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1 1 (March 18, 2021)

handle is hein.crs/govecrz0001 and id is 1 raw text is: / ~nfo~ni~th Iogj a Updated March 18, 2021 Pension Provisions in the American Rescue Plan of 2021 This In Focus describes allbut one of the pension provisions in Title IX, Subtitle H, of the American Rescue Plan Act of2021 (P.L. 117-2). Another In Focus details the special fmancial as sistance to multiemployer plans in Subtitle H (CRS In Focus IF11765, SpecialFinancial Assistance to Multiemp loyer Plans). 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 status-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). MultiemployerDBplans that report a status otherthanno category musttake measures to imnrove theirfinancial condition. Section 9701 nermits plans to keep their zone status fromthe previous plan year, at the dis cretion of the plan, for either (1) the first plan year beginning during theperiod fromMarch 1,2020, through February 28.2021. or (2) the succeeding nlanvear. Ifa nlan was in endangered or critical status in the previous plan year, it does not have to update its funding improvement or rehabilitation plan (see next section of this In Focus) until the subseouent nlan vear. Plans that keen the nrevious year's status butbecome critical during thevear ofelection are deemed to be in critical status. Among other conditions, plans in critical status do not nav the excise taxfor failing to meet minimum funding standards. Temporary Extension ofthe Funding Improvement and Rehabilitation Periods for M ultiemployer Plans in Critical and Endangered Status for 2020 or 2021 Under current 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 and reductions 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 lengthens (1) the funding improvement or rehabilitation period for plans in endangered or critical status, respectively, from10 years to 15 years and (2) the funding improvement period for plans in seriously endangered status from15 years to 20years. Plan zone statuses are determined based on their electionin Section 9701 of the law. 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 permits two years of experience losses (such as investmentlosses and other lossesrelatedto theCoronavirus Disease2019, including those related toreductions in contributions, reductions in employment, and deviations fromanticipated retirement rates) to be amortized over 30 years instead of 15 years. Plans receiving special financial as sistance (as described in the law and in CRS In Focus 1i1765) are 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, forsingle-employerDBpensionplans. The funding rules allow single-employer DB plans to amortize underfunding resulting from, for example, investment losses, oversevenyears. Section9705permits 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 ttps:/'crsreports.congress.gc

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