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The solvency of the Pension Benefit Guaranty Corporation and multiemployer pension plans has been a hot topic throughout December and January. Various proposals to prevent insolvency included a loan scheme for underfunded plans, expanded partition assistance, and capping the long-term funding rate that could be used by plans. The passage of the Butch Lewis Emergency Pension Plan Relief Act of 2021 (EPPRA), included in the larger stimulus bill the American Rescue Plan Act, however, effectively replaced all prior proposals regarding multiemployer pension plans.
Under EPPRA, eligible plans can receive a lump sum of financial assistance without any repayment obligation—what some are calling a bailout—from a newly created PBGC fund. While it will have minimal impact on healthy plans, it will provide considerable relief to troubled plans.
To qualify for this assistance, a multiemployer pension plan must meet one of the following criteria:
1. Be in critical and declining status;
2. Have previously imposed a benefit suspension under MPRA;
3. Be in critical status and have a modified funded percentage of less than 40% on a current liability basis, and have a ratio of active to inactive participants of less than 2 to 3; or
4. Be insolvent.
The amount of financial assistance will be the amount necessary for the eligible plan to pay benefits for 30 years. This includes any benefits previously suspended under MPRA, which must be restored by plans that are provided assistance under EPPRA. EPPRA’s special financial assistance will not, however, cover adjustable benefits that have been cut under a rehabilitation plan. The financial assistance can only be used to make benefit payments and pay plan expenses. It must be invested in investment-grade bonds or other investments permitted by the PBGC, and any earnings on assistance must be segregated from other plan assets.
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