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1 1 (March 18, 2021)

handle is hein.crs/govecry0001 and id is 1 raw text is: ressionsl Research $erviet~ 9 Updated March 18, 2021 Special Financial Assistance to Multiemployer Plans Section 9704 in Title IX, Subtitle H, of the American Rescue Plan Act of2021 (P.L. 117-2) provides financial assistance to certain financially troubled multiemployer defined benefit (DB) pension plans. Multiemployer pension plans are sponsored by more than one employer and are maintained as part of a collective bargaining agreement. In DB plans, participants receive regular monthly benefit payments in retirement. Multiemployer DB plans annually certify theplan's financial status-known as the plan's zone status. A plan can be in endangered, seriously endangered, critical, or criticalanddeclining status (or no category if none of these apply). Plans in critical status are in poor financial condition, and plans in critical and declining status are expected to become insolvent within 20 years . About 10% to 15% ofmultiemployerDB plan participants are currently in critical and declining status plans. When a multiemployer DB plan becomes insolvent, the Pension Benefit Guaranty Corporation (PBGC) provides financial as sistance to theplan (in the formofloans that aire not expected tobe repaid) to pay participants' benefits up to a statutory maximum. The federalgovernment has no obligation to provide assistance to PBGC. Prior to the enactment of P.L. 117-2, PBGC said that its multiemployer insurance programwould have likely become insolventin 2026 and that participants in insolventplans would have faced large benefit reductions, likely receiving less than $2,000 per year. Special Financial Assistance Section 9704 establishes a fund within the PBGC and appropriates fromthe general fund such amounts as are necessaryto provide specialfinancial assistance to certain multiemploy er DB plans and necessary administrative and operating expenses. The special financial as sistance does not have to be repaid. Eligibility for Special Financial Assistance A plan can apply for special financial as sistance through December 31, 2025. A plan is eligible if it meets at least one ofthe following conditions: the plan (1) is in critical and declining status in any plan year from2020 through 2022; (2) had an application to suspendbenefits under the Multiemployer Pension ReformAct of2014 (MPRA, enactedas partofP.L. 113-235) approvedpriorto the enactmentof this provision; (3)is in critical status in any year from2020 through2022 and has a modified funded percentageof less than40% (calculatedas thecurrent value of plan assets divided by the present value of plan liabilities, using a specified interest rate), and the percentage of active to inactive participants in the plan is less than 40%; or (4) became insolvent after December 14, 2014, and was not terminated by the date of enactment. PBGC is authorized to is sue regulations specifying that for two years following enactment only plans meeting certain conditions are able to apply for special financial assistance. The plans are those likely to become insolventwithin five years of enactment, those for which PBGC would be obligated toprovide more than $1 billion in financial assistance in the absence of any special fmancialassistance, those thathave reduced benefits under MPRA, or those meeting other conditions as determined by PBGC. Amount of Special Finance Assistance The amount of special fmancial assistance is the amount needed to pay participants' full plan benefits through the 2051 plan year. To determine the present value of benefits, the plan is to use the interestrate fromits most recent zone certification before January 1, 2021, subject to a maximum limit. The limit is the interest rate used by single-employer DB pension plans to discounttheir benefits to be paid 20 years or more in the future (referred to as the thirdsegment rate in Title 26, Section 430(h)(2)(C)(iii), of the U.S. Code) prior to adjustmentfor the smoothing corridor in the month (or preceding three months) of the application, increased by two percentage points. In February 2021, the third segment rate was 3.59%, so the limit would have been 3.59% + 2.0% = 5.59%. In 2017 (the mo s t recent year for which the data is available), the median interestrate multiemployer plans used to value benefit obligations was 7.0%. Using lower interest rates results in larger amounts offmancial assistance. The special financial assistance is to be paid to the plan as a lump sum, is to be kept separate fromother plan assets, and must be invested only in investmentgrade bonds or other securities as determined by PBGC. Participants' benefits in plans receiving specialfinancial assistance are not tobe reduced to the PBGC maximum guarantee. Conditions on Receiving Special Financial Assistance Section 9704 of the law imposes a number of conditions on plans thatreceive specialfnancial as sistanceregarding, among otherthings, participants' benefits, withdrawal liability, and PBGC premiums. A plan that had previously received approval forbenefit suspensions under MPRA is required to (1) reinstate the benefits and (2) provide payments forbenefits that participants and beneficiaries had not received because of the benefit suspensions. https://crs rept

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