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February 23, 2021
Pension Provisions in Budget Reconciliation
This In Focus describes all but one of the provisions of the
For plan years beginning in 2020 or 2021, Section 9702
Butch Lewis Emergency Pension Plan Relief Act of 2021,
would (1) lengthen the funding improvement or
included in Subtitle H of the House Ways and Means
rehabilitation period for plans in endangered or critical
Committee budget reconciliation recommendations. A
status, respectively, from 10 years to 15 years; and (2)
separate In Focus, Special Financial Assistance to
lengthen the funding improvement period for plans in
Multiemployer Plans, details Section 9704 in Subtitle H.
seriously endangered status from 15 years to 20 years. Plan
zone statuses are determined based on their election in
Description of Provisions
Section 9701 of the bill (described previously).
Temporary Delay of Designation of Multiemployer
Adjustments to Funding Standard Account Rules
Plans as in Endangered, Critical, or Critical and
Multiemployer DB plans have 15 years to make up for plan
Declining Status
underfunding resulting from experience losses (such as
Multiemployer defined benefit (DB) pension plans annualy
investment losses). This process of spreading out payments
certify the plan’s financial status—known as the plan’s zone
is known as amortization. Section 9703 would permit two
status. A plan can be in endangered, seriously endangered,
years of experience losses (such as investment losses and
critical, or critical and declining status (or no category if
other losses related to the Coronavirus Disease 2019,
none of these apply). Multiemployer DB plans that report a
including those related to reductions in contributions,
status other than no category must take measures to
reductions in employment, and deviations from anticipated
improve their financial condition. Section 9701 would
retirement rates) to be amortized over 30 years instead of 15
permit plans to keep their zone status from the previous
years. Plans receiving special financial assistance (as
plan year, at the discretion of the plan, for either (1) the first
described in the bill) would be ineligible for this provision.
plan year beginning during the period from March 1, 2020,
through February 28, 2021, or (2) the succeeding plan year.
Extended Amortization for Single Employer Plans
If a plan was in endangered or critical status in the previous
The Employee Retirement Income Security Act of 1974
plan year, it would not have to update its funding
(P.L. 93-406) contains funding rules, such as contribution
improvement or rehabilitation plan (see next section of this
requirements, for single-employer DB pension plans. The
In Focus) until the subsequent plan year. Plans that keep the
funding rules allow single-employer DB plans to amortize
previous year’s status but become critical during the year of
underfunding resulting from, for example, investment
election are deemed to be in critical status. Among other
losses, over seven years. Section 9705 would permit plans
conditions, plans in critical status do not pay the excise tax
to amortize underfunding over 15 years.
for failing to make required minimum contributions.
Extension of Pension Funding Stabilization
Temporary Extension of the Funding Improvement
Percentages for Single Employer Plans
and Rehabilitation Periods for Multiemployer Plans
A pension plan’s benefits are a plan liability spread out over
in Critical and Endangered Status for 2020 or 2021
many years in the future. These future benefits are
Under current law, multiemployer DB plans in critical or
calculated and reported as present values (also called
endangered status must take measures to improve their
current values) through a process called discounting, which
financial condition. Plans in endangered and seriously
requires the use of a specified interest rate. Under current
endangered status must adopt funding improvement plans.
law, this rate is based on three different segment rates,
These plans include a range of options (such as increased
which are calculated as the average of the corporate bond
contributions and reductions in future benefit accruals) that,
yields within each segment for the preceding 24 months.
when adopted, will reduce endangered plans’ underfunding
by 33% during a 10-year period or seriously endangered
The Moving Ahead for Progress in the 21st Century Act
plans’ underfunding by 20% during a 15-year period.
(MAP-21; P.L. 112-141) created a mechanism, called a
funding corridor, to determine the minimum and maximum
Also under current law, plans in critical status must adopt a
interest rates as a percentage below and above the 25-year
rehabilitation plan. A rehabilitation plan is a range of
average of historical corporate bond yields. Figure 1 shows
options that, when adopted, will allow the plan to emerge
the funding corridor. If the 24-month segment interest rate
from critical status during a 10-year rehabilitation period. If
is higher than the maximum (point 1), it is adjusted
a plan cannot emerge from critical status by the end of the
downward to the maximum. If the segment rate is within
rehabilitation period using reasonable measures, it must
the corridor (point 2), the rate is not adjusted. If the 24-
install measures either to (1) emerge from critical status at a
month segment interest rate is below the minimum
later time (after the end of the rehabilitation period) or (2)
percentage of the funding corridor (point 3), the interest rate
forestall insolvency.
is adjusted upward to the minimum.
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Pension Provisions in Budget Reconciliation
Figure 1. Hypothetical Application of Segment Rate Stabilization Provision
Source: Congressional Research Service.
Notes: MAP-21 = Moving Ahead for Progress in the 21st Century Act (P.L. 112-141); HTF = Highway and Transportation Funding Act of 2014
(P.L. 113-159); BBA = Bipartisan Budget Act of 2015 (P.L. 114-74). The segment rates are calculated as the average of the corporate bond
yields within the segment for the preceding 24 months. The three segment rates are calculated as the average of the corporate bond yields for
the preceding 24 months with maturities of (1) less than five years, (2) five to 20 years, and (3) more than 20 years, respectively.
In Figure 1, the orange line shows the average of a
plan participant’s account cannot exceed $58,000. Section
segment’s interest rates for the prior 25 years. The gold,
9708 would freeze annual adjustments for cost of living so
green, and blue lines indicate the minimum and maximum
that no adjustments would be made after calendar year
rates around the 25-year average under MAP-21 and two
2030. This freeze on adjustments would not apply to
extensions (P.L. 113-159 and P.L. 114-74). The red lines
collectively bargained plans.
indicate the minimum and maximum rates around the 25-
year averages as proposed in Section 9706, which would
Policy Discussion
narrow the funding corridor from the current floor of 90%
Funding relief for pension plans, whether through extended
to 95% and from the current ceiling of 110% to 105% for
amortization or changes to interest rates, allows employers
years 2020-2025. After 2025, the corridor would begin
to contribute less to their plans in the near term, which
widening. Interest rates are currently—and likely will be for
could be beneficial to plan sponsors in the case of financial
the foreseeable future—below the floor. A widening
difficulty. When employers contribute less to their pension
corridor results in a progressively lower floor for the
plans, their taxable income increases, which results in
adjusted interest rate, which increases the present value of
increased Treasury revenue. Funding relief can also result
future benefit obligations and causes required plan
in plans being less well-funded. This increases the amounts
contributions to increase. Section 9706 would also set a
plans pay in PBGC variable-rate premiums. PBGC would
floor of 5% for the 25-year average of corporate bond
have to pay more in the event of termination of single-
yields (the horizontal orange line in Figure 1). For more
employer plans or insolvency of multiemployer plans.
information on the funding corridor, see CRS Report
R46366, Single-Employer Defined Benefit Pension Plans:
As additional plan sponsors receive special funding rules
Funding Relief and Modifications to Funding Rules.
(such as expanding eligibility for the funding rules for
community newspaper plans), it is possible that other plan
Modification of Special Rules for Minimum Funding
sponsors could request similar treatment.
Standards for Community Newspaper Plans
Section 115 of the SECURE Act, enacted as part of P.L.
For FY2021-FY2031, the Joint Committee on Taxation
116-94, provided special funding rules for pension plans
estimated the revenue from the single-employer extended
operated by certain community newspapers. For these
amortization and funding stabilization provisions at $22.8
plans, P.L. 116-94 increased the interest rate to 8% and
billion, the community newspaper provision at $311
extended the amortization period from seven to 30 years.
million, and the cost-of-living adjustment provision at $29
Section 9707 would extend these funding rules to additional
million. For FY2021-FY2031, the Congressional Budget
community newspaper plans.
Office estimated the multiemployer plan provisions (which
included the special financial assistance provision not
Cost of Living Adjustment Freeze
discussed in this In Focus) at a cost of $81.2 billion.
Qualified DB and defined contribution (DC) plans are
subject to benefit and contribution limits outlined in Title
Elizabeth A. Myers, Analyst in Income Security
26, Section 415, of the U.S. Code. These limits are annually
John J. Topoleski, Specialist in Income Security
increased for the cost of living. In 2021, the annual benefit
for a DB plan participant cannot exceed $230,000, and the
IF11766
combined employee and employer contributions to a DC
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Pension Provisions in Budget Reconciliation
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