On November 20, 2019, Chairman of the Senate Committee on Finance Sen. Chuck Grassley (R-IA) and Chairman of the Senate Committee on Health, Education, Labor and Pensions Sen. Lamar Alexander (R-TN) released the Multiemployer Pension Recapitalization and Reform Plan, in the form of a “White Paper” accompanied by a Technical Explanation (together referred to here as the “Reform Proposal”), that is intended to revamp the laws that apply to multiemployer defined benefit pension plans.
The Reform Proposal comes at a crucial time for multiemployer plans, some of which are in severe financial distress, as well as for the agency set up to assist such plans, the Pension Benefit Guaranty Corporation (“PBGC”), which faces its own financial troubles.
Where Are We Now?
While most multiemployer plans are stable, a few troubled plans are large and projected to run out of money in the next several years at which point they will seek PBGC assistance. PBGC, however, is projected to be insolvent around the same time, severely limiting the agency’s ability to provide meaningful assistance to plans that become newly insolvent as well as those plans to which PBGC already provides financial assistance.
Joint Select Committee on Solvency of Multiemployer Pension Plans: No Official Action Taken
The Joint Select Committee (“JSC”) was created by Congress as part of the Bipartisan Budget Act of 2018 to address the looming multiemployer crisis. The JSC, a bicameral and bipartisan committee, was required to provide proposed legislative fixes to stem the crisis. While a document leaked by some members of the JSC hinted at potential fixes, the JSC’s deadline came and went without any official action. As required, the JSC disbanded on December 31, 2018. Members of the JSC and others have vowed to continue working toward a legislative solution.
Butch Lewis Act: Stalled in the Senate
Although there have been a number of legislative proposals regarding multiemployer plans, the Butch Lewis Act is one that has gained some traction. It passed the House in July but has stalled in the Senate. The centerpiece of the bill is federal loans to failing plans, a measure generally disfavored by Republicans.
Where Are We Headed?
The Reform Proposal reflects similar reform principles to those articulated in the leaked JSC document intended to provide relief to struggling multiemployer plans as well as to PBGC. The Reform Proposal also includes measures aimed at avoiding any future crisis.
Is The Reform Proposal Final?
No. It is our understanding that the Reform Proposal, which is largely a Republication proposal, is a starting point for further negotiations.
The Reform Proposal provides significant relief for plans that are heading toward insolvency by way of partitions, increased PBGC guarantees and funding to keep PBGC solvent and able to pay guaranteed benefits.
The tradeoff, however, is more onerous rules for all other multiemployer plans. Such rules likely will be opposed by the Democrats, multiemployer stakeholders and others, will be subject to continued negotiations and may be dropped or substantially altered. Note also that as some of the details provided in the Reform Proposal are contradictory, we expect further clarification.
What’s In The Reform Proposal?
As of now, the Reform Proposal includes the following provisions (simplified here and with various effective dates) that apply to multiemployer plans.
Special Partition Program
- Creates a special partition program administered by PBGC to enable severely distressed plans to remain solvent (benefit suspension not required)
- Provides for a significant increase in PBGC premiums paid by plans, with an $80 flat rate + 1% variable rate, subject to a cap of $250
- Creates new stakeholder “co-payments” paid by participating unions and employers (for all actives)
- Requires fees to be paid by retirees, ranging from 3%-10% depending on zone status
- Modifies the definition of “insurable event” to include plans within five years of insolvency
- Increases PBGC’s guarantee (100% of the first $56)
- Appears to provides for transfer of federal resources to PBGC
Funding Requirements, Withdrawal Liability and Other Requirements
- Reforms minimum funding standards, including imposing a 6% cap on the actuarial interest rate assumption used to value plan liabilities
- Updates zone status rules and requirements, including adding a “super green” unrestricted status
- Overhauls withdrawal liability rules
- Creates incentives for plans to merge with other multiemployer plans
Plan Governance and Disclosures
- Imposes new restrictions on multiemployer plan governance and provides PBGC broader authority to monitor plans and take certain actions
- Updates notice requirements for plans, including the annual funding notice and notice of zone status
Multiemployer Pension Reform Act of 2014
- Changes voting procedures so that only returned ballots are counted and participant votes are final in all cases
- Clarifies the “no impairment rule” regarding PBGC’s ability to provide financial assistance for mergers and partitions
- Modifies the requirements for Treasury’s processing of suspension applications
- Creates a safe harbor reduction for purposes of equitable distribution of benefit suspensions
Alternative Plan Structures
- Permits eligible multiemployer plans to adopt a new optional hybrid plan design, called the “composite plan,” for future service
What Are The Next Steps?
Sen. Grassley stated in his remarks about the Reform Proposal on November 20, 2019 on the Senate floor that there was room for compromise. To that end, the Reform Proposal asks for comments and has provided an email address to submit them. That address is: MultiemployerReform2019@finance.senate.gov. Given the limited time remaining in 2019 for legislative action, those interested in submitting comments should consider doing so as soon as possible.
It is anticipated that negotiations over Reform Proposal’s provisions will continue through the end of the year, perhaps resulting in a bill by the end of 2019.
Source: Segal Consulting