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1 1 (February 23, 2021)

handle is hein.crs/govecfi0001 and id is 1 raw text is: $ I ~s~r~h $arvice February 23, 2021 Pension Provisions in Budget Reconciliation This In Focus describes allbut oneof the provisions of the Butch Lewis Emergency Pension Plan Relief Act of 2021, included in Subtitle H of the HouseW ays and Means Committee budget reconciliation recommendations. A separate In Focus, Special FinancialAssistance to Multiemployer Plans, details Section 9704 in Subtitle H. Description of Provisions Temporary Delay of Designation of Multiemployer Plans as in Endangered, Critical, or Criticai and Declinin° Status Multiemployerdefmed benefit (DB)pension plans annually certify the plan's financial s tatus-known as the plan's zone status. A plan can be in endangered, seriously endangered, critical, or criticalanddeclining status (orno category if none of these apply). Multiemployer DB plans that report a status other than no category musttake measures to imnrove theirfinancial condition. Section 9701 would permit plans to keep their zone status fromthe previous plan year, at the discretionof the plan, for either (1) the first plan year beginning during the period fromMarch 1, 2020, throughFebruarv28.2021. or (2) the succeeding nlanvear. If a plan was in endangeredor critical status in the previous plan year, it would not have to update its funding improvement or rehabilitation plan (see next sectionof this In Focus) until the subseauent nlan year. Plans th atkeen the previous year's status but become critical during the year of election are deemed to be in criticalstatus. Among other conditions. Mlans in critical status do not Dav the excis e tax for failing to make required minimum contributions. Temporary Extension of the Funding Improvement and Rehabilitation Periods for M ultiemployer Plans in Critical and Endangered Status for 2020 or 2021 Undercurrent law, multiemployerDBplans in critical or endangered status must take measures to improve their financial condition. Plans in endangered and seriously endangered status must adopt funding improvementplans. These plans include a range of options (such as increased contributions andreductions in future benefit accruals) that, when adopted, will reduce endangered plans' underfunding by 33% during a 10-yearperiod or seriously endangered plans' underfundingby 20% during a 15-yearperiod. Also under current law, plans in critical s tatus must adopt a rehabilitation plan. A rehabilitationplan is a range of options that, when adopted, will allow the plan to emerge from critical status during a 10-year rehabilitationperiod. If a plan cannot emerge fromcritical status by the end of the rehabilitation period using reasonable measures, it must installmeasures either to (1) emerge from critical status at a later time (after the end of the rehabilitation period) or (2) forestall insolvency. For plan years beginning in 2020 or 2021, Section 9702 would (1) lengthen the funding improvement or rehabilitation period for plans in endangered or critical status, respectively, from 10 years to 15 years; and (2) lengthen the funding improvementperiod for plans in seriously endangered status from 15 years to 20 years. Plan zone statuses are determinedbasedon their election in Section 9701 of the bill (described previously). Adjustments to Funding Standard Account Rules MultiemployerDBplans have 15 years to make up for plan underfunding resulting fromexperience losses (such as investment losses). This process of spreading out payments is known as amortization. Section 9703 would permit two years of experience losses (such as investment losses and other los ses related to the Coronavirus Dis ease 2019, including those related to reductions in contributions, reductions in employment, and deviations fromanticipated retirement rates) to be amortized over 30 years insteadof 15 years. Plans receiving special fmancial assistance (as described in the bill) would be ineligible for this provision. Extended Amortization for Single Employer Plans The Employee Retirement Income Security Act of 1974 (P.L. 93-406) contains funding rules, such as contribution requirements, for single-employer DB pensionplans. The funding rules allow single-employer DB plans to amortize underfunding resulting from, for example, investment los ses, over seven years. Section 9705 would permit plans to amortize underfunding over 15 years. Extension of Pension Funding Stabilization Percentages for Single Employer Plans A pension plan's benefits are a plan liability spread out over many years in the future. These future benefits are calculated and reported as present values (also called current values) through a process called discounting, which requires the use of a specified interest rate. Under current law, this rate is basedon three different segmentrates, which are calculated as the average of the corporate bond yields within each segment for the preceding 24 months. The Moving Aheadfor Progress in the 21 Century Act (MAP-21; P.L. 112-141) created a mechanism, called a funding corridor, to determine the minimum and maximum interest rates as a percentage below and above the 25-year average ofhistorical corporate bond yields. Figure 1 shows the funding corridor. If the 24-month segmentinterestrate is higher than the maximum (point 1), it is adjusted downward to the maximum. If the segment rate is within the corridor (point 2), the rate is not adjusted. If the 24- month segment interest rate is below the minimum percentage of the funding corridor (point 3), the interest rate is adjustedupward to the minimum. ttps:/'crs reports~congress~gc

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