Pension Provisions in the American Rescue Plan of 2021

Pension Provisions in the American Rescue Plan of 2021

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Updated March 18, 2021
Pension Provisions in the American Rescue Plan of 2021
This In Focus describes all but one of the pension
For plan years beginning in 2020 or 2021, Section 9702
provisions in Title IX, Subtitle H, of the American Rescue
lengthens (1) the funding improvement or rehabilitation
Plan Act of 2021 (P.L. 117-2). Another In Focus details the
period for plans in endangered or critical status,
special financial assistance to multiemployer plans in
respectively, from 10 years to 15 years and (2) the funding
Subtitle H (CRS In Focus IF11765, Special Financial
improvement period for plans in seriously endangered
Assistance to Multiemployer Plans).
status from 15 years to 20 years. Plan zone statuses are
determined based on their election in Section 9701 of the
Description of Provisions
law.
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 permits two years
status. A plan can be in endangered, seriously endangered,
of experience losses (such as investment losses and other
critical, or critical and declining status (or no category if
losses related to the Coronavirus Disease 2019, including
none of these apply). Multiemployer DB plans that report a
those related to reductions in contributions, reductions in
status other than no category must take measures to
employment, and deviations from anticipated retirement
improve their financial condition. Section 9701 permits
rates) to be amortized over 30 years instead of 15 years.
plans to keep their zone status from the previous plan year,
Plans receiving special financial assistance (as described in
at the discretion of the plan, for either (1) the first plan year
the law and in CRS In Focus IF11765) are ineligible for this
beginning during the period from March 1, 2020, through
provision.
February 28, 2021, or (2) the succeeding plan year. If a plan
was in endangered or critical status in the previous plan
Extended Amortization for Single Employer Plans
year, it does not have to update its funding improvement or
The Employee Retirement Income Security Act of 1974
rehabilitation plan (see next section of this In Focus) until
(P.L. 93-406) contains funding rules, such as contribution
the subsequent plan year. Plans that keep the previous
requirements, for single-employer DB pension plans. The
year’s status but become critical during the year of election
funding rules allow single-employer DB plans to amortize
are deemed to be in critical status. Among other conditions,
underfunding resulting from, for example, investment
plans in critical status do not pay the excise tax for failing
losses, over seven years. Section 9705 permits plans to
to meet minimum funding standards.
amortize underfunding over 15 years.
Temporary Extension of the Funding Improvement
Extension of Pension Funding Stabilization
and Rehabilitation Periods for Multiemployer Plans
Percentages for Single Employer Plans
in Critical and Endangered Status for 2020 or 2021
A pension plan’s benefits are a plan liability spread out over
Under current law, multiemployer DB plans in critical or
many years in the future. These future benefits are
endangered status must take measures to improve their
calculated and reported as present values (also called
financial condition. Plans in endangered and seriously
current values) through a process called discounting, which
endangered status must adopt funding improvement plans.
requires the use of a specified interest rate. Under current
These plans include a range of options (such as increased
law, this rate is based on three different segment rates,
contributions and reductions in future benefit accruals) that,
which are calculated as the average of the corporate bond
when adopted, will reduce endangered plans’ underfunding
yields within each segment for the preceding 24 months.
by 33% during a 10-year period or seriously endangered
plans’ underfunding by 20% during a 15-year period.
The Moving Ahead for Progress in the 21st Century Act
(MAP-21; P.L. 112-141) created a mechanism, called a
Also under current law, plans in critical status must adopt a
funding corridor, to determine the minimum and maximum
rehabilitation plan. A rehabilitation plan is a range of
interest rates as a percentage below and above the 25-year
options that, when adopted, will allow the plan to emerge
average of historical corporate bond yields. Figure 1 shows
from critical status during a 10-year rehabilitation period. If
the funding corridor. If the 24-month segment interest rate
a plan cannot emerge from critical status by the end of the
is higher than the maximum (point 1), it is adjusted
rehabilitation period using reasonable measures, it must
downward to the maximum. If the segment rate is within
install measures either to (1) emerge from critical status at a
the corridor (point 2), the rate is not adjusted. If the 24-
later time (after the end of the rehabilitation period) or (2)
month segment interest rate is below the minimum
forestall insolvency.
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Pension Provisions in the American Rescue Plan of 2021
percentage of the funding corridor (point 3), the interest rate
is adjusted upward to the minimum.
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
corporations. Section 9708, added by Senate substitute
segment’s interest rates for the prior 25 years. The gold,
amendment no. 891, expands the definition of covered
green, and blue lines indicate the minimum and maximum
employees to include the employer’s five highest
rates around the 25-year average under MAP-21 and two
compensated employees (other than those already included
extensions (P.L. 113-159 and P.L. 114-74). The red lines
in Section 162) starting in 2027.
indicate the minimum and maximum rates around the 25-
year averages as outlined in Section 9706. The funding
The amendment removed a provision that would have
corridor narrows from the current floor of 90% to 95% and
frozen annual cost-of-living adjustments for certain DB and
from the current ceiling of 110% to 105% for years 2020-
defined contribution limits.
2025. After 2025, the corridor is to begin widening. Interest
Policy Discussion
rates are currently—and likely will be for the foreseeable
Funding relief for pension plans, whether through extended
future—below the floor. A widening corridor results in a
amortization or changes to interest rates, allows employers
progressively lower floor for the adjusted interest rate,
to contribute less to their plans in the near term, which
which increases the present value of future benefit
could be beneficial to plan sponsors in the case of financial
obligations and causes required plan contributions to
difficulty. When employers contribute less to their pension
increase. Section 9706 also sets a floor of 5% for the 25-
plans, their taxable income increases, which results in
year average of corporate bond yields (the horizontal
increased Treasury revenue. Funding relief can also result
orange line in Figure 1). For more information on the
in plans being less well-funded. This increases the amounts
funding corridor, see CRS Report R46366, Single-Employer
plans pay in PBGC variable-rate premiums. PBGC could
Defined Benefit Pension Plans: Funding Relief and
pay more in the event of termination of single-employer
Modifications to Funding Rules.
plans or insolvency of multiemployer plans.
Modification of Special Rules for Minimum Funding
Standards for Community Newspaper Plans
As additional plan sponsors receive special funding rules
Section 115 of the SECURE Act, enacted as part of P.L.
(such as those for certain community newspaper plans),
116-94, provided special funding rules for pension plans
other plan sponsors might request similar treatment.
operated by certain community newspapers. For these
plans, P.L. 116-94 increased the interest rate to 8% and
For FY2021-FY2031, the Joint Committee on Taxation
extended the amortization period from seven to 30 years.
estimated the revenue from the single-employer extended
Section 9707 extends these funding rules to additional
amortization and funding stabilization provisions at $22.8
community newspaper plans.
billion, the community newspaper provision at $311
Expansion of Limitation on Excessive Employee
million, and the employee remuneration limitation
Remuneration
provision at $7.8 billion. For FY2021-FY2031, the
Congressional Budget Office estimated the multiemployer
Title 26, Section 162, of the U.S. Code limits the tax
plan provisions (which included the special financial
deductibility of annual employee compensation above
$1,000,000 for certain covered employees in public
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Pension Provisions in the American Rescue Plan of 2021
assistance provision not discussed in this In Focus; see
Elizabeth A. Myers, Analyst in Income Security
IF11765) at a cost of $81.2 billion.
John J. Topoleski, Specialist in Income Security
IF11766

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