Special Financial Assistance to Multiemployer Plans
Updated March 18, 2021
Special Financial Assistance to Multiemployer Plans
Section 9704 in Title IX, Subtitle H, of the American
less than 40%; or (4) became insolvent after December 14,
Rescue Plan Act of 2021 (P.L. 117-2) provides financial
2014, and was not terminated by the date of enactment.
assistance to certain financially troubled multiemployer
defined benefit (DB) pension plans.
PBGC is authorized to issue regulations specifying that for
two years following enactment only plans meeting certain
Multiemployer pension plans are sponsored by more than
conditions are able to apply for special financial assistance.
one employer and are maintained as part of a collective
The plans are those likely to become insolvent within five
bargaining agreement. In DB plans, participants receive
years of enactment, those for which PBGC would be
regular monthly benefit payments in retirement.
obligated to provide more than $1 billion in financial
Multiemployer DB plans annually certify the plan’s
assistance in the absence of any special financial assistance,
financial status—known as the plan’s zone status. A plan
those that have reduced benefits under MPRA, or those
can be in endangered, seriously endangered, critical, or
meeting other 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 is the amount
expected to become insolvent within 20 years . About 10%
needed to pay participants’ full plan benefits through the
to 15% of multiemployer DB plan participants are currently
2051 plan year. To determine the present value of benefits,
in critical and declining status plans.
the plan is to use the interest rate from its most recent zone
certification before January 1, 2021, subject to a maximum
When a multiemployer DB plan becomes insolvent, the
limit. The limit is the interest rate used by single-employer
Pension Benefit Guaranty Corporation (PBGC) provides
DB pension plans to discount their benefits to be paid 20
financial assistance to the plan (in the form of loans that are
years or more in the future (referred to as the third segment
not expected to be repaid) to pay participants’ benefits up to
rate in Title 26, Section 430(h)(2)(C)(iii), of the U.S. Code)
a statutory maximum. The federal government has no
prior to adjustment for the smoothing corridor in the month
obligation to provide assistance to PBGC. Prior to the
(or preceding three months) of the application, increased by
enactment of P.L. 117-2, PBGC said that its multiemployer
two percentage points. In February 2021, the third segment
insurance program would have likely become insolvent in
rate was 3.59%, so the limit would have been 3.59% +
2026 and that participants in insolvent plans would have
2.0% = 5.59%. In 2017 (the most recent year for which the
faced large benefit reductions, likely receiving less than
data is available), the median interest rate multiemployer
$2,000 per year.
plans used to value benefit obligations was 7.0%. Using
lower interest rates results in larger amounts of financial
Special Financial Assistance
assistance.
Section 9704 establishes a fund within the PBGC and
appropriates from the general fund “such amounts as are
The special financial assistance is to be paid to the plan as a
necessary” to provide special financial assistance to certain
lump sum, is to be kept separate from other plan assets, and
multiemployer DB plans and necessary administrative and
must be invested only in investment grade bonds or other
operating expenses. The special financial assistance does
securities as determined by PBGC.
not have to be repaid.
Participants’ benefits in plans receiving special financial
Eligibility for Special Financial Assistance
assistance are not to be reduced to the PBGC maximum
A plan can apply for special financial assistance through
guarantee.
December 31, 2025. A plan is eligible if it meets at least
one of the following conditions: the plan (1) is in critical
Conditions on Receiving Special Financial
and declining status in any plan year from 2020 through
Assistance
2022; (2) had an application to suspend benefits under the
Section 9704 of the law imposes a number of conditions on
Multiemployer Pension Reform Act of 2014 (MPRA,
plans that receive special financial assistance regarding,
enacted as part of P.L. 113-235) approved prior to the
among other things, participants’ benefits, withdrawal
enactment of this provision; (3) is in critical status in any
liability, and PBGC premiums.
year from 2020 through 2022 and has a modified funded
percentage of less than 40% (calculated as the current value
A plan that had previously received approval for benefit
of plan assets divided by the present value of plan
suspensions under MPRA is required to (1) reinstate the
liabilities, using a specified interest rate), and the
benefits and (2) provide payments for benefits that
percentage of active to inactive participants in the plan is
participants and beneficiaries had not received because of
the benefit suspensions.
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Special Financial Assistance to Multiemployer Plans
PBGC can impose reasonable conditions on plans receiving
of benefits for financial assistance purposes is larger than
special financial assistance relating to increases in future
the actuarial value of these benefits.
accrual rates, retroactive benefit improvements, allocation
of plan assets, reductions in employer contribution rates,
Effect on Plan Financial Position and Employer
diversion of contributions to, and allocation of, expenses to
Contributions
other benefit plans, and withdrawal liability. PBGC cannot
It is unclear how the special financial assistance may affect
impose conditions relating to prospective reductions in plan
plans’ reported financial positions, employer contributions,
benefits, changes to plan governance, or funding rules
and withdrawal liability. (Withdrawal liability is an
relating to receiving special financial assistance.
employer’s share of unfunded benefits that is paid to the
plan when the employer leaves a multiemployer DB plan.)
Plans that receive special financial assistance are to
The law allows PBGC to impose reasonable conditions on
continue to pay PBGC premiums, are deemed to be in
employer contributions and participants’ benefit levels for
critical status through the plan year ending in 2051, and are
plans receiving special financial assistance. Because plans
ineligible to apply for MPRA benefit suspensions.
are to remain in critical status through 2051, they remain
subject to the conditions in their rehabilitation plans.
Increase in PBGC Premiums
PBGC premiums for all multiemployer plans are to increase
Greater Benefit to Certain Employers
to $52 per participant beginning in 2031 and are to be
Certain employers (e.g., United Parcel Service and Kroger)
adjusted for increases in the national average wage index
have promised to top up the benefits of some retired former
thereafter. In 2021, multiemployer premiums are $31 and
employees in certain plans if they are reduced as a result of
are adjusted for increases in the national average wage
PBGC assistance or MPRA. Because this bill does not
index annually.
reduce participants’ benefits, these employers benefit
financially by not having to make the top-up payments.
Policy Considerations
Some proponents view federal financial assistance to
No Structural Changes to Plans
multiemployer plans as fulfilling part of a promise made to
The bill does not impose any changes to the structure of
workers. Opponents argue that it is inappropriate to provide
multiemployer DB plans or plan funding rules to ensure
federal financial assistance to private sector pension plans.
that currently financially healthy plans do not need financial
Simulations by the Congressional Budget Office (CBO)
assistance in the future.
indicated that an average of 185 plans will receive $86
billion in special financial assistance and that PBGC’s
For Further Information
multiemployer program will remain solvent through the
CBO Score of Ways and Means Reconciliation
mid-2040s. CBO estimated administrative costs at $0.1
Recommendations, https://www.cbo.gov/system/files/2021-
billion. Because the special financial assistance allows
02/hwaysandmeansreconciliation.pdf
plans to delay or prevent insolvency, CBO estimated that
PBGC will spend $2 billion less in financial assistance to
CRS Report R43305, Multiemployer Defined Benefit (DB)
these plans. Retirees will pay $1.7 billion in federal income
Pension Plans: A Primer
taxes on benefits that would not have been received in the
absence of the special financial assistance.
CRS Report R45311, Policy Options for Multiemployer
Defined Benefit Pension Plans
Participants’ Benefits
Participants in multiemployer plans that receive special
CRS Report R46366, Single-Employer Defined Benefit
financial assistance will not see a reduction in benefits to
Pension Plans: Funding Relief and Modifications to
the PBGC maximum benefit level. Plans that became
Funding Rules
insolvent prior to December 14, 2014, reduced participants’
benefits to PBGC maximum guarantee levels. These plans
JCX-4-21, Description of the Budget Reconciliation
are ineligible for special financial assistance.
Legislative Recommendations Relating to Pensions,
https://www.jct.gov/publications/2021/jcx-4-21/
Amount of Financial Assistance
The interest rate is an important component for determining
John J. Topoleski, Specialist in Income Security
the amount of financial assistance. Because the bill’s
Elizabeth A. Myers, Analyst in Income Security
specified interest rate limit is lower than the median interest
rate in 2017 used by plans when calculating the value of
IF11765
benefits for plan funding purposes, for most plans, the value
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Special Financial Assistance to Multiemployer Plans
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https://crsreports.congress.gov | IF11765 · VERSION 3 · UPDATED