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1 1 (February 23, 2021)

handle is hein.crs/govecfh0001 and id is 1 raw text is: $ Santa in ~ tWA & en W14 February 23, 2021 Special Financial Assistance to Multiemployer Plans Section 9704 of the Butch Lewis Emergency PensionPlan Relief Act of2021, included as Subtitle H of the House Ways and Means Committee budget reconciliation recommendations, would provide financial as sistance 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. MultiemployerDB 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 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 aie not expected tobe repaid) to pay participants' benefits up to a statutory maximum. PBGC says that its multiemployer insurance programwill likely become insolvent in 2026. The federalgovernment has no obligation to provide assistance to PBGC. In the absenceof legislative actionto address the insolvency ofmultiemployer plans or the PBGC, participants in insolventplans may face large benefit reductions, likely receiving less than $2,000per year. Special Financial Assistance Section 9704 would establish a fund within the PBGC and appropriate amounts as necessary to provide special financial assistance to certain multiemployerDBplans. The special fmancialas sistance would nothave to be repaid. Eligibility for Special Financial Assistance A plan could apply for special financial assistance through December 31, 2025. A plan would be eligible if it meets at least one ofthe following conditions: the plan (1) was in critical and declining status in any plan year from202O through 2022; (2) had an application to suspendbenefits under the Multiemployer Pension ReformAct of 2014 (MPRA, enacted as part of P.L. 113-235) approvedpriorto the enactment of the Butch Lewis Emergency Pension Plan Relief Act of2021; (3) was in critical status in any year from 2020 through 2022 and had a modified funded percentage ofles s than 40% (calculated as the current 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 was les s than 40%; or (4) became insolvent after December 14, 2014, and was not terminated by the date of enactment. Under the bill, PBGC would be authorized to is sue regulations specifying that for two years following enactmentonly plans meeting certain conditions wouldbe able to apply for special financial as sis tance. The plans would be those likely to become insolventwithin five years of enactment, those for which PBGC would be obligated to provide more than $1 billion in financial as sistance in the absence of any specialfmancial assistance, those that have reduced benefits under MPRA, or those meeting other conditions as determined by PBGC. Amount of Special Finance Assistance The amount of special financial assistance would be the amount needed to pay participants' full plan benefits through the 2051 plan year. To determine the present value of benefits, the plan would use the interest rate used in its most recent zone certificationbeforeJanuary 1,2021, subject to a maximum limit. The limit would be the interest rate used by single-employer DB pensionplans to discount their benefits to be paid 20 years or more in the future (referred to as the thirdsegmentrate in Title 26, Section 430(h)(2)(C)(iii), of the U.S. Code) prior to adjustment for the s moothing corridor in the month (or preceding three months) of the application, increasedby two percentage points. In January 2021, the third segment rate was 3.65%, so the limit would have been 3.65% + 2.0% = 5.65%. In 2017 (the most recent year for which the data is available), the median interestrate multiemployer plans used to value benefit obligations was 7.0%. Using different interestrates would result in differing amounts of fmancialas sistance. The special financial assistance would be paid to the plan as a lump sum, would be kept separate fromother plan as sets, and could be invested only in investment grade bonds or other securities as determined by PBGC. Participants' benefits are not subject to the PBGC maximum guarantee. Conditions on Receiving Special Financial Assistance Section 9704 would impose a number of conditions on plans thatreceive specialfmancial as sistanceregarding, among other things, participants' benefits, withdrawal liability, and PBGC premiums. A plan that had previously received approval for benefit suspensions under MPRA would be required to (1) reinstate the benefits and (2) provide payments for benefits that https://crsrepc

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