As described on Rep. Pomeroy’s website, the Act will “enable employers to retain and grow their workforce” by providing “the funding relief necessary to help restore defined benefit pension plans to soundness over time, keeping employers from having to either freeze their pension plans or cut their workforce to make up for pension losses.”
Pomeroy’s website contains the full text of the bill along with a section-by-section summary. The bill was preceded by a discussion draft, presented by Rep. Pomeroy in August. (Note: Full text may also be found here.)
The following is a summary of key provisions in the bill relating to multiemployer plans.
Section 201 of the bill eases statutory funding requirements for multiemployer plans, allowing them to fund investment losses incurred during 2008 and early 2009 over longer periods of time. The provisions in this section will make it easier for some plans to remain in the so-called “green zone.” They will also lower the funding benchmarks for plans in critical status or endangered status. A plan that elects to utilize the relief described in this section cannot improve benefits for the current or next two plan years, unless the plan actuary certifies that the benefit improvements are funded through separate contribution increases.
(a) Allow 30-year amortizations in the funding standard account, either for the “combined outstanding balance” of all charges and credits or “certain investment losses” incurred during 2008 and 2009. This relief is available upon election to plans that pass a solvency test. Plans electing this relief must not improve benefits for two plan years following the election, unless the plan actuary certifies that the improvements were funded by separate contribution increases. [Note: The restriction against benefit improvements was not included in the discussion draft that was presented in August.]
(b) Allow “automatic” extensions of amortization periods in the funding standard account of up to 10 years (as opposed to 5 years provided under PPA). The bill also clarifies some details regarding the application and approval process for these amortization extensions.
(c) Extend asset smoothing period to 10 years (as opposed to 5) and widen the asset smoothing corridor to 30% (instead of 20%). This relief is only available for two plan years, beginning after August 31, 2008. [Note: The provision for 10-year smoothing is a key addition to the bill, versus the discussion draft that was presented in August.]
Section 202 of the bill provides additional relief to multiemployer plans already certified in critical status or endangered status.
(a) Increase the duration of rehabilitation periods and funding improvement periods by up to 5 years (net of any 3-year extension utilized under “WRERA”), upon election. This essentially allows plans to take longer to emerge from critical or endangered status, respectively.
(b) Simplify the definition of funding improvement periods for plans in seriously endangered status.
(c) Remove the restriction against paying Social Security level income annuities for plans operating in critical status. [Note: The removal of this restriction was not included in the discussion draft that was presented in August. The discussion draft removed a similar restriction on single-employer plans, but it did not affect multiemployer plans.]
(d) As a technical correction, remove the requirement that plans in endangered status must send a schedule to bargaining parties showing the contribution increases necessary to meet funding improvement plan benchmarks, while maintaining the current plan of benefits. In other words, the only schedule that must be provided to bargaining parties will show the contribution increases necessary to meet funding improvement plan benchmarks,only after reducing benefits to the extent allowed under law. [Note: This technical correction was not included in the discussion draft presented in August.]
Section 203 of the bill allows for multiemployer plan “alliances” and facilitates full mergers. Alliances would allow plans to gain efficiencies with respect to administration and asset management. Mergers could help extend the life of one or more plans approaching insolvency. The Pension Benefit Guaranty Corporation (PBGC) may offer assistance — both administrative and financial — to facilitate mergers or alliances it deems likely to reduce its long-term losses with respect to the plans involved.
Section 204 of the bill strengthens benefit protections for multiemployer plans. One, it updates the maximum pension benefit guaranteed by the PBGC for multiemployer plan participants from about $13,000 per year to about $20,000 per year. Two, it allows for a “qualified partition” of certain benefit liabilities for very troubled plans meeting very specific criteria. Liabilities eligible for partitioning are those attributable to participant service with employers that have previously withdrawn from the plan and were unable to pay their withdrawal liability obligations in full. Partitioned liabilities, along with assets attributable to applicable withdrawal liability payments received, would be transferred to a separate plan guaranteed by the PBGC.
The summary provided above is intended for general informational use only. It does not represent legal, tax, or other professional advice.