November 22, 2019 - Segal

Senators Grassley and Alexander Release a Proposal on Multiemployer Pension Plan Reform

The Multiemployer Pension Recapitalization and Reform Plan (Reform Plan), a legislative proposal released on November 20, 2019, would revamp the laws that apply to multiemployer defined benefit pension plans — if it is enacted into law in its current form. Senator Chuck Grassley (R-IA), Chairman of the Senate Committee on Finance, and Senator Lamar Alexander (R-TN), Chairman of the Senate Committee on Health, Education, Labor and Pensions, created the Reform Plan. It was issued in two parts: a brief general summary of the major components, called a White Paper, and a lengthy and detailed description of the proposal, called the Technical Explanation.

The Reform Plan proposal comes at a crucial time for multiemployer plans, some of which are in severe financial distress, as well as for the agency set up to assist such plans, the Pension Benefit Guaranty Corporation (PBGC), which faces its own financial troubles.

Where Are We Now?

While most multiemployer plans are stable, a few troubled plans are large and projected to run out of money in the next several years at which point they will seek PBGC assistance. PBGC, however, is projected to be insolvent around the same time, severely limiting the agency’s ability to provide meaningful assistance to plans that become newly insolvent as well as those plans to which PBGC already provides financial assistance.

The Joint Select Committee on Solvency of Multiemployer Pension Plans (JSC) did not take any official action. The JSC was created by Congress as part of the Bipartisan Budget Act of 2018 to address the looming multiemployer crisis. The JSC, a bicameral and bipartisan committee, was required to provide proposed legislative fixes to stem the crisis. While a document unofficially released by some members of the JSC hinted at potential fixes, the JCS’s deadline came and went without any official action. As required, the JSC disbanded on December 31, 2018. Members of the JSC and others have vowed to continue working toward a legislative solution.

The Butch Lewis Act is stalled in the Senate. Although there have been a number of legislative proposals regarding multiemployer plans, the Butch Lewis Act is one that has gained some traction. The centerpiece of the bill is federal loans to failing plans, a measure generally disfavored by Republicans. The bill passed the House in July but has stalled in the Senate.

Where Are We Headed?

The Reform Plan reflects similar reform principles to those articulated in the JSC document intended to provide relief to struggling multiemployer plans as well as to PBGC. The Reform Plan also includes measures aimed at avoiding any future crisis.

Is the Reform Plan Final?

No. It is our understanding that the Reform Plan, which is largely a Republican proposal, is a starting point for further negotiations.

The Reform Plan provides significant relief for plans that are heading toward insolvency by way of partitions, increased PBGC guarantees and funding to keep PBGC solvent and able to pay guaranteed benefits.

The tradeoff, however, is more onerous rules for all other multiemployer plans. It is likely the rules will be opposed by the Democrats, multiemployer stakeholders and others, will be subject to continued negotiations and may be dropped or substantially altered. Note also that, because some of the details provided in the Reform Plan are contradictory, we expect further clarification.

What’s in The Reform Plan?

As of now, the Reform Plan includes the following provisions described below (simplified here) that apply to multiemployer plans.

Special Partition Program:

• Creates a special partition program administered by PBGC to enable severely distressed plans to remain solvent (benefit suspension not required);
• Provides for a significant increase in PBGC premiums paid by plans, with an $80 flat rate plus 1% variable rate subject to a cap of $250;
• Creates new stakeholder “co-payments” paid by participating unions and employers (for all actives);
• Requires certain retirees to pay fees, ranging from 3% to10% depending on zone status;
• Modifies the definition of “insurable event” to include plans within five years of insolvency;
• Increases PBGC’s guarantee (100% of the first $56); and
• Appears to provide for transfer of federal resources to PBGC.

Funding requirements, withdrawal liability and other requirements:

• Reforms minimum funding standards, including imposing a 6% cap on the actuarial interest rate assumption used to value plan liabilities;
• Updates zone-status rules and requirements, including adding a “super green” unrestricted status;
• Overhauls withdrawal liability rules; and
• Creates incentives for plans to merge with other multiemployer plans.

Plan governance and disclosures:

• Imposes new restrictions on multiemployer plan governance and provides PBGC broader authority to monitor plans and take certain actions; and
• Updates notice requirements for plans, including the annual funding notice and notice of zone status.

Multiemployer Pension Reform Act of 2014:

• Changes voting procedures so that only returned ballots are counted and participant votes are final in all cases;
• Clarifies the “no impairment rule” regarding PBGC’s ability to provide financial assistance for mergers and partitions;
• Modifies the requirements for the Treasury Department’s processing of suspension applications; and
• Creates a safe harbor reduction for purposes of equitable distribution of benefit suspensions.

Alternative plan structures:

• Permits eligible multiemployer plans to adopt a new optional hybrid plan design, called the “composite plan,” for future service.

The provisions outlined above have various proposed effective dates.

What Are The Next Steps?

Senator Grassley stated in his November 20, 2019 remarks on the Senate floor about the Reform Plan that there was room for compromise. To that end, the Reform Plan asks for comments and has provided an email address to submit them: MultiemployerReform2019@finance.senate.gov. Given the limited time remaining in 2019 for legislative action, those interested in submitting comments should consider doing so as soon as possible.

It is anticipated that negotiations over the Reform Plan’s provisions will continue through the end of the year, perhaps resulting in a bill by the end of 2019.