February 23, 2021
Special Financial Assistance to Multiemployer Plans
Section 9704 of the Butch Lewis Emergency Pension Plan
percentage of active to inactive participants in the plan was
Relief Act of 2021, included as Subtitle H of the House
less than 40%; or (4) became insolvent after December 14,
Ways and Means Committee budget reconciliation
2014, and was not terminated by the date of enactment.
recommendations, would provide financial assistance to
certain financially troubled multiemployer defined benefit
Under the bill, PBGC would be authorized to issue
(DB) pension plans.
regulations specifying that for two years following
enactment only plans meeting certain conditions would be
Multiemployer pension plans are sponsored by more than
able to apply for special financial assistance. The plans
one employer and are maintained as part of a collective
would be those likely to become insolvent within five years
bargaining agreement. In DB plans, participants receive
of enactment, those for which PBGC would be obligated to
regular monthly benefit payments in retirement.
provide more than $1 billion in financial assistance in the
Multiemployer DB plans annually certify the plan’s
absence of any special financial assistance, those that have
financial status—known as the plan’s zone status. A plan
reduced benefits under MPRA, or those meeting other
can be in endangered, seriously endangered, critical, or
conditions as determined by PBGC.
critical and declining status (or no category if none of these
apply). Plans in critical status are in poor financial
Amount of Special Finance Assistance
condition, and plans in critical and declining status are
The amount of special financial assistance would be the
expected to become insolvent within 20 years . About 10%
amount needed to pay participants’ full plan benefits
to 15% of multiemployer DB plan participants are in
through the 2051 plan year. To determine the present value
critical and declining status plans.
of benefits, the plan would use the interest rate used in its
most recent zone certification before January 1, 2021,
When a multiemployer DB plan becomes insolvent, the
subject to a maximum limit. The limit would be the interest
Pension Benefit Guaranty Corporation (PBGC) provides
rate used by single-employer DB pension plans to discount
financial assistance to the plan (in the form of loans that are
their benefits to be paid 20 years or more in the future
not expected to be repaid) to pay participants’ benefits up to
(referred to as the third segment rate in Title 26, Section
a statutory maximum. PBGC says that its multiemployer
430(h)(2)(C)(iii), of the U.S. Code) prior to adjustment for
insurance program will likely become insolvent in 2026.
the smoothing corridor in the month (or preceding three
The federal government has no obligation to provide
months) of the application, increased by two percentage
assistance to PBGC. In the absence of legislative action to
points. In January 2021, the third segment rate was 3.65%,
address the insolvency of multiemployer plans or the
so the limit would have been 3.65% + 2.0% = 5.65%. In
PBGC, participants in insolvent plans may face large
2017 (the most recent year for which the data is available),
benefit reductions, likely receiving less than $2,000 per
the median interest rate multiemployer plans used to value
year.
benefit obligations was 7.0%. Using different interest rates
would result in differing amounts of financial assistance.
Special Financial Assistance
Section 9704 would establish a fund within the PBGC and
The special financial assistance would be paid to the plan as
appropriate amounts as necessary to provide special
a lump sum, would be kept separate from other plan assets,
financial assistance to certain multiemployer DB plans. The
and could be invested only in investment grade bonds or
special financial assistance would not have to be repaid.
other securities as determined by PBGC.
Eligibility for Special Financial Assistance
Participants’ benefits are not subject to the PBGC
A plan could apply for special financial assistance through
maximum guarantee.
December 31, 2025. A plan would be eligible if it meets at
least one of the following conditions: the plan (1) was in
Conditions on Receiving Special Financial
critical and declining status in any plan year from 2020
Assistance
through 2022; (2) had an application to suspend benefits
Section 9704 would impose a number of conditions on
under the Multiemployer Pension Reform Act of 2014
plans that receive special financial assistance regarding,
(MPRA, enacted as part of P.L. 113-235) approved prior to
among other things, participants’ benefits, withdrawal
the enactment of the Butch Lewis Emergency Pension Plan
liability, and PBGC premiums.
Relief Act of 2021; (3) was in critical status in any year
from 2020 through 2022 and had a modified funded
A plan that had previously received approval for benefit
percentage of less than 40% (calculated as the current value
suspensions under MPRA would be required to (1) reinstate
of plan assets divided by the present value of plan
the benefits and (2) provide payments for benefits that
liabilities, using a specified interest rate), and the
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Special Financial Assistance to Multiemployer Plans
participants and beneficiaries had not received because of
benefits to PBGC maximum guarantee levels. These plans
the benefit suspensions.
would be ineligible for special financial assistance.
Plans would remain in critical status through 2051.
Amount and Timing of Financial Assistance
The interest rate is an important component for determining
For 15 years following the receipt of special financial
the amount of financial assistance. Because the bill’s
assistance, an employer’s withdrawal liability would not
specified interest rate limit is lower than the median interest
take into account the special financial assistance.
rate in 2017 used by plans when calculating the value of
Withdrawal liability is an employer’s share of unfunded
benefits for plan funding purposes, the value of benefits for
benefits that is paid to the plan when the employer leaves a
financial assistance purposes would be larger than the
multiemployer DB plan.
actuarial value of these benefits.
PBGC could impose reasonable conditions on plans
The special financial assistance would be a lump sum
receiving special financial assistance relating to increases in
payment for the amount of the plan’s benefit obligations
future accrual rates, retroactive benefit improvements,
through 2051. However, there could be other ways to
allocation of plan assets, reductions in employer
provide the funds, such as annually for the amount of each
contribution rates, diversion of contributions to, and
year’s benefit payments.
allocation of, expenses to other benefit plans, and
withdrawal liability. PBGC could not impose conditions
Effect on Plan Financial Position and Employer
relating to prospective reductions in plan benefits, changes
Contributions
to plan governance, or funding rules relating to receiving
It is unclear how the special financial assistance would
special financial assistance.
affect plans’ reported financial positions and employer
contributions. The bill would allow PBGC to impose
Plans that receive special financial assistance would
reasonable conditions on employer contributions and
continue to pay PBGC premiums, be deemed to be in
participants’ benefit levels for plans receiving special
critical status through the plan year ending in 2051, be
financial assistance. Because plans would remain in critical
ineligible to apply for MPRA benefit suspensions, and
status through 2051, they would remain subject to the
provide a disclosure that includes an estimate of each
conditions in their rehabilitation plans.
employer’s share of the plan’s unfunded vested benefits
(determined after taking into account the special financial
Greater Benefit to Certain Employers
assistance). The disclosure would also include a statement
Certain employers (e.g., United Parcel Service and Kroger)
that the plan would have sufficient resources to pay benefits
have promised to top up the benefits of some retired former
through the 2051 plan year.
employees in certain plans if they were reduced as a result
of PBGC assistance or MPRA. Because this bill would not
Increase in PBGC Premiums
reduce participants’ benefits, these employers could benefit
PBGC premiums for all multiemployer plans would
financially by not having to make the top-up payments.
increase to $52 per participant beginning in 2031 and would
be adjusted for inflation thereafter. In 2021, multiemployer
No Structural Changes to Plans
premiums are $31 and are adjusted for inflation annually.
The bill would not impose any changes to the structure of
multiemployer DB plans or plan funding rules to ensure
Policy Considerations
that currently financially healthy plans do not need financial
Some proponents view federal financial assistance to
assistance in the future.
multiemployer plans as fulfilling part of a promise made to
workers. Opponents argue that it is inappropriate to provide
For Further Information
federal financial assistance to private sector pension plans.
CBO Score of Ways and Means Reconciliation
Simulations by the Congressional Budget Office (CBO)
Recommendations, https://www.cbo.gov/system/files/2021-
indicated that, under this provision, an average of 185 plans
02/hwaysandmeansreconciliation.pdf
would receive $86 billion in special financial assistance and
PBGC’s multiemployer program would remain solvent
CRS Report R43305, Multiemployer Defined Benefit (DB)
through the mid-2040s. CBO estimated administrative costs
Pension Plans: A Primer
at $0.1 billion. Because the special financial assistance
would allow plans to delay or prevent insolvency, CBO
CRS Report R45311, Policy Options for Multiemployer
estimated that PBGC would spend $2 billion less in
Defined Benefit Pension Plans
financial assistance to these plans. Retirees would pay $1.7
billion in federal income taxes on benefits that would not be
CRS Report R46366, Single-Employer Defined Benefit
received in the absence of the special financial assistance.
Pension Plans: Funding Relief and Modifications to
Funding Rules
Participants’ Benefits
Participants in multiemployer plans that receive special
JCX-4-21, Description of the Budget Reconciliation
financial assistance would not see a reduction in benefits to
Legislative Recommendations Relating to Pensions,
the PBGC maximum benefit level. Plans that became
https://www.jct.gov/publications/2021/jcx-4-21/
insolvent prior to December 14, 2014, reduced participants’
John J. Topoleski, Specialist in Income Security
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Special Financial Assistance to Multiemployer Plans

IF11765
Elizabeth A. Myers, Analyst in Income Security


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https://crsreports.congress.gov | IF11765 · VERSION 1 · NEW

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