Financial Assistance to Troubled Multiemployer Pension Plans

Oct 21, 2021 | Latest News, Multiemployer Plans, Retirement Plans

Financial Assistance to Troubled Multiemployer Pension Plans | Watkins Ross

On March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 (ARPA), which includes much-needed relief for multiemployer plans.  Many plans are already insolvent, with the PBGC paying the plan’s benefits at the lower PBGC guaranteed benefit amount.  In addition, 12 plans have cut benefits to avoid going insolvent. The PBGC’s multiemployer program was itself projected to go insolvent in 2025, causing further cuts to the participants they were paying.

ARPA Financial Assistance Program

ARPA creates a financial assistance program for distressed Multiemployer plans to be administered by the PBGC.  It also appropriated funds for the program in remarkably uncapped amounts that will likely exceed $86 billion.  It will assist an estimated 200 of the most financially troubled plans out of the approximately 1,400 existing multiemployer plans.  The Special Financial Assistance (SFA) will be paid as a simple lump sum payment that is projected to keep a plan solvent thru 2051 without a reduction in benefits.

Plans that are eligible for the Special Financial Assistance (SFA) are those that are critical and declining, meaning they pay a lot more out in benefits and expenses than they gain in contributions and earnings and so they project to be insolvent in the not so distant future.  Other plans that qualify for the SFA are already insolvent plans, which means the PBGC pays their benefits at the lower PBGC maximum guaranteed benefit level.  The last group of plans that qualify are plans that cut benefits to avoid becoming insolvent.  A requirement to receive the SFA is that any benefits that were cut must be retroactively restored, so retirees and beneficiaries will receive either a single large payment or a monthly installment paid over 5 years.

Apply For Assistance

Plans applying for assistance are required to go thru an application process with the PBGC that includes the requested amount of SFA.  This amount is the difference between the projected benefit payments and expenses over 30 years and the current assets and present value of future expected contributions over 30 years.  The assumptions for the projections are typically those the plan relied on when completing the latest zone certification done before January 1, 2021.  Any proposed assumption change will be studied carefully by the PBGC for reasonableness.  The PBGC won’t allow any interest rate assumption changes.

A list of the plans that have applied for SFA, the amount of SFA requested, and the application status can be found here, and then clicking the “status of applications” box at the right.

For more information about the American Rescue Plan of 2021, visit our article here. Contact the team at Watkins Ross with any questions.

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