House set to move pension funding relief, multiemployer reforms
Funding relief for single-employer plans
The legislation contains two key forms of single-employer funding relief backed by Mercer and the pension community: continued interest rate relief beyond 2020 and permanent lengthening of the amortization period for funding shortfalls.
To extend and enhance interest rate relief, the bill would narrow the current 10% interest rate corridor to 5%, effective retroactively to 2020, and delay the phaseout of the 5% corridor from 2021 until 2026. At that point, the corridor would increase by 5 percentage points each year until it reaches 30% in 2030, where it would stay. In addition, a 5% floor would apply to 25-year interest rate averages to provide protection from extreme interest rate movements.
The bill also calls for amortizing all funding shortfalls over 15 years, rather than seven years, and resetting all existing shortfall amortization bases to zero. This would ease the pressure on plan sponsors that have seen funding shortfalls increase in response to low interest rates and market volatility, Mercer CEO Martine Ferland said in a letter to lawmakers last year. Unlike previous bill language, employers could elect choose to reflect these changes starting in 2019 rather than in 2020.
Help for multiemployer pension plans
Any multiemployer plan could defer updating its status for a single plan year beginning between March 1, 2020, and Feb. 28, 2022. A plan in endangered or critical status making this election for a plan year wouldn’t have to update its funding improvement or rehabilitation plan or schedules until the next plan year. Plans in endangered or critical status for plan years beginning in 2020 or 2021 could also opt for five more years to work on funding improvement or rehabilitation plans, and the 15-year amortization period would increase to 30 years for investment losses and other losses attributable to the COVID-19 pandemic.
The bill strips out the special partition provisions in the HEROES Act, but maintains that act’s provision for a special fund to provide financial assistance to eligible, poorly funded multiemployer plans that apply for it. Plans could use the relief only to pay benefits and plan expenses, and the act would impose conditions on how the assistance amounts could be invested. Plans receiving assistance would have to reinstate suspended benefits and would be prohibited from applying for new benefit suspensions. The plans also would be deemed to be in critical status until the last plan year ending in 2051.
The measure also removes the HEROES Act provision that would have increased the Pension Benefit Guaranty Corp.’s guaranteed benefit for multiemployer plans. Instead, the bill provides that multiemployer plan premiums would double from $26 to $52 per participant beginning in plan years starting after Dec. 31, 2030, and would be adjusted for inflation thereafter.
Modified definition of community newspaper plans
The bill modifies the eligibility rules that apply to the special minimum funding standards for community newspaper plans enacted by the Setting Every Community Up for Retirement Enhancement (SECURE) Act (Pub. L. No. 116-94). The revised definition of community newspaper would make more plans eligible for the SECURE Act’s special relief. Sponsors could continue to elect to apply the relaxed funding rules retroactively to plan years ending after Dec. 31, 2017.
Inflation indexing freeze on qualified plan limits
To raise revenue and help offset the cost of the multiemployer plan reforms, the bill would permanently freeze certain qualified retirement plan limits at 2030 levels. The measure would eliminate all cost-of-living adjustments to:
- Internal Revenue Code Section 415 limits on overall contributions to defined contribution plans ($58,000 in 2021) and benefits payable from defined benefit (DB) plans ($230,000 annually for 2021)
- DB benefits to terminated vested participants whose benefits were limited by their highest three-year average annual compensation under Section 415
- The Section 401(a)(17) limit on the maximum amount of compensation taken into account ($290,000 for 2021)
These freezes would not apply to collectively bargained plans.
House action near, but Senate outlook murky
House Democrats are advancing the broad aid package through the Ways and Means Committee to a House vote without support from Republicans under the budget reconciliation process. This process will allow the bill to avoid a Senate filibuster and pass with a simple majority in that chamber. Reconciliation bill provisions must directly affect federal revenue and cannot lose revenue in years after a 10-year budget “window.” Help for single-employer and multiemployer plans will likely be tied together because the single-employer plan reforms raise revenue (by reducing nontaxable plan contributions), helping offset the cost of rescuing multiemployer plans.
Senate Democrats have yet to unveil their version of the bill, and whether the pension changes might survive the reconciliation process is uncertain. Also unclear is whether Senate Democrats can line up all 50 of their members behind a bill and give Vice President Kamala Harris the chance to cast a tie-breaking vote. Still, most Democrats strongly support the changes and are intent on sending relief legislation to the White House by March 14, when emergency federal unemployment benefits expire.
Related resources
Non-Mercer resources
- Description of budget reconciliation legislative recommendations relating to pensions (Feb. 8, 2021)
- Butch Lewis Emergency Pension Plan Relief Act of 2021 (House Ways and Means Committee, Feb. 7, 2021)
Mercer Law & Policy resources
- Democrats revive pension funding relief (Jan. 25, 2021)
- SECURE Act helps struggling community newspaper DB plans (May 26, 2020)
- Pension funding relief features in House-passed aid bill (May 18, 2020)
- Mercer urges additional funding relief for DB plans (April 13, 2020)