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On May 15, in a nearly party-line vote, the House of Representatives passed the Health and Economic Recovery Omnibus Emergency Solutions Act (HEROES Act). The bill now goes to the Senate. While Senate Majority Leader Mitch McConnell described the bill as “dead on arrival,” it likely gives direction on a potential bipartisan rescue of the multiemployer pension system. Employers that contribute to such plans will want to understand how passage of those particular provisions (included within the bill as the Emergency Pension Plan Relief Act of 2020 or EPPRA and Giving Retirement Options to Workers Act of 2020 or the GROW Act) might affect them. In this article, we review the key provisions.
Special Partition Relief
Under current law, the Pension Benefit Guaranty Corporation (PBGC) has the right to partition certain multiemployer pension plans so that it takes on a limited portion of the liabilities of those plans and leaves the remainder to the fund and thus contributing employers. EPPRA would expand the group of plans eligible for such partitioning (generally reflecting the proposal in the Butch Lewis Act) to include:
+ Plans in critical and declining status,
+ Poorly funded plans with high ratios of retirees to active participants,
+ Plans that have already suspended benefits, or
+ Certain plans that have already become insolvent
Under the HEROES Act, the special partition program would be available to plans meeting one of the above criteria through 2024 Plans that are partitioned would need to restore any benefits previously cut or suspended.
Repeal of MPRA Relief
Under HEROES, the benefit suspension program under the Multiemployer Pension Reform Act (MPRA) would be ended. Treasury would neither accept any new applications for benefit suspension under MPRA nor would it approve any applications not already processed.
Temporary Freeze in Zone Status
HEROES treats the events of early 2020 as (in effect) an aberration and would, at least temporarily, not penalize multiemployer pension plans for their asset losses during the first part of 2020. Plans would be allowed to keep their 2019 plan year (the date on which the plan year began) “zone status” for the 2020 or 2021 plan year regardless of its measured status. Plans in endangered or critical status would not have to update their rehabilitation plans or schedules until the first plan year beginning after March 1, 2021.
Extension of Funding Improvement and Rehabilitation Periods
HEROES would allow plans in endangered or critical status in 2020 or 2021 to extend their funding improvement and rehabilitation plans for up to 5 years. While this is going to be seen as a positive for union labor and for the funds themselves, contributing employers may see this placing an additional burden on them to fund the plans out of red or yellow zone status.
Funding Standard Account Relief
For plan years beginning after February 29, 2020, the amortization period, for certain plans not partitioned and reasonably expected to remain solvent throughout the 30-year amortization period, for investment gains and losses occurring during plan years beginning in 2019 and 2020 would be extended from 15 years to 30 years. The effect of this would be to allow plans that might otherwise have a funding deficiency to avoid that deficiency.
Increase in PBGC Guaranteed Benefit
HEROES would double the PBGC guaranteed benefit for all plans receiving any PBGC assistance since December 16, 2014. While this would be a huge benefit for participants in troubled and insolvent plans, HEROES gives no indication of how such an additional burden on PBGC would be made up.
Composite Plans
The GROW Act would authorize “composite plans,” a new plan type in the multiemployer pension system that contains features of defined benefit plans and defined contribution plans. It was initially included in MPRA as a proposed solution to address the long-term sustainability of multiemployer plans but failed to make it into the final bill. The composite plan must maintain a minimum funding ratio or take remedial action to achieve the minimum funding ratio. Of considerable interest to contributing employers in a composite plan is that there would be no withdrawal liability upon cessation of participation.
Implications for Contributing Employers
Reading the Democratic staff summary of the bill, the focus is on all stakeholders in multiemployer pension plans with the exception of contributing employers. The summary makes clear that the provisions in HEROES would benefit plan participants, the pension funds generally, and perhaps the PBGC. While a significant portion of the relief in the bill would be funded by the federal government, the devil is going to be in the details and there are no provisions that jump out as being friendly to the contributing employers.
Again, while the likelihood of passage of HEROES (as currently written) seems remote, the provisions in the bill give us an indication of the current Democratic negotiating position. As the issue of multiemployer pension underfunding is bipartisan, we could see some of these provisions find their way into some other future legislation.