S. 2147, the Butch Lewis Act of 2017, and H.R. 4444, the Rehabilitation for Multiemployer Pensions Act
September 10, 2018
S. 2147, the Butch Lewis Act of 2017, and H.R. 4444, the
Rehabilitation for Multiemployer Pensions Act
S. 2147, the Butch Lewis Act of 2017, and H.R. 4444, the
were in critical and declining status, including plans
Rehabilitation for Multiemployer Pensions Act, contain
with approved applications for the suspension of
identical provisions (except for the bills’ titles) that would
benefits under the Multiemployer Pension Reform Act
provide financial assistance to financially-troubled
of 2014 (MPRA; P.L. 113-235), or
multiemployer defined benefit (DB) pension plans that
meet specified criteria. The financial assistance would
became insolvent after December 16, 2014.
consist of loans with a 30-year repayment term and, if the
loan were insufficient to restore a plan to solvency,
Plans that have been approved for benefit suspensions
additional financial assistance. These bills have featured in
under MPRA would be required to apply for loans.
the discussions of the Joint Select Committee on Solvency
of Multiemployer Pension Plans, which was established by
The loan program was to have been established no later
the Bipartisan Budget Act of 2018 (P.L. 115-123) to
than March 31, 2018, although the PRA could have made
formulate recommendations and legislative language
loans prior to this date if the loan would be necessary to
related to the likely insolvency of a large number of
avoid the suspension of participants’ benefits.
multiemployer plans and the Pension Benefit Guaranty
Corporation’s (PBGC) multiemployer insurance program.
Loan Terms
The Congressional Budget Office’s preliminary analysis
The terms of the loan would include
indicated that budgetary effects are highly uncertain but that
the bills could increase deficits by $100 billion.
a 30-year loan term, with the payment of interest for the
first 29 years and the loan principal in the 30th year;
Multiemployer pension plans are sponsored by more than
one employer (often, though not required to be, in the same
a prohibition on increasing participants’ benefits or
industry) and maintained as part of a collective bargaining
reducing employer contributions throughout the loan
agreement. In DB plans, participants receive regular
term; and
monthly benefit payments in retirement (which some refer
to as a “traditional” pension). Employers are required to
the restoration of any benefits reduced (1) as required by
make annual contributions to the plans in which they
plans in financial distress (called a rehabilitation plan)
participate so that the plan has sufficient funds from which
or (2) when an insolvent plan received PBGC financial
to pay promised benefits. About 10% to 15% of
assistance.
multiemployer DB plan participants are in plans that are
projected to become insolvent within 20 years. For more
Loan Application
information, see CRS Report R45187, Data on
In its loan application, a plan would be required to
Multiemployer Defined Benefit (DB) Pension Plans.
demonstrate that
When a multiemployer DB pension plan becomes insolvent,
the loan would enable the plan to avoid insolvency for at
PBGC provides financial assistance to the plan to pay
least 30 years or, in the case of an already insolvent
participants’ benefits. However, PBGC will likely become
plan, the loan would allow the plan to emerge from
insolvent by 2025 and will not have the resources needed to
insolvency; and
provide sufficient financial assistance to insolvent plans.
The federal government has no obligation to provide
the plan would be reasonably expected to pay benefits to
assistance to PBGC. In the absence of enactment of
participants, pay interest on the loan, and accumulate
legislation to address the insolvency of multiemployer plans
sufficient funds to repay the principal when due.
or the PBGC, participants in insolvent multiemployer DB
plans likely face large reductions in their benefits, likely
The plan would have to provide information necessary to
receiving less than $2,000 per year.
determine the loan amount and to stipulate whether the plan
is also applying for (or is already receiving) financial
Selected Details of Loan Program
assistance from PBGC.
S. 2147 and H.R. 4444 would establish the Pension
Rehabilitation Administration (PRA), an agency within the
Loan Amount
U.S. Department of the Treasury. Treasury must issue
The amount of the loan would be the amount needed by the
bonds to fund the loan program and transfer amounts equal
plan to pay the full lifetime benefits of plan participants
to the proceeds to the trust fund established by these bills.
who are receiving benefits from the plan at the time of the
The PRA would make loans to multiemployer plans that
loan (also called participants in “pay status”).
https://crsreports.congress.gov
S. 2147, the Butch Lewis Act of 2017, and H.R. 4444, the Rehabilitation for Multiemployer Pensions Act
Loan Default
provides financial assistance to multiemployer pension
If a plan were unable to make any payment on the loan,
plans only when a plan is insolvent, the financial assistance
then the PRA would negotiate revised loan terms for
is almost never repaid; only one multiemployer DB plan
repayment. These revised terms could include installment
has repaid PBGC financial assistance. S. 2147 and H.R.
payments over a period of time and forgiveness of a portion
4444 would provide PBGC financial assistance to
of loan principal.
multiemployer plans while they are still solvent but do not
indicate whether the financial assistance would be repaid.
Withdrawal Liability and Funding Rules
If an employer withdraws from a multiemployer plan before
Loan Up Front Versus Over Time
the end of the 30-year loan repayment period, the plan’s
The PRA would provide a loan as a lump sum for the
withdrawal liability would be calculated as if it were a mass
amount of the plan’s current liabilities (e.g., to participants
withdrawal (which occurs when all or substantially all of
in pay status). However, there could be other ways to
the employers in a multiemployer DB plan leave the plan).
provide the loan. For example, the loan could be provided
Withdrawal liability is the amount of money an employer
on an annual basis for the amount of each year’s benefit
owes when it leaves a plan.
payments to those in pay status when the loan was
approved.
The annuity contracts and investment portfolios created by
the loan proceeds would not be taken into account to
Plan Obligations Would Not Change
determine either withdrawal liability or how much
The loan provisions would not decrease the financial
employers are required to contribute to a plan (minimum
obligations of a plan that receives a PRA loan. A PRA loan
required contributions).
would replace a certain amount of plan funding obligations
with an obligation to repay the loan. The loan would simply
The payments of interest and principal would be taken into
shift the timing of when those obligations are due from the
account to calculate required minimum contributions and
near future to (1) each year that interest payments would be
required contributions would increase if the loan portfolio
due and (2) the 30th year of the loan term when the loan
were to experience investment losses and were unable to
principal would be due. Plan obligations could decrease if
fully satisfy the benefits it was meant to cover.
PBGC financial assistance to solvent plans was not required
to be repaid.
Concurrent Applications for PBGC Financial
Assistance
Because a plan’s overall financial obligations would remain
Plans would be able to file joint applications for PBGC
unchanged (except for the annual interest payments), it is
financial assistance and for a PRA loan if the plan were to
likely that PRA loans would be insufficient to restore some
demonstrate that without PBGC financial assistance the
plans to solvency and would require additional financial
receipt of a PRA loan would not prevent the plan’s
assistance to become solvent. The bills would not require
insolvency within the 30-year loan term. The amount of
any changes that might return plans to solvency, such as a
PBGC assistance would be the amount needed by the plan
reduction in plan liabilities, increases in employer
to remain solvent if the plan also received a 30-year loan.
contributions, or incentives for new employers to join
Although participants’ benefits would not be reduced, the
existing plans.
amount of PBGC financial assistance would be based on
two groups of plan participants: (1) participants in pay
Investment of Loan Proceeds Allowed
status and (2) individuals who are due to receive a benefit
Although the plan would receive all of the loan proceeds
from the plan but who no longer work for an employer that
upon approval, participants would receive loan-supported
participates in the plan (separated, vested participants).
benefit payments for several years into the future. The plan
would be able to invest the loan proceeds and use the
Policy Considerations
income from this investment as part of the annual interest
Some proponents view federal financial assistance to
payments. However, if the income from investments were
multiemployer plans as fulfilling part of a promise made to
to be less than expected, employers in the plan would have
workers. Opponents argue that no precedent exists for the
to make up for that shortfall.
federal government to bail out private-sector pension plans.
Greater Benefit to Certain Employers
Participants Would Receive Full Benefits
Certain employers (for example, United Parcel Service
Participants in multiemployer plans that receive PRA loans
(UPS) and Kroger) have promised to top up the benefits of
would not see any reductions in their benefits. By contrast,
some retired former employees in certain plans if the
under current law, there are a number of scenarios in which
benefits were reduced as a result of PBGC financial
participants could see benefit reductions if their plan
assistance or MPRA. Because the proposals would not
experienced financial distress. Benefit reductions that were
reduce participants’ benefits, these employers could benefit
approved under MPRA would be restored in plans that
financially if the bills were enacted by not having to make
received PRA loans, including a retroactive payment of
the top-up payments.
benefits that were reduced.
John J. Topoleski, Specialist in Income Security
Repayment of PBGC Financial Assistance
Plans that remain solvent might have to repay any PBGC
IF10976
financial assistance they receive. Because PBGC currently
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S. 2147, the Butch Lewis Act of 2017, and H.R. 4444, the Rehabilitation for Multiemployer Pensions Act
Disclaimer
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https://crsreports.congress.gov | IF10976 · VERSION 2 · NEW