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Most legislation is not perfect, especially anything that goes through reconciliation, an arcane process that often sacrifices substance over form. And the multiemployer provisions in the American Rescue Plan Act (ARPA) fall in this camp. However, in this case, something is better than nothing, and nothing was where we were headed.
Millions of workers rely on multiemployer pension plans for their retirement security, but because of a confluence of events, over one million retirees in some of these plans are in danger of losing benefits because their plans are on the brink of insolvency. In addition, because many employers contribute to more than one multiemployer pension plan because of the makeup of their workforce, if one plan becomes insolvent, it may trigger additional payments from an employer that could negatively impact that employer’s ability to contribute to the other plans, which, in turn, could harm the once healthy plan.
If all of this were not enough, the pension funding crisis is bigger than these plans and retirees. The crisis negatively impacts employers, active workers, and the economy. It limits an employer’s ability to grow its business and expand its workforce. Furthermore, according to its own projections, the Pension Benefit Guaranty Corporation (PBGC), the federal insurer of these plans, will become insolvent by 2025.
Without a resolution to this crisis, billions of dollars in retirement benefits will be lost, which would not only severely harm current retirees, but also would inevitably hurt employees, employers, their communities, and the overall economy.
The Special Financial Assistance Program for Financially Troubled Multiemployer Plans (Program) which was part of the ARPA is a good first step in solving this problem. The Program provides for a one-time lump sum payment to eligible plans in the “amount required for the plan to pay all benefits due during the period beginning on the date of payment of the special financial assistance payment under this section and ending on the last day of the plan year ending in 2051….” Furthermore, the PBGC may, but is not required to, impose conditions on plans that receive assistance relating to, among other items, reduction in employer contribution rates, diversion of contributions to, and allocation of expenses to, other benefit plans, and withdrawal liability.
The law requires PBGC to develop regulations and/or guidance related to the application process within 120 days of enactment. A lot rides on this because ultimately, this will drive whether the Program works because the most imperative question is how much is the amount to pay all benefits through the 2051 plan year and does this amount include a change in employer contributions and withdrawal liability that reflects receipt of the special assistance? The amount needs to be enough to ensure long term solvency of the plans, but it and other guidance needs to ensure that it makes sense for employers and employees to want to be in these plans. In coming up with the answer, the PBGC must keep in mind the ultimate goal: ensuring financial security of the plans, the participants (both retirees and active employees), and the contributing employers because one does not exist without the other.
And in the coming months and year, it is important for both sides of the aisle to recognize that the Program was just the start and that to make the multiemployer system work as a whole, we need systematic reforms so that 30 years from now we are not where we were with a system on the brink of collapse that threatens to bring down the economy.