A multiemployer pension is generally a defined benefit plan to which more than one employer is required to contribute and is maintained pursuant to a collective bargaining agreement. Many multiemployer pensions are expected to become insolvent in coming years.

In fact, because of the number of pensions facing insolvency, and the total amount of unfunded vested liabilities owed to participants and beneficiaries, the Pension Benefit Guarantee Corporation (PBGC) also faces bankruptcy. The PBGC is the federal agency that ensures payment of pension benefits.

The American Rescue Plan Act (ARPA), recently signed into law to provide additional federal relief during the COVID-19 pandemic, addresses this quandary by establishing a special financial assistance program for underfunded multiemployer pensions.

Program objective

Under the program, the PBGC will make payments to certain underfunded multiemployer pensions. Financial assistance provided to plans in danger of insolvency will help ensure they’re able to pay benefits to eligible participants and beneficiaries.

Funding for the program is to be provided through a general U.S. Treasury transfer to the PBGC in “such amounts as are necessary” to provide needed financial assistance. The ARPA doesn’t specify, or otherwise limit, the amount to be transferred to the PBGC to fund the program.

Plan qualifications

A multiemployer pension is eligible for the assistance program if the plan:

  • Is in critical and declining status in any plan year beginning in 2020 through 2022,
  • Has been approved for a suspension of benefits as of the date of enactment of the ARPA (March 11, 2021),
  • Is certified by the plan actuary, in any plan year beginning in 2020 through 2022, to be in critical status, with more inactive participants than active participants, and
  • Became insolvent after December 16, 2014, and has remained insolvent and not been terminated as of the date of the ARPA’s enactment.

Applications for special financial assistance must be submitted no later than December 31, 2025. Once an application is approved, the PBGC’s payment to the eligible multiemployer pension plan will be made as a single lump sum.

Decades of assistance

The amount of financial assistance to be provided to a plan is 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, and
  • Ending on the last day of the plan year ending in 2051.

There should generally be no reduction in a participant’s or beneficiary’s accrued benefit. Thus, eligible plans will receive enough financial assistance from the PBGC to pay out benefits for the next 30 years (that is, through 2051).

Financial assistance received by a plan (and the earnings thereon) may be used to pay plan expenses, as well as make benefit payments. Plans are required to invest amounts received in investment-grade bonds, or other investments, as permitted by the PBGC.

Multiple measures

This is but one among several measures that the ARPA takes to help multiemployer pensions.