Extensive funding relief for single-employer pension plans, reforms to help troubled multiemployer plans and several other retirement-related provisions feature in a massive coronavirus relief bill (HR 6800) passed by the House on May 15. The sweeping legislation — the Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act — represents an opening bid by the House Democratic leadership in what will likely be lengthy and contentious negotiations with Senate Republicans and the White House to craft a final measure. While the outlook is uncertain, a compromise could include the House bill’s retirement proposals.
Funding relief for single-employer plans
The House bill looks to build on the stopgap 2020 pension contribution relief provided by the Coronavirus Aid, Relief and Economic Security (CARES) Act (Pub. L. No. 116-136). In particular, the HEROES Act contains two key forms of longer-term funding relief backed by Mercer and the pension community:
- Permanent lengthening of the amortization period for funding shortfalls. Under the bill, all shortfalls would be amortized over 15 years rather than seven years, effective with the first plan year starting in 2020. In the first year, all existing bases would be reset to zero, and a single 15-year base would be created.
- Continued interest rate relief beyond 2020. To extend and enhance interest rate relief, the bill would narrow the current 10% interest rate stabilization corridor to 5%, effective in 2020, and would push back the initial phaseout of the corridor from 2021 until 2026. The corridor then would widen by 5 percentage points each year until it reaches 30% in 2030, where it would stay. To provide protection from extreme interest rate movements, a 5% floor would apply to the 25-year interest rate averages before application of the corridor.
Help for multiemployer pension plans
The bill would grant the Pension Benefit Guaranty Corp. (PBGC) expanded authority to partition troubled multiemployer pension plans and to increase the number of plans eligible for partition, while streamlining the application process through 2024. A qualifying plan could receive enough financial assistance to stay solvent and well-funded for 30 years with no benefit cuts. The PBGC would receive additional funding for the program.
The legislation also would almost double the PBGC guarantee for multiemployer plans. The current maximum guarantee is $12,870 for participants with 30 years of service. Under the bill, the maximum guarantee would rise to $24,300, indexed for future increases in the national average wage.
In addition, the bill would repeal the benefit-suspension provisions of the Multiemployer Pension Reform Act of 2014. However, plans would gain five more years to work on their rehabilitation plans, and the 15-year period to make up funding shortfalls would be extended to 30 years.
Other retirement provisions in the bill include the following:
- The measure would clarify that employers can rely on an employee’s certification that he or she is eligible for the special CARES Act rules for taking loans from defined contribution (DC) plans. Self-certification is already permitted for the special CARES Act coronavirus-related distributions.
- The CARES Act relief for 2020 required minimum distributions (RMDs) from DC plans and IRAs would extend to 2019 distributions. In addition, individuals could roll 2019 and 2020 RMDs back into an eligible retirement plan or IRA by Dec. 1, 2020, without regard to the usual 60-day requirement.
- The pension funding relief for community newspapers under the Setting Every Community Up for Retirement Enhancement (SECURE) Act (Pub. L. No. 116-94) would expand to include additional community newspapers.
- The measure would clarify that the CARES Act’s early distribution provisions for plans during the coronavirus relief period also apply to money purchase pension plans.
- Community-based organizations could receive grants to help low-income women and domestic-violence survivors obtain qualified domestic relations orders and any retirement benefits to which they are entitled.
No help for employers eyeing DC funding relief
The legislation provides no help for DC plan sponsors considering temporarily suspending or reducing 401(k) matching contributions, although Congress could address the issue in a final bill. Lawmakers are considering awarding refundable tax credits to certain employers that maintain DC plan matching contributions.
Tough Senate negotiations ahead
The HEROES Act marks House Democratic leaders’ opening bid for negotiations with the Republican-controlled Senate and the Trump administration. Senate Republicans call the bill a nonstarter, and many want more time to see how the nearly $3 trillion in aid already enacted is working before approving a new round of relief.
Once negotiations begin, Senate Republicans will bring their own set of priorities to the table. As in the past, GOP senators will likely resist Democrats’ insistence that any pension funding relief apply to both single-employer and multiemployer plans. Nevertheless, the ongoing lobbying effort by the corporate pension community (including Mercer) that secured the HEROES Act’s pension relief could help keep those provisions in a final bill.
While the negotiations will be a relatively long and difficult process, political pressure for additional government aid will likely intensify over the coming months. A compromise package could emerge sometime this summer.
- HR 6800, the HEROES Act (House, May 15, 2020)
- Section-by-section summary of the HEROES Act (May 13, 2020)
- Description of the tax provisions of the CARES Act (Joint Committee on Taxation, April 23, 2020)
- Pub. L. No. 116-136, the CARES Act (Congress, March 27, 2020)
- Section-by-section summary of the CARES Act (Senate Health, Education, Labor & Pensions Committee, March 25, 2020)
- Division O of Pub. L. No. 116-94, the SECURE Act (Congress, Dec. 20, 2019)
Mercer Law & Policy resources
- IRS releases FAQs on CARES Act distributions and loans (May 5, 2020)
- Keeping track of COVID-19 laws affecting employee benefits, jobs (May 4, 2020)
- DOL gives retirement plans and participants pandemic relief (April 30, 2020)
- Suspending 401(k) match raises compliance issues (April 28, 2020)
- Mercer urges additional funding relief for DB plans (April 13, 2020)
- Delving into CARES Act relief for retirement plan participants (April 10, 2020)
- SECURE, CARES acts change rules on required minimum distributions (April 7, 2020)
- Stimulus bill gives DB funding relief, access to DC savings (March 26, 2020)
Other Mercer resources
- Martine Ferland’s letter to Senate leaders (Mercer, April 7, 2020)