​The Joint Select Committee on Solvency of Multiemployer Plans (the “Committee”) was formed in Congress in February 2018 to address the issues facing multiemployer plans today. The Committee is comprised of eight members each from the House and the Senate, has equal representation from Democrats and Republicans, and is slated to propose legislation by November 30, 2018.
 
While the looming insolvencies of plans in critical & declining status and the Pension Benefit Guaranty Corporation (PBGC) have received most of the headlines, the Committee is also considering measures that would impact all plans – even healthy plans in the green zone. 
 
One of the measures under consideration is to mandate the use of discount rates based on corporate bond or treasury yields for minimum funding purposes. In our view, such a measure would dramatically overstate pension costs and is not in any way appropriate for multiemployer pension plan funding. 
 
In order to educate lawmakers on the devastating consequences this action would have for nearly all multiemployer plans, we prepared the following report and handout.

​As detailed in the report, the use of alternative discount rates would drastically increase unfunded liabilities, contribution requirements, and contribution volatility. The impact would be significant, and would likely lead to further destabilization of the entire multiemployer system.
 
Please contact your Horizon Actuarial consultant for more information on the report, the Committee, or how this may affect your pension fund.

On February 9, 2018, President Trump signed the Bipartisan Budget Act of 2018 into law. While the primary purpose of the legislation was to fund the federal government through March 23, 2018, the Act also provided for the establishment of a joint committee tasked with improving the solvency of multiemployer pension plans and the Pension Benefit Guaranty Corporation (PBGC).
 
The joint committee will be composed of 16 members – 8 from each chamber of Congress – and will include an equal number of Democrats and Republicans.  The legislation requires that the committee hold at least 5 public meetings or hearings, including 3 public hearings. Ultimately, the committee must vote on (I) a report detailing its findings and recommendations, and (II) proposed legislation to carry out its recommendations by November 30, 2018. 
 
The legislation also outlines procedures for an expedited vote in the Senate to occur no later than the last day of the current congressional term (January 3, 2019).
 
Please stay tuned for more on this developing story and contact your Horizon Actuarial consultant for more information on how this may affect your pension fund.

President Trump signed a short-term spending bill into law on January 22, 2018 after its passage in the House and Senate. While the primary purpose of the bill was to end the Federal government shutdown and fund government operations through February 8, 2018, the bill also included several provisions related to broader health policy:
 
A.  The Children’s Health Insurance Program (CHIP) is extended for six years.  Federal funding had previously ceased on September 30, 2017.
 
B.  Three health taxes created under the Affordable Care Act are temporarily suspended or delayed:
 
1.  Excise Tax on High-Cost Health Coverage:
The effective date of the 40% excise tax on health coverage exceeding certain thresholds (commonly referred to as the Cadillac Tax) is postponed from January 1, 2020 to January 1, 2022.  The multiemployer threshold for computing the excise tax was set at $27,500 per year based on a January 1, 2018 effective date and is expected to be adjusted for inflation.
 
Both fully insured and self-funded health funds, including retiree only funds, are subject to this excise tax.  Projected retiree medical liabilities that included this tax for 2020 and 2021 will now be lower, as the tax amounts for these years will now be removed from the liability calculation.
 
2.  Health Insurer Fee for Fully Insured Plans:
This bill suspends the insurer tax for calendar year 2019.  The insurer fee, which began in 2014, was temporarily suspended in 2017 before being re-implemented for 2018.  As a result, fully insured funds with 2019 renewals should see lower premium levels than they would otherwise have seen. 
 
3.  Medical Device Tax:
The 2.3% medical device excise tax began on January 1, 2013 and is imposed on manufacturers and importers of certain medical devices. The tax was suspended for 2016 and 2017 and was slated to return for 2018.  This bill further suspends the tax for calendar years 2018 and 2019.

The Internal Revenue Service (“IRS”) issued an advance version of Rev. Proc. 2017-43 which revises the procedures for applying for suspension of benefits under the Multiemployer Pension Reform Act of 2014 (“MPRA”).  The revenue procedure revises and updates the procedures previously set forth in Rev. Proc. 2016-27 to take into account the experience of the Department of Treasury in processing applications to date.
 
The revised procedures apply to applications submitted on or after September 1, 2017.

To date, a number of multiemployer pension plans in critical and declining status have submitted applications to the Department of Treasury and Pension Benefit Guaranty Corporation to suspend benefits or partition liabilities under the Multiemployer Pension Reform Act of 2014 (MPRA).  So far, only one application to suspend benefits has been approved, but several have been rejected by the regulators or withdrawn by the plan sponsor.
 
The Multiemployer Plans Subcommittee of the American Academy of Actuaries has published notes from a February 2017 meeting with federal regulators to discuss lessons learned from the suspension and partition applications that had been reviewed up to that point.  These notes are a valuable resource for multiemployer plan sponsors and practitioners, especially those for plans considering applying for a suspension or partition under MPRA.
 
From the Winter 2017 edition of the Enrolled Actuaries Report:
 
Academy Liaises With Federal Agencies on MPRA Applications
 
The Multiemployer Plans Subcommittee met in February with members of the U.S. Department of Treasury, the Pension Benefit Guaranty Corporation and the Department of Labor. The discussion focused on applications by multiemployer pension plans in critical and declining status to suspend benefits or partition liabilities, as permitted under the Multiemployer Pension Reform Act of 2014 (MPRA).
 
The subcommittee released notes from the meeting, highlighting discussions about actuarial assumptions, plan sponsor considerations, review process, and the possibility of informal consultation prior to a MPRA application for suspension of benefits or partition.
 
The discussion in this exchange was intended to provide plan sponsors and actuaries with insights about the MPRA application review process with a goal to help plan sponsors make decisions about applying and to increase the acceptance rate for those who do apply.

​On December 16, 2016, the Department of the Treasury approved the application by the Iron Workers Local 17 Pension Fund to suspend benefits under the Multiemployer Pension Reform Act of 2014 (“MPRA”).  This application is the first to be approved by Treasury, following denials of four other applications.

Now that the application has been approved by Treasury, the suspension must now proceed to a vote by participants and beneficiaries. The vote will be administered by Treasury. 

The Iron Workers Local 17 Pension Fund first submitted its application to suspend benefits on December 23, 2015.  It withdrew the original application and resubmitted a revised application on July 29, 2016.  Treasury has posted the approval letter to the Fund on its webpage for MPRA applications. 

Please contact your Horizon Actuarial consultant for more information on how this decision may affect your pension fund.

On September 9, 2016, Representative John Kline (R-MN), Chairman of the House Education and the Workforce Committee published a discussion draft of the Multiemployer Pension Modernization Act of 2016, a proposal to “modernize multiemployer pensions and strengthen retirement security.”  The draft bill outlines a new “composite plan” design for multiemployer defined benefit pension plans.
 
The composite plan design was originally included as part of the Solutions Not Bailouts proposals developed by the National Coordinating Committee for Multiemployer Plans (“NCCMP”) Retirement Security Review Commission.  This hybrid design combines aspects of traditional defined benefit and defined contribution plan designs – intending to spread investment risks between plan participants and sponsors, while still providing lifetime retirement income to plan participants.
 
The following points highlight some of the key aspects of the composite plan proposal, as outlined in the discussion draft.  These points are not intended to be a comprehensive summary of the proposal, which may change in the coming weeks and months.  Please contact your Horizon Actuarial consultant for more information.
 
General Highlights

• Optional plan design.  There is no requirement for the trustees of a multiemployer plan to adopt the composite plan design; it is purely optional.  In fact, there are restrictions on which plans may adopt the composite plan feature.  For example, plans currently in critical status or plans projected to be in critical status in the following 5 years are not eligible.
• Two plan components.  If the composite plan feature is added to an existing multiemployer plan, there will be two components to the plan: the “composite plan” and the “legacy plan.”  When benefit accruals cease under the legacy plan (past service), they begin under the composite plan (future service).  Separate funding rules and contribution requirements apply to the two different components.

 
Composite Plan Highlights 

• No unfunded liability.  By definition, the composite plan has no unfunded liability.  As a result, there is no employer withdrawal liability associated with the composite plan component.  There is also no benefit guaranteed by the Pension Benefit Guaranty Corporation (“PBGC”) and no premium requirement. 
• Annual certification.  The composite plan actuary must issue an annual certification of the current and projected funded ratios for the composite plan.  If the projected funded ratio in 15 years is less than 120%, the trustees of the composite plan must adopt a “realignment program.”  The certification is due 120 days into the plan year. 
• Realignment program.  The realignment program consists of reasonable measures designed to return the projected funded ratio to at least 120% in 15 years (other tests may apply).  The measures consist of proposed increases to employer contribution rates and reductions in participant benefits and are prioritized into three tiers:  
  1. First tier measures includes proposed contribution rate increases, reductions in the rate of future benefit accruals, and the reduction or elimination of “adjustable” or other ancillary benefits.  Future benefit accruals cannot be reduced below the equivalent of 1% of contributions.  As under current law, adjustable benefits include early retirement benefits and other subsidies not already in pay status.
  2. Second tier measures include reductions in accrued benefits not already in pay status, as well as reductions to non-core benefits in pay status.  For this purpose, “core” benefits include accrued benefits payable at normal retirement age.  “Non-core” benefits include early retirement benefits, subsidies, and post-retirement increases.
  3. Third tier measures include further reductions to the rate of future accruals (below the equivalent of 1% of contributions if needed) and reductions in core benefits already in pay status.  Any reductions to in-pay core benefits must be distributed equitably, considering the same criteria as for suspensions of benefits for plans in critical and declining status.  Trustees should incorporate third tier measures into the realignment program only after all reasonable measures in the first two tiers have been exhausted. 
• Restrictions on benefit increases.  The composite plan design imposes restrictions on plan amendments that increase benefits.  For example, for an amendment that increases plan liabilities by no more than 3%, the resulting projected funded ratio must be at least 120%.  If the amendment increases plan liabilities by more than 3%, the resulting projected funded ratio must be at least 140%.  Additional restrictions apply to restoring core benefits that were previously reduced under a realignment program.

 
Legacy Plan Highlights

• Existing rules still apply.  The legacy plan remains a defined benefit plan, and in general, existing rules continue to apply.  For example, the legacy plan actuary will still issue annual certifications as to whether the legacy plan is in endangered or critical status. Withdrawal liability and PBGC premiums still apply, as well.  However, legacy plan withdrawal liability will be eliminated once certain full-funding thresholds are met. 
• Transition contributions.  Contributions to the legacy plan must be sufficient to cover the cost of benefit accruals (if any) and allocable administrative expenses, as well as to pay down the unfunded liability over time.  The initial unfunded liability must be paid down over 25 years, and any subsequent changes in the unfunded liability must be paid down over 15 years.  These contributions continue until the legacy plan liability is fully funded. 

 
Again, these points provide only a high-level summary of the key provisions of the composite plan proposal.  As noted above, the proposed legislation is a "discussion draft" and subject to change.  Please contact your Horizon Actuarial consultant for more information.
 
Related links:
 
Contact a Horizon Actuarial consultant.
contactus@horizonactuarial.com
 
Press Release (4.29.2015): “Time to Modernize Multiemployer Pension System” http://edworkforce.house.gov/news/documentsingle.aspx?DocumentID=398799
 
Press Release (9.9.2016): “Kline Releases Discussion Draft to Modernize Multiemployer Pensions”
http://edworkforce.house.gov/news/documentsingle.aspx?DocumentID=400989
 
Discussion Draft: “Multiemployer Pension Modernization Act of 2016” http://edworkforce.house.gov/uploadedfiles/composite_a_xml.pdf
 
Questions and Answers: “A Discussion Draft to Modernize Multiemployer Pensions” http://edworkforce.house.gov/uploadedfiles/basic_q_and_as_on_a_discussion_draft.pdf
 
Press Release (9.14.2016): “Modernizing Multiemployer Pensions” http://edworkforce.house.gov/news/documentsingle.aspx?DocumentID=401019

On June 6, 2016, the Pension Benefit Guaranty Corporation (“PBGC”) published a proposed rule regarding mergers and transfers involving multiemployer pension plans.  On July 28, 2016, Horizon Actuarial Services, LLC submitted a comment letter in response to the proposed rule.  Horizon’s comment letter can be found at regulations.gov as well as on our website here.

Horizon's comment letter covers four topics.  One, it discusses additional guidance that may be needed from PBGC with respect to applications for facilitated mergers.  Two, it recommends changes to the applicable solvency requirements for mergers and transfers. Three, it proposes that PBGC use its authority to approve certain mergers and transfers that would result in increased solvency for the plans involved and reduced expected losses to PBGC.  Four, it encourages PBGC to work with the Department of the Treasury to issue guidance regarding mergers following a suspension of benefits.

Other organizations submitting comments on the proposed rule, which can also be found at regulations.gov, include:

• The American Academy of Actuaries
  
• The Association of Food and Dairy Retailers, Wholesalers and Distributors (prepared by Venable, LLP)
  
• Bimbo Bakeries USA
  
• First Actuarial Consulting, Inc.
  
• The International Brotherhood of Teamsters
  
• The Kroger Co.
  
• The National Coordinating Committee of Multiemployer Plans ("NCCMP")
  
• Segal Consulting
  
• The US Chamber of Commerce