- Special Partition Relief. The bill creates and appropriates funding for a special elective partition program for distressed plans, similar in concept to the partition program introduced in the Multiemployer Pension Recapitalization and Reform Plan on November 20, 2019 by Senate Republicans, and originally considered by the Joint Select Committee in November, 2018. (As noted below, the more onerous portions of these prior proposals are not included in the HEROES Act.)
- Eligibility: Eligible plans include (1) plans in critical and declining status, (2) plans in critical status with a current liability funded percentage less than 40% and an active to inactive participant ratio less than 2 to 3, and (3) plans that previously suspended benefits under MPRA 2014. The eligibility criteria must be met between 2020 and 2024.
- Amount of Partition: The PBGC would assume liabilities in an amount needed to restore the plan to solvency and project a funded percentage of 80% within 30 years. The amount of assistance would be adjusted every 5 years.
- Conditions: The PBGC would have authority to issue regulations imposing conditions on partitioned plans, however, PBGC would be prohibited from requiring benefit reductions and interfering with plan governance or funding.
- Funding Relief. The bill provides funding relief similar to the relief provided by WRERA 2008 and PRA 2010 for plans that do not meet the eligibility criteria for a partition.
- Zone Status Delay: Plans could elect to retain their zone status for plan years beginning March 1, 2019 through February 29, 2020 for the 2 succeeding plan years beginning March 1, 2020 through February 28, 2022.
- FIP/RP Extensions: Plans in endangered or critical status in 2020 or 2021 (after application of the zone status delay) could elect to extend their funding improvement period or rehabilitation period by 5 years.
- Asset Smoothing: Plans could elect to smooth investment losses incurred in the 2-year period from March 1, 2020 through February 28, 2022 over 10 years rather than 5 in the actuarial value of assets.
- Credit Balance: Plans could elect to amortize investment losses incurred in the 2-year period from March 1, 2020 through February 28, 2022 over 29 years rather than 15 for purposes of the Funding Standard Account (FSA) credit balance.
- Restrictions on Benefit Improvements: Plans that optionally elect any combination of asset smoothing or credit balance relief would be restricted from making benefit improvements for 2 years following the asset method change or establishment of an extended FSA base.
- PBGC Guarantee Increase. The bill would increase the PBGC’s maximum guaranteed annual benefit for a career employee with 30 years of service from $12,870 to $24,300. The increased guarantee would apply to all plans that became insolvent on or after December 16, 2014.
- Current Benefit Guarantee: 100% of the monthly accrual rate up to $11.00 plus 75% of the next $33.00 of monthly accrual rate multiplied by years of service.
- Proposed Benefit Guarantee: 100% of the monthly accrual rate up to $15.00 plus 75% of the next $70.00 of monthly accrual rate multiplied by years of service.
- Repeal of MPRA Benefit Suspensions. Benefit suspensions under MPRA would be unavailable to critical and declining plans going forward. As noted above, plans that previously suspended benefits could apply for a special partition. Such plans would be required to reinstate any benefits that were suspended, and repay previously suspended benefits either in a lump sum or in equal installments over 5 years.
- Composite Plans. The bill would give plans the option of adopting composite plan designs. Composite plan designs were initially considered as a part of the “Solutions Not Bailouts” proposal leading up to MPRA 2014 and were reintroduced as a part of the “Giving Retirement Options to Workers Act” (GROW Act) in February, 2018.
- Funded Percentage Target: Composite plans are required to project a funded percentage of 120% within 15 years or they are subject to a “realignment program” as described below.
- Realignment Program: A realignment program is similar to a funding improvement plan or a rehabilitation plan, but also provides for a reduction in accrued benefits if other options to improve funding are not sufficient to achieve the funded percentage target noted above.
- PBGC Premium/Guarantee: Composite plans would not be covered by the PBGC, nor would they be required to pay PBGC premiums.
- Legacy Plan: Benefits would be frozen. Contribution requirements, PBGC guarantees/premiums, and PPA funding rules would continue to apply.
- Notable Exclusions. Perhaps as important as the above provisions that were included in the bill are the below provisions that were NOT included.
- PBGC Premium Increases: The bill does not include any changes to the amount or structure of current PBGC premiums.
- Discount Rate Limitation: The bill does not include any limitation on the actuarial discount rate used to calculation plan liabilities.
- Funding Rule Changes: There are no significant changes in the funding rules other than those noted above.
HORIZON ACTUARIAL COMMENTARY: The bill provides significant relief for multiemployer plans and goes a long way towards securing the retirement benefits for millions of hard working men and women and their families. Absent relief similar to that provided in the HEROES Act, a few large multiemployer plans would fail. The failure of these plans would cause the PBGC to become insolvent (currently projected in 2025), and would result in participants receiving pennies on the dollar of their promised benefits. The ultimate outcome would be an increased reliance on social safety nets, significant employer failures, and a potential cascade of negative effects for the multiemployer system and broader economy.
Importantly, the bill does not include any PBGC premium increases and does not limit the actuarial discount rate assumption, both of which would be counterproductive to the goal of securing worker benefits and providing meaningful retirement income to the more than 10 million participants and beneficiaries in the multiemployer system. While not everyone will agree with all provisions of the bill, it provides necessary relief at a critical juncture for all multiemployer pension plans.
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