of benefits
the full lifetime benefits of plan participants who (1) are
under the Multiemployer Pension Reform Act of 2014
receiving plan benefits at the time of the loan (also called
(MPRA; P.L. 113-235);
participants in pay status) and (2) are not accruing benefits
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H.R. 397 (116th Congress), the Rehabilitation for Multiemployer Pensions Act
in the plan and who are not yet receiving benefits (also
approved under MPRA would be restored in plans that
called terminated vested participants).
received PRA loans, including a retroactive payment of
benefits that were reduced.
Use of Loan Funds
With the loan funds, plans would be required to (1)
Repayment of PBGC Financial Assistance
purchase annuity contracts or (2) be invested in relatively
Plans would have to repay any PBGC financial assistance
safe fixed-income investments (such as high-quality bonds).
they receive. PBGC would be authorized to forgo
Plans could combine (1) and (2).
repayment of financial assistance if necessary to avoid any
suspension of participants’ accrued benefits.
Loan Default
If a plan were unable to make any payment on the loan,
Loan Up Front Versus Over Time
then the PRA would negotiate revised loan terms for
The PRA would provide a loan as a lump sum for the
repayment. The revised terms could include installment
amount of the plan’s current liabilities (e.g., to participants
payments over a period of time and forgiveness of a portion
in pay status). However, there could be other ways to
of loan principal.
provide the loan. For example, the loan could be provided
on an annual basis for the amount of each year’s benefit
Withdrawal Liability and Funding Rules
payments to those in pay status when the loan was
If an employer withdraws from a multiemployer plan before
approved.
the end of the 30-year loan repayment period, the plan’s
withdrawal liability would be calculated as if it were a mass
Plan Obligations Would Not Change
withdrawal (which occurs when all or substantially all of
The loan provisions would not decrease the financial
the employers in a multiemployer DB plan leave the plan).
obligations of a plan that receives a PRA loan. A PRA loan
Withdrawal liability is the amount of money an employer
would replace a certain amount of plan funding obligations
owes when it leaves a plan.
with an obligation to repay the loan. The loan would shift
the timing of when those obligations are due from the near
The annuity contracts and investment portfolios created by
future to (1) annual interest payments and (2) the loan
the loan proceeds would not be taken into account to
principal that would be due in the 30th year of the loan term.
determine either withdrawal liability or how much
employers are required to contribute to a plan (minimum
Because a plan’s overall financial obligations would remain
required contributions).
unchanged (except for the annual interest payments), it is
likely that PRA loans would be insufficient to restore some
Interest and principal payments would be taken into account
plans to solvency, and those plans would require additional
to calculate required minimum contributions, and required
financial assistance to become solvent. H.R. 397 would not
contributions would increase if the loan portfolio were to
require any changes that might return plans to solvency,
experience investment losses and were unable to fully
such as a reduction in plan liabilities, increases in employer
satisfy the benefits it was meant to cover.
contributions, or incentives for new employers to join
existing plans. There would continue to be no restrictions
Concurrent Applications for PBGC Financial
on the investment of existing plan assets that are not loan
Assistance
proceeds. These assets would continue to be subject to
Plans would be able to file joint applications for PBGC
gains and losses in financial markets.
financial assistance and for a PRA loan if the plan were to
demonstrate that without PBGC financial assistance the
Greater Benefit to Certain Employers
receipt of a PRA loan would not prevent the plan’s
Certain employers (e.g., United Parcel Service and Kroger)
insolvency within the 30-year loan term. The amount of
have promised to top up the benefits of some retired former
PBGC assistance would be the plan amount needed to
employees in certain plans if the benefits were reduced as a
remain solvent if the plan also received a 30-year loan.
result of PBGC financial assistance or MPRA. Because the
Participants’ benefits in plans receiving PBGC financial
proposals would not reduce participants’ benefits, these
assistance would not be reduced (currently plans receiving
employers could benefit financially by not having to make
PBGC financial assistance must reduce participants’
the top-up payments.
benefits if they are above a specified amount).
For More Information
Policy Considerations
CRS Report R43305, Multiemployer Defined Benefit
Some proponents view federal financial assistance to
(DB) Pension Plans: A Primer
multiemployer plans as fulfilling part of a promise made to
workers. Opponents argue that no precedent exists for the
CRS Report R45187, Data on Multiemployer Defined
federal government to bail out private-sector pension plans.
Benefit (DB) Pension Plans
Participants Would Receive Full Benefits
CRS Report R45311, Policy Options for Multiemployer
Participants in multiemployer plans that receive PRA loans
Defined Benefit Pension Plans
would not see any reductions in their benefits. By contrast,
under current law, there are a number of scenarios in which
participants could see benefit reductions if their plan
John J. Topoleski, Specialist in Income Security
experienced financial distress. Benefit reductions that were
IF11144
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H.R. 397 (116th Congress), the Rehabilitation for Multiemployer Pensions Act
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https://crsreports.congress.gov | IF11144 · VERSION 3 · UPDATED