The American Rescue Plan Act of 2021 (the “Act”) is primarily designed to deal with the COVID-19 pandemic and the economic fallout. Specific provisions were designed to alleviate the crisis surrounding the financial stability of multiemployer plans. Multiemployer sponsors have been asking for relief since the crisis surrounding central states. Below is a synopsis of the specific elements of the Act that pertain to multiemployer plans.
Temporary Delay of Designation as in Endangered, Critical, or Critical and Declining Status
Multiemployer pension plans are subject to an annual actuarial assessment of the funding status of the plan based on the last day of the fiscal year. Data is collected from the plan, accountant, and investment advisor team. Within 30-days, a multiemployer pension plan is assessed as being “green, yellow, orange, or red”. Those multiemployer pension plans that are determined to be endangered, critical, or critical and declining status, are required to take certain steps including a rehabilitation plan.
Under Subtitle H(a)(1) of the Act, a plan may choose to ‘freeze’ its status for one year to that of the plan year beginning during the period March 1, 2020, to February 28, 2021, or the next succeeding plan year. For example, a plan declared green as of 1/1/2020, but endangered as of 1/1/2021, can choose to maintain “green” status as of 1/1/2021. The advantage is to stay out of the possible rehabilitation phase for another year. Alternatively, a plan declared critical on 1/1/2020 but green on 1/1/2021, may wish to remain critical for another year based on projected facts and circumstances.
Plans that were endangered or critical status for the plan year preceding the March 1, 2020, to February 28, 2021 period are not required to be updated under the plan year following the year the begins during the period March 1, 2020, to February 28, 2021.
Exception: If a plan is declared critical during the designated plan year during March 1, 2020, and February 28, 2021, then the plan shall be designated critical without regard to this Act.
Temporary Extension of the Funding Improvement and Rehabilitation Periods for Multiemployer Pension Plans in Critical and Endangered Status
For plan years beginning after December 31, 2019, under the Act, a plan in endangered or critical status for a plan year beginning in 2020 or 2021, may extend their funding improvement plan or rehabilitation period, whichever is applicable, for 5 years.
Adjustments to Funding Standard Account Rules
The Act allows plans to adjust their funding standard account used for the annual actuarial valuation to smooth the losses over 10 years. Additionally, plans may amortize experience losses, for investment loss and COVID-19 losses, over up to 30 years.
Special Financial Assistance Program for Financially Troubled Multiemployer Plans
The Act establishes a special assistance fund under ERISA. The Secretary of the Treasury and the Director of the PBGC, will have authority to transfer funds from the general fund of the Treasury to the special assistance fund. No transfers may take place after September 30, 2030. Plan sponsors will apply for special assistance under applicable guidelines without obligation of repayment.
Multiemployer pension plans are generally applicable to receive this funding, if:
- The plan is in critical and declining status in any plan year beginning in 2020 through 2022.
- Suspension of benefits has been approved under section 305(e)(9) as of the date of enactment of this section of the Act.
- In any plan year beginning in 2020 through 2022, the plan is certified by the plan actuary to be in critical status. Critical status within the meaning of section 305(b)(2), has a modified funding percentage of less than 40 perfect, and has a ratio of active to inactive participants which is less than 2 to 3; or
- The plan became insolvent for purposes of section 418E of IRS Code of 1986 after December 16, 2014, and has remained insolvent and has not been terminated as of date of enactment of this section.
Guidance on applying for assistance under this section of the Act is within 120 days of enactment of this section.
Of special note to the multiemployer plan, the PBCG premium is increased from $31 (indexed) to $52 (indexed) for plan years beginning in 2031.
If you need further guidance on this topic, we’re here to help. Please feel free to contact our experts today to discuss your specific situation.
The information and advice we are providing for this matter relates to COVID-19 legislative relief measures. Because legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that could modify some of the advice and information provided to you, after the conclusion of our engagement. We, therefore, make no warranties, expressed or implied, on the services provided hereunder.