Under the American Rescue Plan Act of 2021 (ARPA), certain financially troubled multiemployer pension plans are eligible for financial assistance from the Pension Benefit Guaranty Corporation (PBGC), which estimates that approximately 11 percent of multiemployer pension plans in the U.S. are in critical condition.
Plan sponsors that qualify for PBGC assistance may apply for a one-time lump sum payment to cover all benefits due through 2051 without any reduction in earned benefits for participants if the plan meets one of the following requirements:
- Is certified as being in critical and declining status for any plan year beginning in 2020, 2021, or 2022;
- Has been approved for a suspension of benefits under the Multiemployer Pension Reform Act (MPRA);
- Is certified as being in critical status for any plan year starting in 2020 through 2022, has a modified funding percentage less than 40%, and a ratio of active to inactive participants of less than 2 to 3; or
- Became insolvent after December 16, 2014, and has not been terminated as of March 11, 2021 (ARPA’s date of enactment).
Plan sponsors are not required to repay the funds received from the PBGC. Plans that had previously reduced benefits are required to restore those benefits to the affected participants and are not eligible to apply for a new suspension of plan benefits.
Plans that receive financial assistance must segregate those funds from other plan assets and invest them in investment-grade bonds. Plan sponsors that qualify have until the end of 2025 to file for this special financial assistance.
The ARPA also includes provisions that increase the PBGC multiemployer plans premium to $52 per participant beginning in 2031 and thereafter indexed for inflation. It is estimated that special financial assistance for troubled multiemployer plans will top $94 billion.
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