The American Rescue Plan Act of 2021 (“ARPA”) brings welcome news to multiemployer, union-sponsored defined benefit plans that have become insolvent or are in danger of becoming insolvent. See LR’s What You Need to Know Now here, which discussed the COBRA subsidy provisions of the ARPA. A defined benefit plan is the traditional form of pension plan, in which retirees are promised a pension in a specified amount under a formula, unlike a defined contribution 401K plan, in which the benefit depends on how much money is in a retiree’s individual account and performance of the stock and bond markets. This part of the ARPA is often referred to as “Butch Lewis”, named for a retired Teamsters truck driver.

The multiemployer pension system is in crisis. Due to several factors – including the decline in unionized manufacturing, an aging workforce and employer shifts to defined contribution plans- many multiemployer plans have become insolvent or are headed for insolvency. An insolvent plan receives financial assistance from the federal Pension Benefit Guarantee Corporation (“PBGC”). In return, retirees’ pension benefits are reduced to the amount of the PBGC’s guaranteed benefit. For some retirees, this can mean a reduction in their monthly benefit of hundreds of dollars.

Of the approximately 1,200 multiemployer plans, an estimated 185 are insolvent or are projected to become insolvent within the next 10 to 20 years. These plans cover over one million workers. The ARPA creates and funds a financial assistance program under which the PBGC will make one-time grants to these severely troubled plans to fund pension benefits in full through 2051. Plans receiving a grant must restore all reduced benefits to their original level and are not required to repay the assistance.

(The PBGC’s multiemployer insurance fund is projected to become insolvent by 2026, which ARPA’s financial assistance may avert).

ARPA permits multiemployer plans to delay annual designation of their funding zone status (endangered status – yellow zone, critical or critical and declining status – red zone, or neither endangered nor critical status – green zone) and updating of their funding improvement or rehabilitation plan in a year of their choice during a specified time period. These requirements were implemented by previous pension reform laws and were intended to strengthen the financial condition of both multiemployer and single employer defined benefit plans.

A plan in endangered or critical status for a plan year beginning in 2020 or 2021 may elect to extend its funding improvement or rehabilitation period, as applicable, by five years. ARPA also made adjustments to funding standard account rules and increases PBGC premiums paid by plans.
Finally, ARPA also provided certain kinds of relief for single-employer plans.

The ARPA’s goal is to enable millions of American retirees to have financially secure and dignified retirement. We hope it succeeds.