Three Key Takeaways: What ARPA Means for Green Zone Pension Plans

It was big news back in March when the American Rescue Plan Act of 2021 (ARPA) was enacted to provide grants, called “special financial assistance,” to boost the solvency of eligible critical and declining status or insolvent plans under the Pension Benefit Guaranty Corporation (PBGC), in coordination with the Treasury Department.

The International Foundation presented a webcast, Impact of the American Rescue Plan Act on Multiemployer Pension Plans, recorded March 23, 2021. Speakers Joseph F. Hicks Jr., senior vice president at CBIZ Retirement Plan Services in Philadelphia and Allison A. Madan, principal at Slevin & Hart, P.C. in Washington, D.C., dug into the details of how ARPA provisions will impact Taft-Hartley multiemployer pension plans facing near-term insolvency.

Three Key Takeaways: What ARPA Means for Green Zone Pension Plans

First, Hicks and Madan emphasized that everyone is waiting for more guidance on this assistance. By early July—a deadline set by the law—PBGC is expected to detail the requirements for the special financial assistance application and, upon approval of an application, to specify effective dates for transfer of the grants to the plans.

Stakeholders are hoping for additional guidance to be released at the same time because a plan applicant would want to know the full conditions on receiving special financial assistance. Hicks and Madan mentioned other ambiguous areas of ARPA such as “priority consideration,” what the “amount required for the plan to pay all benefits due” through 2051 means and withdrawal liability, just to name a few provisions.

In addition to discussing how ARPA will affect struggling plans, during the Q&A session, Hicks and Madan addressed how the law impacts so-called green zone pension plans—those that have a funded percentage of at least 80%.

Here are three key takeaways for plans in the green zone.

1. PBGC Multiemployer Insurance Program premiums will increase to $52 per participant after December 31, 2030 (up from $31 in 2021).

Washington Legislative Update

In February 2021, pre-ARPA, the Congressional Budget Office (CBO) released a cost estimate on the ARPA legislation. They explained that the Pension Benefit Guaranty Corporation (PBGC) guarantees the payment of benefits for about ten million participants in multiemployer pension plans by providing financial assistance to plans that become insolvent. As a condition of receiving assistance, those plans must reduce participants’ benefits to a maximum guaranteed amount. Assistance for insolvent plans is paid from PBGC’s multiemployer revolving fund, which is supported by premiums that the plans pay and by interest credited on the fund’s balance.

CBO had projected that the revolving fund would be exhausted in 2027. However, ARPA legislated an increase in premium rates for multiemployer pensions. Under pre-ARPA law, the rate is $31 per participant for plan year 2021 and is to grow with average economywide wages in future years; CBO projected the rate would be $44 for plan year 2031. Under ARPA, the rates would be $52 for plan year 2031 and would grow with wages thereafter.

2. PBGC Multiemployer Insurance Program will be solvent for longer. CBO estimated that ARPA would push PBGC insolvency from 2027 to the mid-2040s.

CBO had projected the multiemployer revolving fund would be exhausted in 2027 and would not cover the costs of paying benefits to retirees. Because the new grants would allow plans to remain solvent for longer, fewer plans would draw from the revolving fund, reducing spending on assistance by $2 billion from 2021-2030. As a result, CBO expects the multiemployer revolving fund would remain solvent until the mid-2040s.

Hicks explained that helping struggling plans avoid insolvency “is going to help the system as a whole.” This has the potential to benefit green zone plans, because it could mean that PBGC premium increases will not have to be as large in the future to keep the agency solvent.

In addition, he said, it’s possible that employers that participate in green zone plans might also participate in non-green zone plans, so the healthier those non-green zone plans are, the more stable the system could be. He cautioned that, as history shows us, a green zone plan can, for whatever reason, quickly fall into a non-green category, so all funds should continue to closely monitor their funding status.

3. Plans will have the chance to comment on agency regulations.

All multiemployer pension plan stakeholders can comment when proposed regulations are released by PBGC, expected by July 9. Notices of proposed rulemaking are published in the Federal Register with specific instructions on how to submit comments. The Foundation will alert members when the proposed guidance is released and the comment period begins.

Learn More

Watch this webcast (free for Foundation members) to learn more about:

  • The history of pension relief proposals since the Multiemployer Pension Reform Act of 2014 (MPRA) and how the provisions of ARPA compare
  • What is and is not known about how the APRA special finance assistance provisions will be implemented
  • Zone status elections and rehabilitation/funding improvement plans extensions.

[Related Reading: What the American Rescue Plan Act Means for Financially Troubled Multiemployer Pension Plans]

Jenny Lucey, CEBS

Jenny Lucey, CEBS
Manager, Reference/Research Services at the International Foundation

Annual Employee Benefits Conference

The latest from Word on Benefits:

Leave a Comment

Your email address will not be published. Required fields are marked *